Sunday, July 19, 2015
"three-year law school program explicitly designed to train law students to be social entrepreneurs" http://t.co/tyo5S1rMKL— Stefan Padfield (@ProfPadfield) July 14, 2015
"a number of bills this week that would revise the securities laws to better accommodate small businesses." http://t.co/VyOENCyt95— Stefan Padfield (@ProfPadfield) July 14, 2015
"surprising that we continue to bestow corporate privileges...long after they’ve ceased to perform public functions" http://t.co/9LAtfIURoX— Stefan Padfield (@ProfPadfield) July 15, 2015
Saturday, July 18, 2015
A few days ago, Vice Chancellor Laster issued an interesting opinion in In re Appraisal of Dell. He held that Delaware’s “continuous holder” requirement for appraisal litigation applies at the record holder level – that is, the level of DTC. Because in this case, due to a technical error, DTC transferred the ownership of the shares to the beneficial owners’ brokers’ names – the street names – the beneficial owners could not maintain their appraisal petition.
[More under the jump]
Friday, July 17, 2015
Earlier this week, I listened to The Aspen Institute's Does Maximizing Shareholder Value Endanger America’s Great Companies, featuring Lynn Stout (Cornell Law), Tom Donaldson (Penn-Wharton), Howard Schultz (Starbucks), and Shelly Lazarus (director of Merck & GE).
The panel discussion is over a year old, but still relevant. Among other things, I found the exchange between a Georgetown professor in the audience and Howard Schultz of Starbucks to be interesting (starting at 46 minutes).
Georgetown Professor: [Asks a roughly 2-minute long question about creating and choosing appropriate metrics for measuring social responsibility.]
Howard Schultz: "I certainly understand that you are a professor and you want a metric, but this is not the real world. We don't sit in a room and measure metrics. Let me tell you a very brief story...[tells a story about Starbucks' company meeting of parents of employees in China]...you can't put a metric on that; there is no metric....it is a narrative..."
Personally, I think Schultz was a bit too quick to dismiss the need for social metrics, and, in practice, I am sure Starbucks has some social metrics that it uses. Without any social metrics, however, even the best intentioned management can deceive itself and the stakeholders. That said, Schultz's basic point is a fair one. Social responsibility is notoriously difficult to measure, and stories are likely needed to give a full sense of the impact. Also, carefully measuring and disclosing social impact can be costly. Using social metrics may even be counter-productive, if the measuring takes focus off of high-impact practices that are more difficult to measure, and moves the focus to other, lower-impact (but easily quantifiable) practices.
One of my summer projects centers around benefit corporation reporting, so I am thinking about social reporting a good bit and welcome any thoughts. Currently, while I fully recognize the limitations and dangers of social metrics, I don't think abandoning metrics altogether is wise due to the possibility of self-deceit and stakeholder-deceit.
In short, with social responsibility, I don't think it is metrics or narrative; I think it is metrics and narrative. Deciding the balance, and the appropriate metrics, however, is quite difficult.
Thursday, July 16, 2015
Love him or hate him, you can’t deny that President Obama has had an impact on this country. Tomorrow, I will be a panelist on the local public affairs show for the PBS affiliate to talk about the President’s accomplishments and/or failings. The producer asked the panelists to consider this article as a jumping off point. One of the panelists worked for the Obama campaign and another worked for Jeb Bush. Both are practicing lawyers. The other panelist is an educator and sustainability expert. And then there’s me.
I’ve been struggling all week with how to articulate my views because there’s a lot to discuss about this “lame duck” president. Full disclosure—I went to law school with Barack Obama. I was class of ’92 and he was class of ’91 but we weren’t close friends. I was too busy doing sit-ins outside of the dean’s house as a radical protester railing against the lack of women and minority faculty members. Barack Obama did his part for the movement to support departing Professor Derrick Bell by speaking (at minute 6:31) at one of the protests. I remember thinking then and during other times when Barack spoke publicly that he would run for higher office. At the time a black man being elected to the president of the Harvard Law Review actually made national news. I, like many students of all races, really respected that accomplishment particularly in light of the significant racial tensions on campus during our tenure.
During my stint in corporate America, I was responsible for our company’s political action committee. I still get more literature from Republican candidates than from any other due to my attendance at so many fundraisers. I met with members of Congress and the SEC on more than one occasion to discuss how a given piece of legislation could affect my company and our thousands of business customers. My background gives me what I hope will be a more balanced set of talking points than some of the other panelists. In addition to my thoughts about civil rights, gay marriage, gun control, immigration reform, Guantanamo, etc., I will be thinking of the following business-related points for tomorrow’s show:
1) Was the trade deal good or bad for American workers, businesses and/or those in the affected countries? A number of people have had concerns about human rights and IP issues that weren’t widely discussed in the popular press.
2) Dodd-Frank turns five next week. What did it accomplish? Did it go too far in some ways and not far enough in others? Lawmakers announced today that they are working on some fixes. Meanwhile, much of the bill hasn’t even been implemented yet. Will we face another financial crisis before the ink is dried on the final piece of implementing legislation? Should more people have gone to jail as a result of the last two financial crises?
3) Did the President waste his political capital by starting off with health care reform instead of focusing on jobs and infrastructure?
4) Did the President’s early rhetoric against the business community make it more difficult for him to get things done?
5) How will the changes in minimum wage for federal contractors and the proposed changes to the white collar exemptions under the FLSA affect job growth? Will relief in income inequality mean more consumers for the housing, auto and consumer goods markets? Or has too little been done?
6) Has the President done enough or too much as it relates to climate change? The business groups and environmentalists have very differing views on scope and constitutionality.
7) What will the lifting of sanctions on Cuba and Iran mean for business? Both countries were sworn mortal enemies and may now become trading partners unless Congress stands in the way.
8) Do we have the right people looking after the financial system? Is there too much regulatory capture? Has the President tried to change it or has he perpetuated the status quo?
9) What kind of Supreme Court nominee will he pick if he has the chance? The Roberts court has been helpful to him thus far. If he gets a pick it could affect business cases for a generation.
10) Although many complain that he has overused his executive order authority, is there more that he should do?
I don’t know if I will have answers to these questions by tomorrow but I certainly have a lot to think about before I go on air. If you have any thoughts before 8:30 am, please post below or feel free to email me privately at email@example.com.
July 16, 2015 in Constitutional Law, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Financial Markets, International Business, Marcia Narine, Securities Regulation, Television, White Collar Crime | Permalink | Comments (0)
Wednesday, July 15, 2015
I read with interest the recently released opinion of the U.S. Court of Appeals for the Third Circuit in Trinity Wall Street v. Walmart Stores, Inc. The Wall Street Journal covered the publication of the opinion earlier in the month, and co-blogger Ann Lipton wrote a comprehensive post sharing her analysis on the substance of the decision over the weekend. (I commented, and Ann responded.) Of course, like Ann, as a securities lawyer, I was interested in the court's long-form statement of its holding and reasoning in the case. But I admit that what pleased me most about the opinion was its use of legal scholarship written by my securities regulation scholar colleagues.
Tom Hazen's Treatise on the Law of Securities Regulation is cited frequently for general principles. This is, as many of you likely already know, an amazing securities regulation resource. I also will note that many of my students find Tom's hornbook helpful when they are having trouble grappling with securities regulation concepts covered in the assigned readings in my class.
Donna Nagy's excellent article on no-action letters (Judicial Reliance on Regulatory Interpretation in S.E.C. No-Action Letters: Current Problems and a Proposed Framework, 83 Cornell L. Rev. 921 (1998)) also is cited by the court. This piece is not praised enough, imho, for the work it does in the administrative process area of securities law. I see the citations in the opinion as an element of needed praise.
And finally, Alan Palmiter's scholarship also is cited numerous times in the opinion. Specifically, the court quotes from and otherwise cites to The Shareholder Proposal Rule: A Failed Experiment in Merit Regulation, 45 Ala. L. Rev. 879 (1994). Again, this work represents an important, under-appreciated scholarly resource in securities law.
At least one other law review article is cited once in the opinion.
[Note: Alison Frankel also points out that Vice Chancellor Laster cites formatively to a paper co-authored by Jill Fisch, Sean Griffith, and Steve Davidoff Solomon in a recent opinion. More evidence that our work matters, at least to the judiciary.]
As Ann's post notes, the Trinity opinion also is worth reading for its substance. In addition to the matters Ann mentions, the opinion includes, for example, a lengthy, yet helpful, history of the ordinary business exclusion under Rule 14a-8. And the analysis is instructive, even if unavailing (unclear in its moorings and effect in individual cases).
Finally, it's worth noting that the opinion is drafted with a healthy, yet (imv) professional, dose of humor. The opinion begins, for example, as follows:
“[T]he secret of successful retailing is to give your customers what they want.” Sam Walton, SAM WALTON: MADE IN AMERICA 173 (1993). This case involves one shareholder’s attempt to affect how Wal-Mart goes about doing that.
And the conclusion of the opinion includes the following passage that made me smile:
Although a core business of courts is to interpret statutes and rules, our job is made difficult where agencies, after notice and comment, have hard-to-define exclusions to their rules and exceptions to those exclusions. For those who labor with the ordinary business exclusion and a social-policy exception that requires not only significance but “transcendence,” we empathize.
(This is part of the "scolding" Ann references in her post.)
Read the concurring opinion of Judge Shwartz, too. It is thoughtful (even if not entirely helpful, as Ann notes) in making some nice additional points worth considering.
Scott Killingsworth, a corporate attorney at Bryan Cave who specializes in compliance and technology matters and is a prolific writer (especially for one who still has billable hour constraints!) recently wrote a short and thought-provoking article: How Framing Shapes Our Conduct. The article focuses the link between framing business issues and our ethical choices and motivations noting the harm in thinking of hard choices as merely "business" decisions, viewing governing rules and regulations as a "game" or viewing business as "war." Consider these poignant excerpts:
We know, for example, that merely framing an issue as a “business matter” can invoke narrow rules of decision that shove non-business considerations, including ethical concerns, out of the picture. Tragic examples of this 'strictly business' framing include Ford’s cost/benefit-driven decision to pay damages rather than recall explosion-prone Pintos, and the ill-fated launch of space shuttle Challenger after engineers’ safety objections were overruled with a simple 'We have to make a management decision.' (emphasis added)
Framing business as a game belittles the legitimacy of the rules, the gravity of the stakes, and the effect of violations on the lives of others. By minimizing these factors, the game metaphor takes the myopic “strictly business” framing a step further, into a domain of bendable rules, acceptable transgressions, and limited accountability. (emphasis added)
The war metaphor conditions our thinking in a way distinct from the game frame, but complementary to it. War is a matter of survival: the stakes are enormous, the mission urgent, and all’s fair. Exigent pressures grant us wide moral license, releasing us from adherence to everyday rules and justifying extreme tactics in pursuit of a higher goal; we must, after all, kill or be killed. If business is war, survival is at stake, and competitors, customers, suppliers, rivals or authorities are our enemies, then not only may we do whatever it takes to win, it’s our duty to do so. (emphasis added)
The full article is available here.
In light of the new ABA regulations on Learning Outcomes and Assessment, including the requirement that students have competency in exercising "proper professional and ethical responsibilities to clients and the legal system" this article seems like a great addition to a business organizations/corporations course line up. I know that I will be including it in my corporate governance seminar this coming year. And if I were responsible for new associate training, this would definitely merit inclusion in the materials.
Tuesday, July 14, 2015
A while back, I wrote about CVS's choice to eliminate tobacco products from its stores. I noted that it seemed clear to me that CVS could make that choice, even thought it would mean lower short-term profits, because it was a decision that is clearly protected (or should be) by the business judgment rule.
Today, according to an LA Times piece,
[CVS] stood up for its principles.
The pharmacy giant announced it was quitting the U.S. Chamber of Commerce after reports that the influential business organization was lobbying against anti-smoking laws around the world.
CVS bolted because of the Chamber's views on tobacco sales. In 2009, Apple and Nike made waves with the Chamber of its policy position on climate change. I find this interesting, and I have no reason to doubt that all of these companies are following their corporate values, though I also think they see public relations value in the noisy withdrawal.
That some big companies have stepped away from the Chamber is less surprising to me than the fact that the Chamber has maintained such strength with small business owners, while advocating for many big business positions that don't help, and may hurt, small businesses. I can't help but wonder if the Chamber's success it not so much in promoting policies that benefit of member businesses, and instead that it promotes policies that are consistent with the ideologies of many who work for or own businesses.
If the latter is the case, as I suspect it is, that's a good business model for the Chamber, but not necessarily for the entities it represents. Of course, if business owners, officers, and directors remain aligned with the Chamber, despite a lack of clear benefit to the entity, well, that too is protected by the business judgment rule.
CALL FOR PAPERS: A Workshop on Vulnerability at the Intersection of the Changing Firm and the Changing Family (October 16-17, 2015 in Atlanta, GA)
UPDATE: The deadline for submissions has been extended to July 21.
[The following is a copy of the official workshop announcement. I have moved the "Guiding Questions" to the top to highlight the business law aspects. Registration and submission details can be found after the break.]
A Vulnerability and the Human Condition Initiative Workshop at Emory Law
This workshop will use vulnerability theory to explore the implications of the changing structure of employment and business organizations in the new information age. In considering these changes, we ask:
• What kind of legal subject is the business organization?
• Are there relevant distinctions among business and corporate forms in regard to understanding both vulnerability and resilience?
• What, if any, should be the role of international and transnational organizations in a neoliberal era? What is their role in building both human and institutional resilience?
• Is corporate philanthropy an adequate response to the retraction of state regulation? What forms of resilience should be regulated and which should be left to the 'free market'?
• How might a conception of the vulnerable subject help our analysis of the changing nature of the firm? What relationships does it bring into relief?
• How have discussions about market vulnerability shifted over time?
• What forms of resilience are available for institutions to respond to new economic realities?
• How are business organizations vulnerable? How does this differ from the family?
• How does the changing structure of employment and business organization affect possibilities for transformation and reform of the family?
• What role should the responsive state take in directing shifting flows of capital and care?
• How does the changing relationship between employment and the family, and particularly the disappearance of the "sole breadwinner," affect our understanding of the family and its role in caretaking and dependency?
• How does the Supreme Court's willingness to assign rights to corporate persons (Citizen's United, Hobby Lobby), affect workers, customers and communities? The relationship between public and private arenas?
• Will Airbnb and Uber be the new model for the employment relationships of the future?
July 14, 2015 in Business Associations, Call for Papers, Constitutional Law, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Ethics, Financial Markets, Law and Economics, Social Enterprise, Stefan J. Padfield | Permalink | Comments (0)
Monday, July 13, 2015
Hi, my name is Steve, and I'm an academic.
I'm paid to express my opinions. The more I publish, the greater the rewards: tenure, promotion, raises, summer research grants, chaired professorships, conference invitations.
My situation isn't unique. The reward structure is the same at most law schools and in the rest of higher education. The more you write, the more you get.
I once asked a dean (who shall remain nameless) what would happen if a faculty member received a summer research grant and the research didn't pan out, didn't produce anything worth publishing. The dean said that never happens because you can find an outlet to publish almost anything.
But do we really need all that "scholarship"? Would the world be any worse if I and other academics spent more time thinking and crafting a few high-quality articles that really added to the discussion, instead of trying to keep up the stream of constant publication? Would law and legal education suffer if we cut the number of law review articles in half?
Incentives are part of the problem. I have been in law teaching for 29 years, and my sense is that the pressure to publish is increasing. Quantity is surpassing quality as the prime criterion. When I entered legal education, two good articles was probably sufficient for tenure. Now, many untenured professors tell me they feel pressured to produce at least one article every year.
Another part of the problem is us. Sometimes, you don't have anything worthwhile to say. Sometimes, you realize you don't have anything worthwhile to say. Unfortunately, academics have big egos and, for many of us, the latter set is much smaller than the former, as illustrated by this Venn diagram.
And maybe part of the problem is generational. (WARNING: OLD FART ABOUT TO RANT ABOUT THE YOUNGSTERS) In a world where everything immediately goes to Facebook or Twitter, constant publication of low-quality material has become the norm. But, in defense of younger academics, the problem may be getting worse, but it's not new.
For whatever reason, we're overindulging in scholarship. Perhaps we need an Academics Anonymous, with a sponsor to call every time we're about to add more fodder to law reviews. "Hi, my name is Steve, and I'm an academic."
Sunday, July 12, 2015
"Modern Money Theory - Part 1" http://t.co/EmkaLMfD0c— Stefan Padfield (@ProfPadfield) July 9, 2015
Regulation A Tier 2 offerings: "states retain the authority to require the filing of offering materials" http://t.co/bruSDfqk6N— Stefan Padfield (@ProfPadfield) July 9, 2015
"Contrary to theoclassical ideology, both cartels [LIBOR & FX] persisted...many years & were ended only by...gov't" http://t.co/kGmW3LUHFZ— Stefan Padfield (@ProfPadfield) July 10, 2015
Saturday, July 11, 2015
I noted with favor the other day (to myself, privately) the helpful and interesting commentary on The Glom of our trusted colleague and co-blogger, Usha Rodrigues, regarding the recent press reports on Mylan N.V.'s related-party disclosures. As the story goes, a firm managed and owned in part by the Vice Chair of Mylan's board of directors sold some land to an entity owned by one of the Vice Chair's business associates for $1, and that entity turned around the same day and sold the property to Mylan for its new headquarters for $2.9 million. Usha's post focuses on both the mandatory disclosure rules for related-party transactions and the mandatory disclosure rules on codes of ethics. Two great areas for exploration.
A reporter from the Pittsburgh Tribune-Review called me Thursday to talk about the Mylan matter and some related disclosure issues. He and I spoke at some length yesterday. That press contact resulted in this story, published online late last night. The reporter was, as the story indicates, interested in prior related-party disclosures made by Mylan involving transactions with family members of directors. This led to a more wide-ranging discussion about the status of family members for various different securities regulation purposes. It is from this discussion that my quote in the article is drawn. But our conversation covered many other interesting, related issues.
This week, the Third Circuit issued is long-awaited decision in Trinity Wall Street v. Wal-Mart Stores, Inc. (.pdf), detailing its reasons for its earlier holding that Trinity Wall Street’s shareholder proposal addressing gun sales was excludable from Wal-Mart’s proxy statement. The decision is interesting in several respects, not the least of which is an apparent split among the panelists regarding the shareholder wealth maximization norm.
[More under the jump]
Friday, July 10, 2015
Like last year, I am going to compile postings of legal studies professor positions in business schools.
For this list, I am only including full-time positions (tenure-track, clinical, visiting, or full-time instructor positions) that start in the fall of 2016. Feel free to send me any relevant positions to post. I will update the list from time to time. [Updated 7/11/15]
I’ve always been eager to do pro bono work. I went to law school with the intent of helping the indigent upon graduation, but then with a six-figure debt load, I went to BigLaw in New York and Miami, and then corporate America so that I could pay that debt off. But even as an associate and as in house counsel, I dutifully accepted pro bono cases. As a relatively new academic, I paid my way out of pro bono for the first couple of years as Florida allows and assuaged my guilt with the knowledge that my payments were going to fund the local legal aid office.
This year, as a condition of attending a family law CLE for free, I volunteered to take a case. I’ve devoted over 70 hours to it thus far, and we still aren’t finished even after today’s marathon 6.5 hour hearing dealing with a motion for contempt and enforcement, modification of alimony and child support, a QDRO (qualified domestic relations order), and a house in foreclosure. The case was complicated even according to my seasoned family law practitioner friends.
As a former litigator and current BA professor, I found that my skills helped to make up for my lack of family law expertise. The techniques for cross examining witnesses, preparing for hearing, and introducing exhibits came flooding back. From a BA perspective, knowing to ask questions about the structure of the petitioner’s LLC, inquiring about charging orders, and dissecting the financial statements and corporate tax returns put me in a much better position to protect my client’s interests. I always tell my students on the first day of BA that they never know where they will end up as practitioners, and that in today’s market many of them will be in small firms taking on a number of kind of clients. I try to make them understand how BA can help them in practice areas that don’t seem directly related to business. Now, thanks to this pro bono case I can back that up with proof from my own experience.
Wednesday, July 8, 2015
Last September, I authored a post here on the BLPB on judicial opinions and related statutes regarding LLCs as non-signatories to LLC operating agreements (simply termed "LLC agreements" in Delaware and a number of other states). I recently posted a draft of an essay to SSRN that includes commentary on that same issue as part of a preliminary exploration of the law on LLC operating agreements as contracts. (Readers may recall that I mentioned this work in a post last month on the Law and Society Association conference.) I am seeking comments on this draft, which is under editorial review at the SMU Law Review as part of a symposium issue of essays in honor of our departed business law colleague, Alan R. Bromberg, who had been an SMU Dedman School of Law faculty member for many years before his death in March 2014. My SSRN abstract for the essay, entitled "The Ties That Bind: LLC Operating Agreements as Binding Commitments," reads as follows:
This essay, written in honor and memory of Professor Alan R. Bromberg as part of a symposium issue of the Southern Methodist University Law Review, is designed to provide preliminary answers to two questions. First: is a limited liability company (“LLC”) operating agreement (now known under Delaware law and in certain other circles as a limited liability company agreement) a contract? And second: should we care either way? These questions arise out of, among other things, a recent bankruptcy court case, In re Denman, 513 B.R. 720, 725 (Bankr. W.D. Tenn. 2014).
The bottom line? An operating agreement may or may not be a common law contract. But that legal categorization may not matter for purposes of simple legal conclusions regarding the force and effect of operating agreements. A state’s LLC law may provide that LLCs are contracts or are to be treated as contracts in general or for specific purposes and may establish the circumstances in which operating agreements are valid, binding, and enforceable. However, in the absence of an applicable statute, the legal conclusion that an operating agreement is or is not a common law contract may matter in legal contexts that depend on the common law of contracts for their rules. In either case, the bar may want to participate in clarifying the status of operating agreements as binding commitments.
Any and all comments on the essay are welcomed. Comments that decrease the length of the essay are especially appreciated, since I am admittedly over the allotted word limit. (These essays are meant to be very short pieces so that many of us can contribute to honoring Alan.) Of course, there's always time to write another, lengthier piece on this topic later, if there's enough more to be said . . . .
Also, I will note that the Association of American Law Schools Section on Agency, Partnership, LLC's and Unincorporated Associations is planning a program on the role of contract in LLCs at the 2016 annual meeting in January. I have been asked to participate, and the panel promises to have some additional members that will attack the embedded issues from a number of interesting angles. Stay tuned for more on that.
For those of you who teach agency (and the related concept of independent contractors) the following recent case example will make for a fun and culturally relevant example for many of your students.
In March, 2015, the California Labor Commissioner’s Office issued an opinion finding that a driver for the ride-hailing service mobile app company, Uber, should be classified as an employee, not an independent contractor. The opinion details the control Uber exercised over the driver including setting the payment rates and terms, quality controls, service platforms, user communications, liability insurance requirements, and background checks all the while maintaining that drivers are independent contractors. Citing to S. G. Borello & Sons, Inc. v. Dep't of Indus. Relations, 48 Cal. 3d 341, 350-51, 769 P.2d 399 (1989), the Commission analyzed the following elements:
(a) whether the one performing services is engaged in a distinct occupation or business;
(b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
(c) the skill required in the particular occupation;
(d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;
(e) the length of time for which the services are to be performed;
(f) the method of payment, whether by the time or by the job;
(g) whether or not the work is a part of the regular business of the principal; and
(h) whether or not the parties believe they are creating the relationship of employer-employee.
The Commission explained its finding that Plaintiff was an employee (not an independent contractor) (Commission Opinion, Berwick v. Uber, at 8) with the following:
By obtaining the clients in need of the service and providing the workers to conduct it, Defendants retained all necessary control over the operation as a whole. The party seeking to avoid liability has the burden of proving that persons whose services he has retained are independent contractors rather than employees. In other words, there is a presumption of employment…..The modern tendency is to find employment when the work being done is an integral part of the regular business of the employers, and when the worker, relative to the employer, does not furnish an independent business or professional service.
Id. at 8.
The Commission found that “Plaintiff’s work was integral to Defendants’ business…Without drivers such as Plaintiff, Defendants’ business would not exist.” Id.
Many technology companies, like Uber, contend that their virtual marketplaces facilitate individuals acting as contractors, using their own possession to provide services for a personal profit. The argument is that this empowers workers giving them flexibility and freedom to set their own hours and success. A counter argument raised by labor activists and others is that this type of freelance work strips workers from certainty of wages and job status as well as other benefits of traditional employment such as health care, retirement and sick leave benefits. Opponents argue that what is being touted as good for individuals is just a means to minimize costs and increase corporate, not individual, profits.
[Note, I have included this, along with a host of other case updates and teaching materials, in my new Business Organizations electronic casebook, available through ChartaCourse starting fall 2015.]
Edited on 7/10/15 to add: colleague, friend and fellow blogger Haskell Murray suggested this article (How Crowd Workers Became the Ghosts in the Digital Machine) from The Nation on crowd-workers and the thought-provoking discussion on whether minimum wage laws should apply to these workers. Joan Hemminway, same credentials above, noted that the Wall Street Journal Blog is also commenting on the Uber case.
Tuesday, July 7, 2015
Note to U.K. Supreme Court: LLCs Don't Have Places of Incorporation (But You're Right on Pass-Through Taxation)
A recent unanimous decision from the Supreme Court of the United Kingdom, Anson v. Commissioners for Her Majesty’s Revenue and Customs  UKSC 44, determined that a U.S. limited liability company (LLC) formed in Delaware will be treated for U.K. tax purposes as a partnership, and not a corporation. This is a good thing, as it provides the LLC members the ability to reap more completely the benefits of the entity's choice of form.
What is not so good is that the court left unaddressed a lower court determination as follows, was quoted in para. 47:
“Delaware law governs the rights of the members of [the LLC] as the law of the place of its incorporation, and the LLC agreement is expressly made subject to that law. However, the question whether those rights mean that the income of [the LLC] is the income of the members is a question of domestic law which falls to be determined for the purposes of domestic tax law applying the requirements of domestic tax law ….” (para 71) (emphasis added)
An LLC does not have a place of incorporation! It has a place of formation. Here is the link to Delaware's Certificate of Formation, which is to be filed in accordance with the Limited Liability Company Act of the State of Delaware: https://corp.delaware.gov/llcform09.pdf. In contrast, you can find the Certificate of Incorporation, which is to be filed in accordance with the General Corporation Law of the State of Delaware, here: http://www.corp.delaware.gov/incstk.pdf.
I'm glad the high U.K. court recognized that partnership taxation status can be proper for a U.S. LLC. But, just as You Can’t Pierce the Corporate Veil of an LLC Because It Doesn't Have One, I wish they'd made clear that you can't incorporate an LLC.
Monday, July 6, 2015
I have been reading Paul Mahoney’s brilliant new book, Wasting a Crisis: Why Securities Regulation Fails (University of Chicago Press 2015). You should too.
Mahoney attacks the traditional market failure rationale for our federal securities laws. He argues that contrary to the traditional narrative, market manipulation was not rampant prior to 1933 and the securities markets were operating reasonably well. Mahoney concludes that “‘lax’ regulation was not a substantial cause of the financial problems accompanying the Great Depression and . . . most (although not all) of the subsequent regulatory changes were largely ineffective and in some cases counterproductive.”
Mahoney looks at state blue sky laws, the Securities Act, the Exchange Act, the Public Utility Holding Company Act, and, regrettably only briefly, the Investment Company Act. He concludes by discussing the Sarbanes-Oxley and Dodd-Frank Acts. He discusses the rationales for each regulation and whether those rationales are supported by the facts. Mahoney backs up his argument with a great deal of empirical research, some of which has appeared in earlier articles. Warning: Some of that discussion may be a little difficult for those without a background in regression analysis or financial economics, but you can follow Mahoney’s conclusions without understanding all of the analytical detail.
Mahoney’s work is a nice counterpoint to the narrative that prevails in most securities treatises and casebooks. Every law library should have a copy. Everyone interested in securities regulation policy, and certainly everyone who teaches a securities law course, should read this book. Whether or not you ultimately agree with Mahoney (as it happens, I generally do), his arguments must be dealt with.
Sunday, July 5, 2015
7 Tips for Start-Ups http://t.co/usVUBddfx1— VC Experts (@VCExperts) May 26, 2015
"in presenting itself as a hard science, with necessary conclusions, orthodox economics has obscured its politics" http://t.co/zAIZTquGN1— Stefan Padfield (@ProfPadfield) June 29, 2015
"11 things we learned about social enterprise in international development" http://t.co/q2BLrtuWP5— Stefan Padfield (@ProfPadfield) July 2, 2015
Saturday, July 4, 2015
Crowdfunding’s a popular topic here at BLPB, but here’s a use that hadn't occurred to me.
Apparently, a former SEC lawyer is using Kickstarter to fund an investigation into the fees that CalPERS pays for its private equity investments.
It all started when CalPERS announced that it didn’t know what it was paying in private equity fees.
This was somewhat surprising. CalPERS has the money, and is assumed to have the sophistication, to bargain for its interests and at least require firms to make the appropriate disclosures.
Nonetheless, it appeared to be in the dark about its own fee payments.
To be fair, NYC’s Comptroller recently claimed to be shocked by NYC funds' fees, and the SEC has now begun to aggressively investigate private equity fee and expense disclosure. It even recently settled a case with KKR alleging that it improperly allocated expenses to fund investors that it should have partially absorbed itself.
Still, one would have thought that CalPERS, of all funds, could protect itself.
Enter Edward A. H. Siedle, who is seeking public support for his investigation of CalPERS’s fees. Apparently, he’s done this before: he recently issued a crowd-funded report on Rhode Island’s state pension fund, concluding that the fund experienced $2 billion in “preventable losses.”
I’m not sure what the broader lesson is here, but there are certainly plenty of candidates – the versatility of crowdfunding? The dysfunctions of public pension funds generally, or CalPERS specifically? The opacity of private equity? The problems inherent in the SEC’s assumption that assets correlate with sophistication? Or maybe it’s a just a story about the decline of local reporting, because honestly, these are the kinds of stories we might once have expected to be covered by local news outlets. Does the “sharing economy” mean we have to “share” public goods like news reporting?
In any event - happy 4th of July! Have a classic depiction of patriotism in celebration: