Wednesday, May 27, 2015
As a semi-closeted (now "out," I guess) foodie* and as a lover of "things Brazilian" (including Havaianas flip-flops and Veja sneakers, as well as churrascarias and caipirinhas), I read with interest a recent electronic newsletter headline about a thriving Brazilian chef. I clicked through to the article. I loved it even more than I had thought I would.
The article tells the story of an emergent Brazilian chef and restauranteur, Rodrigo Oliveira, and his flagship establishment (Mocotó), as promised. That was great. But that was not all. The piece also told the story of a business run using a "holistic business model."
Today, Oliveira focuses on his employees as much as his customers. . . . Oliveira pays for his employees’ part-time education. And their kids’ health care. And daily jiujitsu and yoga classes in the room he built upstairs. It’s a rarely encountered, holistic business model that contributes to his restaurant’s roaring success. . . .
. . .
Beneath the street level they’re boring out new dormitories for employees, for a quick nap and shower between jiujitsu, work and class. . . .
He also seems to be attentive to the greater local community beyond his customers and employees, preferring (to date) to expand his business locally rather than into larger metropolitan areas. Good business? Yes! But it seems like more than that. This business appears to have more than one bottom line!
Perhaps this is not a remarkable story, in the end. Regardless, I wanted to share it. Another Brazilian social enterprise, Ashoka, gets a lot of attention.** But it's now clear to me that we can and should look beyond larger, storied examples of social entrepreneurship for other manifestations of social enterprise in action in Brazil.
**Actually, much to my surprise, Ashoka is a U.S. organization that networks social enterprises across the globe. So, it's not even Brazilian! Having been in Rio teaching for a few summers and known of its presence there, I assumed it was a Brazilian organization. Please forgive the error. Hat tip to co-blogger Haskell Murray for pointing it out to me.
Friday, May 15, 2015
Low pay, however, is only one of many problems facing low-wage earners.
After hearing Charlotte Alexander (Georgia State) present on this co-authored paper - Stabilizing Low-Wage Work: Legal Remedies for Unpredictable Work Hours and Income Instability – I have become convinced that unpredictable work hours is a significant issue. The article is well worth reading.
Unpredictable work hours can be problematic for many people – attorneys in BigLaw for example – but low-wage earners do not have disposable income to throw at the problem. Childcare and transportation, for example, become even more of a challenge when work hours are not stable and not set in advance. Unpredictable, inconsistent work hours also hamper economic mobility by making it difficult or impossible to take classes or get a second job.
For more on this issue, listen to MIT Operations Management Professor Zeynep Ton’s talk at the Aspen Institute. Her discussion of Mercadona, a low-cost supermarket based in Spain (discussion starts at 14:50), and QuickTrip, a convenience store with gas stations (discussion starts at 17:30) was quite interesting. Corporate social responsibility often seems dominated by high-end companies like Patagonia and Whole Foods. It is easier to be socially responsible when you are charging $700 for a jacket or 39% more on certain food items (according to one study in Boston). Mercadona, however, offers some of the lowest prices in Spain. Mercadona employees receive their schedules one month in advance and have stable schedules. Mercadona also pays almost double the minimum wage (plus a bonus). As a result, Mercadona’s turnover is an extremely low 3.4%. Likewise, QuickTrip seems to compete well on price, but also appears to take relatively good care of its employees.
Individual firms could and should address this issue of unpredictable work hours voluntarily, but the market may prove ineffective in this area and legislative action may be needed.
Friday, May 8, 2015
On May 12, 2015, I will present at a breakout session of the Center for Nonprofit Management's 8th Annual Bridge to Excellence Nonprofit Conference. My talk will focus on the legal issues facing entities with multiple bottom lines.
If interested, you can register here.
As you can tell from the conference description, this conference is designed for nonprofit and community leaders. From the conference schedule, it appears that I will be the only professor presenter. While I enjoy academic conferences, and find them useful, I also think it is important for professors to engage with practitioners. Professors should share the knowledge they have uncovered and should also listen to the current, practical concerns.
Thursday, May 7, 2015
This coming Monday, I will be presenting – virtually – at the above titled conference. My piece of the presentation will cover my recent research on benefit corporation reporting.
Further information is available here and reproduced below. Personally, I am looking forward to hearing from the many impressive speakers, including Sara Burgess, the Regulator of Community Interest Companies in the UK.
May 11, 2015
08:00 AM - 06:00 PM ET
Morgan Lewis, in conjunction with the Impact Investing Legal Working Group, invites you to join us for an exclusive all-day conference featuring panels of leading lawyers who work in the area of impact investing—in business, academia, government, multilateral development institutions, and nonprofit organizations and foundations.
Topics will include:
How are investors aggregating capital for impact investing?
What are the newest social finance innovations in impact investing?
How can we build a robust legal community of practice in impact investing?
How can we advance the development of regulatory regimes and government policies that promote impact investing?
8:00 - 8:30 AM | Registration
8:30 - 6:00 PM | Program
6:00 PM | Networking reception
CLE credit in CA (1.25 hours), FL, IL, MA, NY, NJ, PA, VA, and TX is currently pending approval.
For more information/registration
Please contact Gail Sobha Lynes at +1.617.951.8607 or email@example.com.
Friday, May 1, 2015
Almost three years ago, I helped organize a conference on social enterprise law. (The law review members, especially Rachel Bauer and Sam Moultrie, were responsible for most of the organizing and did an excellent job).
My co-bloggers Joan Heminway and Marcia Narine were among the speakers.
Also joining us was Michael Pirron of Impact Makers, one of the first certified B corporations in Virginia. While Impact Makers was a certified B corporation at the time of the conference, it was organized as a Virginia nonstock corporation; now Impact Makers is organized as a benefit corporation. Michael did an excellent job serving as a panelist and the keynote speaker.
Recently, I saw Michael back in the news. He transferred ownership of his company (valued at approximately $11.5 million) to two foundations. As Michael mentioned to me over e-mail, this was not a radical departure from his previous business model for Impact Makers. Previously, Impact Makers donated 100% of its profits to area charities, so this move just formalized their previous commitment. Impact Makers has given away approximately $1 million to date.
At the University of Connecticut social enterprise and entrepreneurship conference I attended and presented at last week, Mike Brady (Greyston Bakery) and Jeff Brown (Newman's Own) presented. Jeff called Newman's Own a "grandfather of social enterprise" Both companies started business in 1982, well before heavy use of the term "social enterprise."
Also, both Greyston Bakery and Newman's Own appear to have adopted a structure where a foundation owns the stock of their for-profit company. You can learn a bit more about the structure of Newman's Own here. Greyston Bakery's annual reports are here and you can view a video about Greyston Bakery (and their client Ben & Jerry's).
From a legal perspective, Greyston Bakery and Impact Makers are benefit corporations, under New York and Virginia law respectively (in addition to being certified B corporations.) Newman's Own, however, is a traditional c-corporation. With foundations owning 100% of the stock, the benefits of using the benefit corporation form are likely limited. There still may be some branding value and most benefit corporation statutes require consideration of a broad group of stakeholders, which might prevent the foundation from focusing on a smaller subset of stakeholders. That said, shareholders are the one expected to bring lawsuits to enforce this consideration requirement in the benefit corporation statutes, so as a practical matter, the benefit corporation and c-corporation forms may operate similarly when wholly-owned by one or more foundations.
Wednesday, April 29, 2015
OK. So, Tennessee is not Delaware. But the Tennessee legislature and Supreme Court have been busy bees this spring on business law matters. Here's the brief report.
In the last week of the legislative term, the Tennessee Senate and House adopted the For-Profit Benefit Corporation Act, about which I earlier blogged here, here, and here. Although I remain skeptical of the legislation, it looks like the governor will sign the bill. So, we will have benefit corporations in Tennessee. We'll see where things go from there . . . .
The Tennessee legislature also passed a technical corrections bill for the Tennessee Business Corporation Act. The bill was drafted by the Tennessee Bar Association's Business Entity Study Committee (on which I serve and to which I have referred in the past), a joint project of the Tennessee Bar Association's Business Law Section and Tax Law Section. The governor has already signed this bill into law.
Separately, in a bit of a stealth move (!), the Tennessee Supreme Court recently announced the establishment of a business court, an institution many other jurisdictions already have. The court is being introduced as a pilot project in Davidson County (where Nashville resides)--but only, as I understand it, to iron the kinks out before introducing the court on a permanent basis. Interestingly, the Tennessee Bar Association Business Law Section Executive Council was not informed about the new court project until its public announcement in the middle of March. Although we found that a bit odd, the "radio silence" is apparently attributable to the excitement of the Tennessee Supreme Court to get the project started effective as of May 1 and the deemed lack of need for a study on the subject before proceeding. Regardless, I think it's safe to say that the bar welcomes the introduction of a court that specializes in business law cases as a matter of principle. Again, we'll see where it goes from here.
A few reflections on all this follow.
Friday, April 24, 2015
These types of social impact funds seem to becoming more and more common. Social impact funds, however, vary greatly. Some social impact funds appear to be primarily focused on profits (while simply avoiding some "sin stocks"), others focus on serious social enterprises, and others fall somewhere in-between.
Wednesday, April 22, 2015
Last week the New York Times hosted a debate about the Public Corporation's Duty to Shareholders. Contributors include corporate law professors Stephen Bainbridge, Tamara Belinfante, Lynn Stout, David Yosifan and Jean Rogers, CEO of Sustainability Accounting Standards Board.
This collection of essays is not only more interesting than anything that I could write, but it is also the type of short, assessable debate that would be a great starting point for discussion in a seminar or corporations class.
Friday, April 17, 2015
At the end of next week, I will be at the University of Connecticut School of Business and the Thomas J. Dodd Research Center for their Social Enterprise and Entrepreneurship Conference.
Further information about the conference is available here, a portion of which is reproduced below:
In October 2014, Connecticut joined a growing number of states that empower for-profit corporations to expand their core missions to expressly include human rights, environmental sustainability, and other social objectives. As a new legal class of businesses, these benefit corporations join a growing range of social entrepreneurship and enterprise models that have the potential to have positive social impacts on communities in Connecticut and around the world. Designed to evaluate and enhance this potential, SE2 will feature a critical examination of the various aspects of social entrepreneurship, as well as practical guidance on the challenges and opportunities presented by the newly adopted Connecticut Benefit Corporation Act and other forms of social enterprise.
Presenters at the academic symposium on April 23 are:
- Mystica Alexander, Bentley University
- Norman Bishara, University of Michigan
- Kate Cooney, Yale University
- Lucien Dhooge, Georgia Institute of Technology
- Gwendolyn Gordon, University of Pennsylvania
- Gil Lan, Ryerson University
- Diana Leyden, University of Connecticut
- Haskell Murray, Belmont University
- Inara Scott, Oregon State University
Presenters at the practitioner conference on April 24 are:
- Gregg Haddad, State Representative, Connecticut General Assembly (D-Mansfield)
- Spencer Curry & Kieran Foran, FRESH Farm Aquaponics
- Sophie Faris, Community Development, B-Lab
- James W. McLaughlin, Associate, Murtha Cullina LLP
- Michelle Cote, Managing Director, Connecticut Center for Entrepreneurship and Innovation
- Mike Brady, CEO, Greyston Bakery
- Jeff Brown, Executive Vice President, Newman’s Own Foundation
- Justin Nash, President, Veterans Construction Services, and Founder, Til Duty is Done
- Vishal Patel, CEO & Founder, Happy Life Coffee
- Anselm Doering, President & CEO, EcoLogic Solutions
- Dafna Alsheh, Production Operations Director, Ice Stone
- Tamara Brown, Director of Sustainable Development and Community Engagement, Praxair
Wednesday, April 15, 2015
"Laws, like sausages, cease to inspire respect in proportion as we know how they are made." -- John Godfrey Saxe
This is a brief legislative update on the progress of Tennessee's current bills, introduced in the house (HB0767--amendment not yet filed) and senate (SB0972), to institute the benefit corporation as a distinct for-profit business corporation in the State of Tennessee. The links provided are to the current versions of the bill, which reflect a significant amendment, as described below.
As you may know from my prior posts (including here and here), I am a benefit corporation skeptic. Please read those posts for details. And within the Tennessee Bar Association (TBA) Business Law Section Executive Council and Business Entity Study Committee (our state bar committee that vets changes to Tennessee business associations and other business laws), I am not alone. We have rejected bills of this kind several times over the past few years when the matter has been put to us for review by the TBA. This year was no different. We opposed the benefit corporation bills that were introduced in Tennessee this year, too.
What was different this time around, was that the folks at B Lab had gotten the attention of the Chamber of Commerce and Industry in Tennessee, who appear(ed) to have some misunderstandings about the current state of Tennessee corporate governance law and came to push for adoption of the bill in committee in both houses of the legislature. Given that we were late to the party and that the members of our TBA Council and Committee are very busy lawyers, our efforts to re-educate members of the relevant committees were not as effective as we would have liked. But we ultimately were afforded two weeks to attempt to write an amended bill--one that better reflected Tennessee law and norms.
Now, any of you who have worked on a project like this before know that two weeks is not enough time to do a professionally responsible job in spotting and tracking down all of the issues that the introduction of a new business form routinely and naturally raises. Heck. We couldn't even get all the constituents around the table that we would want around the table to debate and review the legislation in two weeks! [It seems hardest to find a plaintiff's bar lawyer to sit in with us, but we found a great one for our recent work on the Tennessee Business Corporation Act (TBCA).] Our requests for more time to work on the proposed legislation were, however, rejected.
So, we set out to make a better sausage . . . .
Thursday, April 2, 2015
In connection with the current legislative debate on benefit corporations in Tennessee (which has been gathering momentum since I last wrote on the topic), I have repeatedly asked about the impetus for the bill. Of course, there is the obvious "push" for benefit corporation legislation by the B Lab folks, who have gotten the ear of folks at the Chamber, convincing them that the legislation is needed in Tennessee to protect social enterprise entities from the application of a narrow version of the shareholder wealth maximization norm (a conclusion that I dispute in my earlier post). But what else? What real parties in interest in Tennessee, if any, have expressed a desire that Tennessee adopt this form of business entity?
There is anecdotal information from one venture attorney that some Tennessee entrepreneurs have indicated a preference for the benefit corporation form and have specifically requested that their business be organized as a Delaware benefit corporation. Leaving aside the Delaware versus Tennessee question, why are these entrepreneurs looking to organize their businesses as benefit corporations? Where does this idea come from?
Friday, March 20, 2015
The biggest recent news in the social enterprise world is that certified B corporation Etsy is going public.
Despite confusing press releases, Etsy is not legally formed as a benefit corporation, they are only certified by B Lab. (In one of the coolest comments I have received blogging, an Etsy representative admitted that they confused the "benefit corporation" and "certified B corporation" terms and corrected their public statements). If you are new to social enterprise, the differences between a "certified B corporation" and a "benefit corporation" are explained here.
Etsy, however, will face a dilemma as noted in this article sent to me by Alicia Plerhoples (Georgetown). The B Lab terms for certified B corporations require Etsy to convert to a public benefit corporation (Delaware's version of the benefit corporation) within four years of the Delaware law becoming effective. Delaware's public benefit corporation law went effective August 1, 2013.
So, unless B Lab changes its terms, Etsy will lose its certified B corporation status if it does not convert to a public benefit corporation on or before August 1, 2017.
Given that converting to a public benefit corporation while publicly-traded would be extremely difficult--obtaining the necessary vote (currently 90% in Delaware, with a proposal being considered to move it back to the more typical 2/3), paying dissenters' rights, etc.--I imagine Etsy will need to make this decision before it goes public. Perhaps, Etsy will postpone the decision, and hope that they can just quietly lose their certification in 2017 or that B Lab will make an exception for them. Etsy's CEO is on record promising social responsibility, but we will see whether that promise includes maintaining B Lab certification and making a legal entity change.
Many interesting issues would stem from a publicly-traded benefit corporation; I have added a number of items to my article ideas list this morning.
This Etsy story is one I hope to follow, so stay tuned.
Thursday, March 19, 2015
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.
Prof. Bainbridge is with Delaware Chief Justice Strine in that profit maximization is the only role (or at least only filter) for board members. As he asserts, “The relationship between the shareholder wealth maximization norm and the business judgment rule, . . . explains why the business judgment rule is consistent with the director's "legal obligation to maximise profits for their shareholders."
CJ Strine has noted that the eBay decision, which I have written about a lot, says that if “you remain incorporated in Delaware, your stockholders will be able to hold you accountable for putting their interests first.” I think this is right, but I remain convinced that absent self-dealing or a “pet project,” directors get to decide that what is in the shareholders best interests.
I have been criticized in some sectors for being too pro-business for my views on corporate governance, veil piercing law, and energy policy. In contrast, I have also been said to be a “leftist commentator,” in some contexts, and I have been cited by none other than Chief Justice Strine as supporting a “liberal” view of corporate norms for my views on the freedom of director choice.
When it comes to the Business Judgment Rule, I think it might be just that I believe in a more hands-off view of director primacy more than many of both my “liberal” and “conservative” colleagues. Frankly, I don’t get too exercised by many of the corporate decisions that seem to agitate one side or the other. I thought I’d try to reconcile my views on this in a short statement. I decided to use the model from This I Believe, based on the 1950s Edward R. Murrow radio show. (Using the Crash Davis model I started with was a lot less family friendly.) Here’s what I came up with [Author's note, I have since fixed a typo that was noted by Prof. Bainbridge]:
I believe in the theory of Director Primacy. I believe in the Business Judgment Rule as an abstention doctrine, and I believe that Corporate Social Responsibility is choice, not a mandate. I believe in long-term planning over short-term profits, but I believe that directors get to choose either one to be the focus of their companies. I believe that directors can choose to pursue profit through corporate philanthropy and good works in the community or through mergers and acquisitions with a plan to slash worker benefits and sell-off a business in pieces. I believe that a corporation can make religious-based decisions—such as closing on Sundays—and that a corporation can make worker-based decisions—such as providing top-quality health care and parental leave—but I believe both such bases for decisions must be rooted in the directors’ judgment such decisions will maximize the value of the business for shareholders for the decision to get the benefit of business judgment rule protection. I believe that directors, and not shareholders or judges, should make decisions about how a company should pursue profit and stability. I believe that public companies should be able to plan like private companies, and I believe the decision to expand or change a business model is the decision of the directors and only the directors. I believe that respect for directors’ business judgment allows for coexistence of companies of multiple views—from CVS Caremark and craigslist to Wal-Mart and Hobby Lobby—without necessarily violating any shareholder wealth maximization norms. Finally, I believe that the exercise of business judgment should not be run through a liberal or conservative filter because liberal and conservative business leaders have both been responsible for massive long-term wealth creation. This, I believe.
Friday, March 6, 2015
Social enterprise has made two relatively recent appearances in the mainstream media:
(1) David Brooks on "How to Leave a Mark" in the NYT.
(2) George Roberts on "Bringing a Business Approach to Doing Good" in the WSJ.
In addition, a few law schools have started focusing more on social enterprise, including through the Georgetown Social Enterprise and Nonprofit Clinic and the Social Enterprise Law Association at Harvard Law School.
Interest in social enterprise is and has been increasing, but the legal frameworks could still use significant work as my co-blogger Joan Heminway noted last month.
Tuesday, March 3, 2015
The Fordham Journal of Corporate and Financial Law recently published a March 6, 2014, lecture from Former Delaware Supreme Court Chief Justice Myron T. Steele, Continuity and Change in Delaware Corporate Law Jurisprudence (available on Westlaw, but fee may apply). As an aside, I'll note that it appears to have taken a full calendar year for this to get published (at least on Westlaw), which seems crazy to me. If there's any question why legal blogs can fill such a critical role in providing timely commentary on legal issues, this is a big part of the answer.
In the lecture, Chief Justice Steele discusses three main areas: (1) multi-forum jurisdiction, (2) shareholder activism, and (3) the Nevada, Delaware, and North Dakota Debate (a "competition for charters").
As to multi-forum jurisdiction, he makes the unsurprising point that Delaware courts are of the view that first impressions of the Delaware General Corporation Law or other "internal affairs doctrine" issues should be handled in Delaware courts. Of note, he explains that the Delaware constitution (art. IV, § 11(8)) now allows federal courts, the top court from any state, the SEC, and bankruptcy courts to certify questions directly to the Delaware Supreme Court. This option is one that lawyers litigating such cases in other forums won't want to miss.
With regard to shareholder activism, Chief Justice Steele states,
In my preferred system for the world, and I think in the minds of all Delaware judges, engaged if not antagonistic stockholders add positive value as a check on director authority and are a catalyst for corrective accountability, so long as their efforts focus on improved performance and not the advancement of political or personal agendas--a major caveat in my view. Delaware courts, it seems to me, will increasingly recognize the benefits that engaged investors bring to the table.
State corporate law provides a ready means for resolving any conflicts by, for example, dictating how a corporation can establish its governing structure. See, e.g., ibid; id., §3:2; Del. Code Ann., Tit. 8, §351 (2011) (providing that certificate of incorporation may provide how “the business of the corporation shall be managed”). Courts will turn to that structure and the underlying state law in resolving disputes.
The corporate form in which [an Delaware corporation] operates, however, is not an appropriate vehicle for purely philanthropic ends, at least not when there are other stockholders interested in realizing a return on their investment. . . . Having chosen a for-profit corporate form, . . . directors are bound by the fiduciary duties and standards that accompany that form. Those standards include acting to promote the value of the corporation for the benefit of its stockholders.
Thus, in Delaware a for-profit corporation cannot promote or practice the religious views of even a majority of directors or shareholders where such actions do not promote the value of the corporation for shareholders.
Finally, as to the Nevada, Delaware, North Dakota debate, Chief Justice Steele questions the value of Nevada allowing "charters to exculpate directors for breaches of duty of loyalty," because he thinks such a massive change in widely held views of fiduciary duty law could invite federal "meddling." I think he's exactly right on this. He notes with skepticism the North Dakota Publicly Traded Corporations Act because there are only two companies that have adopted the law, but the law's failure in the competition for charter does not raise the same concerns of a race to the bottom (my words) that Nevada's law provides.
I think Chief Justice Steele's article provides interesting and useful insight into the workings of the Delaware court system, and I recommend the sort read. I just wish I had seen it about nine months ago.
Monday, February 23, 2015
I serve on the Tennessee Bar Association Business Entity Study Committee (BESC) and Business Law Section Executive Committee (mouthfuls, but accurately descriptive). The BESC was originated to vet proposed changes to business entity statutes in Tennessee. It was initially populated by members of the Business Law Section and the Tax Law Section, although it's evolved to mostly include members of the former with help from the latter. The Executive Committee of the Business Law Section reviews the work of the BESC before Tennessee Bar Association leadership takes action.
Just about every legislative session of late, these committees of the Tennessee Bar Association have been asked to review proposed legislation on benefit corporations (termed variously depending on the sponsors). A review request for a bill proposed for adoption for this session recently came in. Since I serve on both committees, I get to see these proposed bills all the time. So far, the proposals have pretty much tracked the B Lab model from a substantive perspective, as tailored to Tennessee law. To date, we have advised the Tennessee Bar Association that we do not favor this proposed legislation. Set forth below is a summary of the rationale I usually give.
February 23, 2015 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Entrepreneurship, Haskell Murray, Joan Heminway, Social Enterprise | Permalink | Comments (18)
Wednesday, February 18, 2015
My colleague at Georgia State, Cass Brewer, posted on SOCENT (social enterprise) Law, an update to his incredibly useful social enterprise map. On this blog and in other fora, I have discussed with many of you teaching BA whether you cover social enterprises and, if so, to what extent. This is a great resource if you do anything in the area.
How cool is this?
Thursday, February 5, 2015
Many corporate governance professionals have been scratching their heads lately. In November, a federal judge in Delaware ruled that Wal-Mart had wrongfully excluded a shareholder proposal by Trinity Wall Street Church regarding the sale of guns and other products. Specifically, the proposal requested amendment of one of the Board Committee Charters to:
27. Provid[e] oversight concerning the formulation and implementation of, and the public reporting of the formulation and implementation of, policies and standards that determine whether or not the Company [i.e., Wal-Mart] should sell a product that:
1) especially endangers public safety and wellbeing;
2) has the substantial potential to impair the reputation of the Company; and/or
3) would reasonably be considered by many offensive to the family and community values integral to the Company's promotion of its brand.
Wal-Mart filed with the SEC under Rule 14a-8 indicating that it planned to exclude the proposal under the ordinary business operations exclusion. The SEC agreed that there was a basis for exclusion under 14a-8(i)(7), but the District Court thought otherwise because the proposal related to a “sufficiently significant social policy.” In mid-January Wal-Mart appealed to the Third Circuit arguing among other things that the district court should have deferred to the SEC’s precedents and guidance over the past forty years on these issues.
In an unrelated but relevant matter in December 2014, the SEC issued a no action letter to Whole Foods stating:
You represent that matters to be voted on at the upcoming stockholders' meeting include a proposal sponsored by Whole Foods Market to amend Whole Foods Market's bylaws to allow any shareholder owning 9% or more of Whole Foods Market's common stock for five years to nominate candidates for election to the board and require Whole Foods Market to list such nominees with the board's nominees in Whole Foods Market's proxy statement. You indicate that the proposal and the proposal sponsored by Whole Foods Market directly conflict. You also indicate that inclusion of both proposals would present alternative and conflicting decisions for the stockholders and would create the potential for inconsistent and ambiguous results. Accordingly, we will not recommend enforcement action to the Commission if Whole Foods Market omits the proposal from its proxy materials in reliance on rule 14a-8(i)(9).
In a startling turn of events, the SEC withdrew its no action letter on January 16, 2015 after a January 9th letter from the Council of Institutional Investors questioning the reasoning in the Whole Foods and similar no action letters. The withdrawal of the no action letter came on the same day as the release an official SEC statement declining “to express a view on the application of Rule 14a-8(i)(9) during the current proxy season” due to questions about the scope and application of the rule.
This announcement, a contradictory departure from a decision made just weeks earlier, benefits neither issuers nor investors and introduces an additional layer of uncertainty into an already complicated set of rules. The CCMC believes this reversal underscores why corporate governance policies must provide certainty for all stakeholders, not just to advance the goals of a small minority of special interest activists….[t]he January 16 announcement places many issuers in an untenable position, and presents them with a series of questions for which there may be no good answers. For those issuers wishing to present their own alternative proposal to shareholders for consideration, do they exclude a shareholder proposal in favor of their own and face the heightened risk of litigation with the proponent or the Commission? Do they risk shareholder confusion by including both their own proposal and a competing one from a proponent? Do they incur the added expense and distraction to management of seeking declaratory relief in federal district court? Are shareholders deprived of their right to include a proposal that is omitted because of the absence of SEC action? Far from encouraging private ordering, the recent announcement will only serve to stymie it.
The CCMC also recommends a review of the entire 14a-8 process because, as the letter claims, “it is well-known that the shareholder proposal process has been dominated by a small group of special interest activists, including groups affiliated with organized labor, certain religious orders, social and public policy advocates, and a handful of serial activists. These special interests use the shareholder proposal process to pursue their own idiosyncratic agendas, often far removed from the mainstream, as evidenced by the overall low approval rates of many shareholder proposals that are put to a vote. Indeed, mainstream institutional investors account for only one percent of shareholder proposals at the Fortune 250.”
Reasonable people may disagree on how the CCMC characterizes the motives behind the shareholder proposals, but there can be no disagreement that the current SEC silence doesn't serve any constituency. Steve Bainbridge also has an informative post on this topic. Proxy season is coming up and shareholders and companies alike are awaiting a decision from the Third Circuit in the Wal-Mart action that could dramatically alter the landscape for shareholder proposals, possibly flooding the courts with expensive, protracted litigation. The timing couldn’t be worse for the SEC’s lack of action on no action letters.
February 5, 2015 in Corporate Finance, Corporate Governance, Corporations, Current Affairs, Delaware, Financial Markets, Marcia Narine, Securities Regulation, Social Enterprise | Permalink | Comments (0)
Tuesday, February 3, 2015
Anyone who has followed me on Twitter knows that I am a pretty regular runner. I try to run at least four times a week, and depending on the time of year, my schedule, and other variables, I have run as much as six times a week.
It was not always this way. I have asthma, which didn’t help much as a kid, but that problem has been controlled by medication for years. And although I was a soccer player, I was not much of a runner. Goalkeepers often aren’t. In my older years, I was known to say from time to time, “I only run when being chased.”
Sometime in 2011, that changed. I started running three miles, most days. I got a pair of the Nike Free Run Shoes, which may or may not have helped, but I was less sore then I was with the old, stable, and heavy, running shoes I would previously tried to run. Not long after that I got the Nike+ running app, which tracked my runs and served as a motivator and something of a personal accountability measure, as I shared my run with friends.
In a little more than three years, I ran 769 times and logged 2569 miles on the Nike+ running app. Not bad.
For me, it was figuring out that I didn't have to commit to a marathon, or even a 10K. I went for three-mile runs each time, and about a year ago I upped that run to about 3.5 miles each time out, and I never worry about a longer run. I found what I could stick to, and the Nike+ app helped me see just how much I was accomplishing in relatively short, but regular, outings. I recommend giving it a try, if you'd like to run, but it always seemed to hard.
So, this is a long introduction to my breakup with Nike+. Nike created a thing at the end of 2014 called the “Out Do You Challenge.” It made a nice (kind of goofy) little video that chronicled the year for some of my friends who have accomplished some impressive feats. Things like marathons. That's great, and a nice, if a bit cheesy reward for a year of effort.
The site offers a place to click to see if you “made the cut for the challenge.” I did not. Okay, so it’s not that I deserve anything or that Nike kept something from me that I had a right to. Their site and app; their rules. But it still seemed a little odd, given that I am a connected and regular user, who shared all his runs on social media, and had run as much as 200 miles more than others deemed “worthy.”
Being the connected user that I am, I inquired. The response from Nike was as follows: “We are sorry to hear that you weren't selected for the Nike+ Outdo You Challenge. We selected our top Nike+ users who met the highest level of engagement and had complete profile information.”
Again, they get to make the rules, but it’s hard to see how I wouldn’t make the grade based on how often I used the app. For some reason, this irked (and still irks) me, and I couldn’t figure out why. Then it dawned on me: in my own stupid way, I felt betrayed. I was thinking: We had been in this together for 2,500 miles. I had stuck with it when the app was not working and the only way to fix it was to email support for help. I had run with Nike+ in Warsaw and Krakow and London and Spain and all over the United States. We did it together. And now I was left out.
So, it occurred to me that I was being silly. It is pretty silly, but it's still how I felt. And it’s also a lesson in how to keep people connected and engaged.
If there had been a target or a message – “you need to run at least a half marathon” or “we need your home address” – that made clear what was required, then I can choose if I am in. Instead, Nike decided to create a post hoc award for certain participants. Again, their choice, but in doing so they excluded someone who thought they were part of the team. And that undermines loyalty.
I’m not saying I won’t run in Nike shoes any more or that I’ll never use the Nike+ app. I might. But I am also auditioning others. Currently, I am running with MapMyRun to see how I like that. In addition to Nike, I will be trying some other options – maybe Brooks, Rebook, or Adidas – in my next trip to the running shop.
This is a good lesson in marketing, I think, but also in teaching. The best teachers cultivate trust. They have high expectations, and if they aren’t met, the students usually know. I try to be transparent with my students about what I expect, and why, so that they know whether they are on track or not. I am sure, though, that during my career, I have surprised some students who felt betrayed because they thought they were on track, yet their grade did not coincide with what they thought they put in.
I know I am a lot better today about sharing and explaining those expectations today than I was when I started as a teacher, but it’s good to be reminded of just how critical it can be as transparent as possible with your expectations. So, thanks, Nike+, for the reminder. Maybe I’ll be back. Maybe not.
Friday, January 23, 2015
I recently updated my research chart entitled Corporate Forms of Social Enterprise: Comparing the State Statutes. Always open to suggestions on how to improve the chart.
As the number of corporation-based social enterprise state statutes has grown, the chart has become a bit unwieldy. Previous versions of the chart went state by state, detailing the differences from the Model statute. I think the new format (a short summary chart with details in the footnotes) is better for comparing/contrasting the state statutes, but is still far from perfect. For example, some of the abbreviations used in the summary chart require going to the footnotes for explanation, but it is difficult to remedy that and keep the summary chart short.
Also, here is a link to the latest report of Delaware Public Benefit Corporations ("PBCs"). [This is my first time linking to an outside Excel sheet, but it worked for me by saving to my Desktop and then opening.] The number of Delaware PBCs has grown to 234 entities. This is still tiny in comparison to the more than 1 million total entities in Delaware, but it is still early.