Monday, January 18, 2021

Akron Law Dean Peters on "Letter from a Birmingham Jail"

[I found the following in my inbox this morning and subsequently received permission from Dean Peters to republish it here.]

Dear members of the Akron Law family,

Over the weekend, I revisited Martin Luther King Jr.’s astounding Letter from a Birmingham Jail.  If you haven’t read it, or haven’t read it recently, it is worth ten minutes of your time on this day devoted to Dr. King’s legacy.  (Be aware that Dr. King twice repeats an offensive epithet in the Letter to describe racist insults in the South.)  Letter from a Birmingham Jail is essential reading for all Americans, and it carries particular significance for lawyers.

Dr. King wrote Letter from a Birmingham Jail in April 1963, at the height of the Civil Rights Movement and a few months before his “I Have a Dream” speech in Washington.  He and his colleagues had been arrested for illegally marching to protest segregation in Birmingham, Alabama, the fiefdom of the infamous Theophilus Eugene “Bull” Connor and his fire hoses and police dogs.  While Dr. King sat in jail, a group of white Alabama clergymen published an open letter denouncing King’s methodology of public (and sometimes illegal) protest and resistance.  The white clergy insisted that the anti-segregationist cause “should be pressed in the courts and in negotiations among local leaders, not in the streets.”

Letter from a Birmingham Jail was Dr. King’s response to this indictment, and there are many aspects of it that remain strikingly resonant today.  The Letter is a cogent defense of civil disobedience, one of the most eloquent explorations of that topic ever written.  But it is not an excuse for thoughtless lawbreaking or a call for disobedience without consequences.  And it is a powerful rejection of the urge to violence.

In the Letter, Dr. King argued that while a person “has not only a legal but a moral responsibility to obey just laws, … one has a moral responsibility to disobey unjust laws.”  But King was meticulous about the distinction between just and unjust laws.  An unjust law is not simply a law that one does not like, or even a law that one personally believes to be unjust.  Rather, an unjust law is one that is rotten at its core – a law that is made or applied so as to deny the equal humanity of those it purports to bind.  For example, King wrote, “[a] law is unjust if it is inflicted on a minority that, as a result of being denied the right to vote, had no part in enacting or devising the law.”

Segregationist laws were unjust in this way, Dr. King understood, and so disobedience of them was justified.  But even those who engage in justified disobedience had to be willing to pay the consequences:  “In no sense do I advocate evading or defying the law ….  That would lead to anarchy.  One who breaks an unjust law must do so openly, lovingly, and with a willingness to accept the penalty.”  For King, “an individual who breaks a law that conscience tells him is unjust, and who willingly accepts the penalty …, is in reality expressing the highest respect for law.”

Dr. King thus accepted the crucial distinction between peacefully resisting a particular unjust law and “defying the law” itself.  And he emphatically rejected the legitimacy of violent disobedience of the law.  In his Letter, King denounced the “force … of bitterness and hatred” that tugged at some opponents of segregation, one that “comes perilously close to advocating violence.”  In place of violence, King advocated “a type of constructive, nonviolent tension which is necessary for growth. …  It seeks so to dramatize [an] issue that it can no longer be ignored.”

These central threads of Dr. King’s message – the legitimacy of peaceful civil disobedience and the illegitimacy of unequal laws; the importance of respect for the underlying institution of the law; and above all the utter rejection of violence – deserve our attention now.  And there is another dimension of Letter from a Birmingham Jail that carries lessons for us today.  The Letter is an unfailingly civil document and a fastidiously reasoned one.  King takes his antagonists to task, certainly; but he never insults them or the intelligence of his readers.  He recognizes that his real audience is the nation and posterity, not the intransigent white clergymen whose letter sparked his reply.  And so he is careful about his facts and scrupulous about his assertions.  He lets his arguments speak for themselves.

Dr. King was an extraordinary man who lived in extraordinary times.  We live in such times too, and although we can only glimpse Dr. King’s greatness across the distance of years, we can aspire for ourselves to the values he espoused:  civility in the face of deep disagreement; reasoned argument supported by facts; abhorrence of violence; and an unflinching desire to make our laws more just.

Please be well; be safe; and be kind and respectful to each other.

All best,


January 18, 2021 in Stefan J. Padfield | Permalink | Comments (0)

In Praise of Practice Problems (and Jen Reise!)

As we launch into another online/hybrid semester of legal education, I want to share a new article by Jen Randolph Reise: Moving Ahead: Finding Opportunities for Transactional Training in Remote Legal Education. Here’s the abstract:

This article builds on the many calls for teaching business acumen and transactional skills in law school with a timely insight: the shift to remote legal education creates opportunities to do so, in particular by incorporating practice problems and mini-simulations in doctrinal courses. Weaving together the literature on emerging best practices in online legal education, cognitive psychology, and the science of teaching and learning, Professor Reise argues that adding formative assessments and experiential education is effective in teaching and is critical in remote learning.

Offering vivid examples from her experience teaching Business Organizations online, she urges legal instructors to use the opportunity presented by the shift to remote education to incorporate problems and simulations as an effective way to motivate students to prepare for class, to expose them to transactional practice skills, and to effectively teach them key doctrinal concepts.

For those of you who do not know Jen, she is currently a Visiting Professor at Mitchell Hamline School of Law (Twitter: @jenreise).  She and I have communicated/traded information on transactional business law teaching.  I am grateful that she brought this article to my attention--and effectively authored this post!  I look forward to continuing to engage with her on teaching and scholarship in our mutual areas of interest.

January 18, 2021 in Business Associations, Joan Heminway, Teaching | Permalink | Comments (0)

Mutuality = Reality (with Gratitude to Dr. Martin Luther King Jr.)

It really boils down to this: that all life is interrelated. We are all caught in an inescapable network of mutuality, tied in a single garment of destiny. Whatever affects one directly, affects all indirectly. We are made to live together because of the interrelated structure of reality.

Did you ever stop to think that you can't leave for your job in the morning without being dependent on most of the world? You get up in the morning and go to the bathroom and reach over for the sponge, and that's handed to you by a Pacific islander. You reach for a bar of soap, and that's given to you at the hands of a Frenchman. And then you go into the kitchen to drink your coffee for the morning, and that's poured into your cup by a South American. And maybe you want tea: that's poured into your cup by a Chinese. Or maybe you're desirous of having cocoa for breakfast, and that's poured into your cup by a West African. And then you reach over for your toast, and that's given to you at the hands of an English-speaking farmer, not to mention the baker. And before you finish eating breakfast in the morning, you've depended on more than half of the world.

This is the way our universe is structured. It is its interrelated quality. We aren't going to have peace on earth until we recognize this basic fact of the interrelated structure of all reality.

Martin Luther King Jr.
Ebenezer Baptist Church
Atlanta, Georgia
December 24, 1967


Mutuality = reality.  The truth of this is experienced in education, business and the professions, and our personal lives.  I appreciate Dr. King's cogent reflection (parts of which are repeated from his other remarks and writings) today more than ever before.  I honor him and his memory with the republication of his meaningful words here on the holiday that celebrates his life and legacy.  May he rest in peace knowing these words continue to be heard.

[Should you want to listen to the entire Christmas Eve sermon from which the quoted words were taken, one of several online recordings can be found here.]

January 18, 2021 in Joan Heminway | Permalink | Comments (0)

Saturday, January 16, 2021

Corporations and Contracts: Continuing to Beat this Drum

I’ve previously lamented the blurring of the lines of corporate and contract law, usually arising in the context of forum selection provisions in bylaws or charters that are treated as indistinguishable from ordinary contracts.  My most recent post on this concerned the dismissal of a Section 11 case against Uber; shortly thereafter, another California court dismissed claims against Dropbox, in a decision which I may or may not discuss in more detail at a later date.

As Kyle Wagner Compton, author of the invaluable Chancery Daily, recently brought to my attention, in Mack v. Rev Worldwide, VC Zurn went in the opposite direction.  The plaintiff, John Mack (yes, that John Mack) argued that he was not bound to the forum selection clauses contained in certain Notes that he held because he had not assented to them.  Zurn held that he had agreed to provisions that allowed the Notes to be amended by a vote of a majority of the noteholders, and he was thus bound by clauses added through that process.  On that holding I express no opinion.  What does grab me, however, is that Zurn supported this decision by reference to the forum selection bylaw cases, including Boilermakers Local 154 Retirement Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch. 2013), finding them to be an appropriate analogy.

Except, as I keep pointing out, Boilermakers rested explicitly on the statutory scheme that details the conditions and limits on directors’ power to adopt bylaws, including directors’ fiduciary obligations.  See id. at 954, 956, 959.  That’s very different from a contractual agreement that details the mechanisms by which the contract can be amended.  And though Zurn did acknowledge that her analogy was not perfect, it represents a further erosion of judicial recognition of the differences between the two regimes.

Anyway, at least I’m not the only one concerned about this; here’s Mandatory Arbitration and the Boundaries of Corporate Law, by Asaf Raz, with further discussion of the distinction between the corporate legal framework and the contractual one.

January 16, 2021 in Ann Lipton | Permalink | Comments (0)

Friday, January 15, 2021

Attorney-Client Privilege in Business Networks

In my ongoing work for the Tennessee Bar Association, I was alerted to a recent Delaware Chancery Court decision of note.  The decision is embodied in a December 22, 2020 letter to counsel written by Chancellor Andre G. Bouchard in the case captioned In re WeWork Litigation (Consol. Civil Action No. 2020-0258-AGB).  It offers an illustration of the attorney-client privilege challenges that may exist in business associations that operate within networks consisting of affiliated or associated business firms.

The In re WeWork Litigation letter opinion involves a document production dispute.  The controversy relates to communications engaged in by discovery custodians employed at Sprint, Inc. but working on behalf of SoftBank Group Corp.  Specifically, the Sprint employees assisted SoftBank with document discovery relating to its involvement with The We Company (“WeWork”), a plaintiff in the case.  (Sprint is not involved in any substantive way in the litigation.  However, at times relevant to the chancellor's opinion, SoftBank owned 84% of Sprint.)  The controversy centers around the conduct of Sprint CEO Michael Combes and a Sprint employee, Christina Sternberg.  Each provided SoftBank’s chief operating officer with document discovery assistance.  As Chancellor Bouchard aptly noted, these Sprint employees “wore multiple hats.”  (This comment in the letter opinion reminded me of the U.S. Supreme Court opinion in United States v. Bestfoods, in which the court quotes from Lusk v. Foxmeyer Health Corp., 129 F.3d 773, 779 (5th Cir. 1997): "directors and officers holding positions with a parent and its subsidiary can and do ‘change hats’ to represent the two corporations separately, despite their common ownership.")

Of particular relevance to the dispute, Combes and Sternberg engaged in document production matters with SoftBank’s legal counsel and used their Sprint email accounts in that activity. In response to plaintiffs' discovery requests, SoftBank determined to withhold from production 89 documents that were conveyed to or from Combes’s and Sternberg’s Sprint email accounts.  SoftBank's argument was that the communications were privileged.  The chancellor’s opinion addresses a motion to compel production of those 89 documents.

Chancellor Bouchard granted the motion to compel production of the documents, finding that Combes and Sternberg did not have a reasonable expectation of privacy when using the Sprint email accounts.  As a result, the documents could not constitute “confidential communications” under Delaware Rule of Evidence 502.  Importantly, both Combes and Sternberg were afforded--and could have used--other email accounts (affiliated with WeWork or SoftBank, respectively) in their discovery work for SoftBank.

I noted in my summary of this opinion for the Tennessee Bar Association that the case "offers important cautions to businesses desiring to ensure that communications and transmitted documents can be kept in confidence."  It is telling in this regard that proprietary email accounts were afforded to Combes and Sternberg to best ensure confidential treatment of their discovery communications, yet no attempt was made to monitor the relevant use of those email accounts as a matter of document control and discovery policy. Accordingly, I noted that it seems prudent, in light of Chancellor Bouchard’s decision, to suggest that business firms and their legal counsel review operative existing document custody and retention guidance (in the form of compliance policies and the like) to evaluate whether they include appropriate control mechanisms geared to best ensuring the confidential treatment of privileged communications and documents. As the facts of the In re WeWork Litigation opinion indicate, this may be especially important for businesses that operate within a networked system of firms.

January 15, 2021 in Business Associations, Compliance, Joan Heminway, Litigation | Permalink | Comments (0)

Thursday, January 14, 2021

New Developments in Expungement Rules

We have some significant developments in the law for expungement hearings. As a quick refresher for those that don't follow this corner of securities law closely, the process for deciding whether or not to remove customer dispute information from a broker's record is unreliable, poorly designed, and seemingly emboldens brokers to commit more misconduct.  One study found that "with prior expungements are 3.3 times as likely to engage in new misconduct as the average broker." 

Many of the problems flow from how brokers procure expungements.  Often they simply file an arbitration against their employer. (Notably, the employer benefits if its broker/sales agent has red flags and past misconduct removed from regulatory and public databases.)  At some point, they notify the customer about the arbitration and their right to participate, but non-party customers have little incentive or ability to meaningfully participate--and usually don't participate.  Arbitrators, hearing no reason not to grant the expungement from the parties overwhelmingly recommend expungement.  The broker then notifies FINRA and has the arbitration award "confirmed" by a state court.  As I wrote in my comment letter, "judicial review under these circumstances provides no meaningful check on this process and only serves as a dubious veneer."  Under the law, courts confirming arbitration awards do not meaningfully review these awards--they simply confirm them absent certain, statutorily-defined problems with the award.

In October, I wrote about a proposal to change some of the rules for brokers seeking to expunge customer dispute information from their records and linked to my own extensive comment letter on the proposal which drew heavily from a law review article explaining how the system fails to surface relevant information because many hearings are not adversarial.  (The SEC also received comments from Arbitrator Julius Z. FragerPIABA, NASAA, AdvisorLaw, Pace Law School's Securities Clinic, St. John's Securities Clinic, and Steven Caruso.) At the time, I explained that the proposal would do much to change the fundamental dynamic and would leave many problems in place:

But there are many things the proposal won't do.  It won't address common customer barriers to participation.  It won't provide a lengthy notice period so customers can figure out what is going on and get legal help. It won't even guarantee customers can receive all of the documents filed in these arbitrations.  It won't make it clear that these proceedings are really ex-parte proceedings and that all advocates must be held to higher standards in them.  It won't change the system in any truly significant way.  It burdens the customer with protecting the public record at the customer's expense.

After the comment period, FINRA extended the time for SEC action on the proposal before providing a response to comments and an amended proposal, addressing some of the problems I highlighted.  The amended proposal meaningfully engages with the comments and makes some real improvements.  Although I didn't get everything I wanted, I'm glad that the amendment addresses some of the most egregious flaws in the current system.  I have my thoughts on FINRA's response after the jump.

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January 14, 2021 | Permalink | Comments (0)

Tuesday, January 12, 2021

Teaching Race & Entrepreneurship: A Guest Post from Prof. Priya Baskaran

Given anti-democratic events at the nation’s Capitol which were made possible by continued structural injustice in the U.S. – I feel obligated as a lawyer and professor to emphasize our responsibilities to address the interlocking systems of subordination that impact every area of the law – with entrepreneurship being no exception. These systems divide us into “haves” and “have nots” based on race, gender, class, and even geography.

We have a moral obligation as lawyers and professors to address these structural barriers in the classroom. Entrepreneurship is often touted as a means for greater economic participation and a vehicle for innovation. Yet many entrepreneurs and small businesses are hobbled by barriers rooted in structural injustice. These obstacles prevent them from raising necessary capital, accessing legal resources, obtaining other technical assistance, and numerous impediments related to operations such as insurance and talent retention. A full accounting of existing barriers, though important, is insufficient. We must examine the legal roots of modern structural barriers to entrepreneurship - interlocking systems of subordination based on race, class, and gender. Sadly, U.S. laws and policies have actively devalued certain populations and entire communities, elevating certain communities while relegating others to the economic margins. For example, redlining influenced decades of public and private investment, decimating both the inner-city as well as rural areas.

Law professors must equip our students to be thoughtful, diligent, competent, compassionate, and ethical lawyers. As part of this education, students must confront, and unpack legal regimes and reckon with their practical impacts. At a minimum, our students will engage with state and local policy as private attorneys, regulators, and even elected officials. Grounding them in a thorough understanding of the impacts of structural barriers and empowering them to create change by demanding legal reforms is a task we must embrace.

This blog post expands on my presentation at the AALS 2021 Annual Meeting, where I outlined methods for introducing this vital and complex topic into the business law classroom. Below, I detail my learning goals, lesson plans, and provide some additional materials that may prove helpful for other business law professors. This class was first designed and implemented during my time as an Associate Professor at West Virginia University’s College of Law. I mention this to emphasize that the demographics of a law school student body or fellow faculty should not deter academics from engaging in these topics. I have also modified this class successfully for my current students at American University’s Washington College of Law. I can attest that the class has resulted in important and rich dialogue in both law school classrooms. (Please click below for more.)


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January 12, 2021 in Crowdfunding, Entrepreneurship, Venture Capital | Permalink | Comments (0)

Monday, January 11, 2021

IU Robert H. McKinney School of Law Seeks Visitors

Indiana University Robert H. McKinney School of Law seeks one or more entry-level or experienced applicants interested in serving as a full-time, temporary faculty member for the 2021-2022 academic year. Subject matter needs include property, intellectual property, administrative law, and health law-related courses. 

As part of IUPUI, Indiana’s premier urban research institution, the law school is committed to being a welcoming community that reflects and enacts the values of diversity, equity, and inclusion that inform academic excellence. We seek candidates who will not only enhance our representational diversity but whose research, teaching, and community-engagement efforts contribute to diverse, equitable, and inclusive learning and working environments for our students, staff, and faculty. IU McKinney condemns racism in all its forms and has taken an anti-racist stance that moves beyond mere statements to interrogating its policies, procedures, and practices. We hope to identify individuals who will assist in our mission to dismantle racism so that everyone has the opportunity to succeed at IU McKinney. The law school is an Equal Opportunity/Affirmative Action Institution with a strong commitment to inclusion and offers domestic partner benefits: For more information about the school, please visit

Interested candidates should submit a CV and cover letter to Vice Dean Cynthia Adams at Individuals who require a reasonable accommodation in order to participate in the application process should give Vice Dean Adams adequate notice.  Applications will be reviewed on a rolling basis with February 1 as the deadline for all applications.

January 11, 2021 in Intellectual Property, Joan Heminway, Jobs | Permalink | Comments (0)

Saturday, January 9, 2021

Bad for Business

The past few days, I’ve been thinking a lot about the classic case of AP Smith Manufacturing Co. v. Barlow, 98 A.2d 581 (N.J. 1953).

Though it is often invoked as emblematic of the “stakeholder” theory of the corporation, large portions of Barlow read more like a particularly vigorous application of the business judgment rule.  So long as corporate altruism could conceivably benefit the corporation, it will not be second-guessed.  Thus, Barlow held that corporate donations to Princeton University were permissible because, among other things:

[Corporations] now recognize that we are faced with other, though nonetheless vicious, threats from abroad which must be withstood without impairing the vigor of our democratic institutions at home and that otherwise victory will be pyrrhic indeed. More and more they have come to recognize that their salvation rests upon sound economic and social environment which in turn rests in no insignificant part upon free and vigorous nongovernmental institutions of learning….[S]uch expenditures may likewise readily be justified as being for the benefit of the corporation; indeed, if need be the matter may be viewed strictly in terms of actual survival of the corporation in a free enterprise system….

[T]here is now widespread belief throughout the nation that free and vigorous non-governmental institutions of learning are vital to our democracy and the system of free enterprise and that withdrawal of corporate authority to make such contributions within reasonable limits would seriously threaten their continuance. Corporations have come to recognize this and with their enlightenment have sought in varying measures…to insure and strengthen the society which gives them existence and the means of aiding themselves and their fellow citizens. Clearly then, the appellants, as individual stockholders whose private interests rest entirely upon the well-being of the plaintiff corporation, ought not be permitted to close their eyes to present-day realities and thwart the long-visioned corporate action in recognizing and voluntarily discharging its high obligations as a constituent of our modern social structure.

Once you get past the anti-Communist rhetoric of the era, the point here is that corporations fundamentally rely on the stability of the nations in which they operate.  Civil unrest, weak legal institutions, are bad for business.  Or, as Matt Levine put it a few years ago:

If the president can, without consulting the courts or Congress, banish U.S. lawful permanent residents, then he can do anything. If there is no rule of law for some people, there is no rule of law for anyone. The reason the U.S. is a good place to do business is that, for the last 228 years, it has built a firm foundation on the rule of law. It almost undid that in a weekend. That’s bad for business.

So it isn’t surprising that business leaders have offered some forceful condemnation of recent efforts by some Republicans to subvert the results of the presidential election.  Before January 6, the US Chamber of Commerce stated, “Efforts by some members of Congress to disregard certified election results in an effort to change the election outcome or to try a make a long-term political point undermines our democracy and the rule of law and will only result in further division across our nation.”  Other business leaders signed a statement to the same effect.

After the President of the United States incited an attack on Congress in hopes of overturning election results, the Business Roundtable stated that “elected officials’ perpetuation of the fiction of a fraudulent 2020 presidential election is not only reprehensible, but also a danger to our democracy, our society and our economy.”  The National Association of Manufacturers called for Vice Pence and the Cabinet to invoke the 25th Amendment and remove Trump from office, and the President of the American Petroleum Institute was quoted in the Washington Post saying that Trump was “unworthy of the office of being president.”

Beyond mere rhetoric, there’s been chatter about withholding campaign contributions from politicians who continue to provoke political instability.  According to a director of Merck and Morgan Stanley, “Respect for the rule of law underlies our market economy.”

To be sure, there is some question as to how committed business leaders will remain to this stance.  Business leaders have supported Trump throughout his presidency, distancing themselves during controversies only to re-embrace him when he cut taxes or regulations

In a time when we debate whether corporations suffer from a “short-term” bias, trading social stability for favorable regulatory treatment may the ultimate expression of short-term thinking. Or, as David Gelles wrote in the New York Times, “[M]oney has a short memory.”

Meanwhile, Axe Body Spray would simply like to be removed from this narrative.


January 9, 2021 in Ann Lipton | Permalink | Comments (2)

Friday, January 8, 2021

New Edition of Problem-Based White Collar Crime Textbook Forthcoming

    Along with my co-authors J. Kelly Strader, Mihailis E. Diamantis, and Sandra D. Jordan, I am pleased to announce that the Fourth Edition of our textbook White Collar Crime: Cases, Materials, and Problems has gone to press and is expected to be available through Carolina Academic Press by June of 2021, in plenty of time for Fall 2021 adoptions.

    Professor Diamantis and I are excited to join Professors Strader and Jordan in the new edition. We hope that our unique practice experiences and theoretical perspectives will add value to what is already a popular White Collar casebook. We have posted the current drafts of Chapter 1 (Overview of White Collar Crime) and Chapter 5 (Securities Fraud) on SSRN as samples for review. Here, also, is an excerpt from the Preface summarizing our approach to the new edition:

[W]e have endeavored to write a problem-based casebook that provides a topical, informative, and thought-provoking perspective on this rapidly evolving area of the law. We also believe that the study of white collar criminal law and practice raises unique issues of criminal law and justice policy, and serves as an excellent vehicle for deepening our understanding of criminal justice issues in general. For the fourth edition, we have continued to emphasize the text’s focus on practice problems while also deepening policy and theoretical discussion. …

Throughout the text, our goal has been to provide leading and illustrative cases in each area, focusing where possible on United States Supreme Court opinions. …

In the introductory materials to each of the substantive crime chapters, we have included an overview of the law and the statutory elements. Because our goal is to teach principally through the study of the cases, we have tried to edit the cases judiciously. We include a number of concurring and dissenting opinions, both because these opinions help elucidate the issues and because in close cases today’s dissent may be tomorrow’s majority. Following the cases, we also include notes on important issues those cases raise on matters of law, policy, and theory. We have tried to keep the notes concise, where possible, and hope that they will service as starting points for rich class discussions.

Finally, we intersperse practice problems throughout the casebook. The problems focus on substantive law, procedural issues, and ethical dilemmas that arise in white collar practice. The text is designed to be used flexibly and thus lends itself both to comprehensive study of black letter law and to a problems-based approach.

    The textbook includes a teacher's manual with teaching tips, possible side topics for course discussion, and detailed solutions to practice problems.

January 8, 2021 in Securities Regulation, White Collar Crime | Permalink | Comments (0)

Thursday, January 7, 2021

New Book | Companies Are People Too

Carliss Chatman has a new book out aimed at an audience aged six years old and up.  It's called Companies Are People Too and available on Amazon now.  I've sent copies to all my nieces already.  It's accessible and helps explain the role companies play in our society.  If you're a business lawyer looking for a way to help explain what you do, this can provide a great entry point.  It's currently #1 on Amazon in Children's Money Books.

January 7, 2021 | Permalink | Comments (0)

Hiring Announcement -- Stanford Corporate Governance Teaching Fellow

Teaching Fellow - Corporate Governance and Practice LLM, Stanford Law School

Stanford Law School offers multiple specialized LLM programs to international students who have practiced law outside the U.S. The Corporate Governance and Practice LLM program admits approximately 20 students annually. Working under the supervision of Professor Michael Klausner, the Faculty Director of the program, the Teaching Fellow will assume significant academic, advising, and administrative responsibilities for these students. Applicants for this fellowship are sought for a two-year commitment, starting in summer 2021.

The Teaching Fellow will be responsible for teaching two courses: one on corporate law from an economics perspective; and another on corporate law practice. The latter course will include outside speakers from practice. The fellow will also organize other academic and social events, and will be responsible for managing the Corporate Governance and Practice LLM program on a day-to-day basis, advising LLM students on academic and career issues, responding to inquiries from prospective LLM applicants, screening and admitting applicants, and interacting with faculty in support of the LLM program goals and needs. The fellow will have the support of and work with the Associate Dean for Graduate Programs, the Associate Dean for Student Affairs, the Executive Director of the International Law Programs, and the Associate Dean for Admissions. Although this is a full-time position, the fellow should be able to spend approximately half their time conducting their own research, and will have ready access to faculty for that purpose.

  • Candidates for this position are expected to have strong academic records and references.
  • Professional experience in corporate practice is required, with three or more years of such experience preferred.  
  • JD from a US school is preferred but candidates with an LLM or JSD will also be considered.
  • In the past, people who have held this position have used it as a step toward a tenure track position at a law school. We have a preference for candidates with an academic career in mind but this is not a requirement.


How to Apply:

  1. Submit your application online via the Stanford Careers (
  2. Send the following materials via email to Andrew Jennings at a cover letter (addressed to Professor Klausner), an official law school transcript, a resume/CV, copies of any publications, and the names and contact information for at least three professional references (at least two law professors).


Application deadline: Until position is filled


Stanford Law School seeks to hire the best talent and to promote a safe and secure environment for all members of the university community and its property. To that end, new staff hires must successfully pass a background check prior to starting work at Stanford University.

* - Consistent with its obligations under the law, the University will provide reasonable accommodation to any employee with a disability who requires accommodation to perform the essential functions of his or her job.

Additional Information:

This is a two-year fixed-term position starting in summer 2021 with the possibility of a third year by mutual consent and approval.

Stanford University is an Equal Opportunity Employer.

Stanford Law School seeks to hire the best talent and to promote a safe and secure environment for all members of the university community and its property. To that end, new staff hires must successfully pass a background check prior to starting work at Stanford University.

January 7, 2021 | Permalink | Comments (0)

Wednesday, January 6, 2021

Hiring Announcement: Dean of the College of Law, University of Oklahoma

BLPB Readers:

The University of Oklahoma (OU) invites nominations and applications for the next Dean of the College of Law. Building upon the successful tenures of the last two deans over 26 years, OU seeks an inspiring leader who can help craft and execute an innovative and inspiring vision for legal education at OU. The Dean of the College of Law is the chief executive officer of the College of Law and reports directly to the Senior Vice President and Provost of The University of Oklahoma. 

The complete announcement can be viewed here.


January 6, 2021 | Permalink | Comments (0)

Monday, January 4, 2021

AALS 2021 - Teaching Leadership in Law Schools

As our legal academy readers know, this week features the annual conference of the Association of American Law Schools ("AALS"), the professional association for law schools and their faculty and staff.  I am sure many of us will publish posts now and later about the conference and its varied programs.  I focus today on the Section on Leadership, of which my Dean (Doug Blaze) is the current chair.  Doug has been among the national leaders in the movement to teach leadership in law schools.  Among other things, he was a founder of the section and of the Institute for Professional Leadership at UT Law (of which I am the current Interim Director).

I highlight two things in this post.

First, the Fall 2020 section newsletter deserves attention.  The entire issue focuses on racism.  It includes a number of short articles written by a variety of contributors, including (but not limited to) law professors.  Tony Thompson, Professor of Clinical Law at NYU Law, introduces the issue, referencing the events that catapulted racism and racial injustice into the legal news and public eye in meaningful ways earlier this year.  He writes: "T]he public protests have . . . sparked . . . a relentless insistence that we acknowledge the stark reality that racism infects every system in this country. We as lawyers, as law teachers, as people who care about justice must actively work toward a genuine reckoning on race and racism in this country."  Among the contributions are articles written by Berkeley Law Dean Erwin Chemerinsky, a prep school student from Newark, New Jersey, and our Visiting Leadership Fellow at UT Law, David Gibbs.  The issue makes for thought-provoking end-of-year reading and inspires leadership on race issues in and through law teaching (among many other things).

Second, I want to promote the four programs sponsored or co-sponsored by the AALS Section on Leadership.  They are listed below.

  • Calling Out and Leaning In to Racial and Class Inequities in Experiential Learning Opportunities (Wednesday, January 6, 11:00 am - 12:15 pm)
  • Never Let A Good Crisis Go To Waste; The Pedagogy of Leadership During Crisis—Student Engagement (Thursday, January 7, 11:00 am - 12:15 pm)
  • Legal and Judicial Ethics in the Post-#MeToo World (Thursday, January 7, 2:45 pm - 4:00 pm)
  • Teaching Leadership Skills in a Time of Crisis (Saturday, January 9, 2:45 pm - 4:00 pm)

I have the honor of presenting a short "idea paper" on teaching change leadership to law students at the Thursday morning session.  I hope that you will join me in attending some or all of these programs if you are registered to attend the conference.  Our students are the legal and community leaders of tomorrow.  Studying and practicing leadership in law school can help them to see their leadership potential, harness it, and use it constructively in and outside law practice.

The entire program for this year's AALS annual meeting can be found here.

January 4, 2021 in Conferences, Joan Heminway, Teaching | Permalink | Comments (0)

Saturday, January 2, 2021

Dependence, Control, and ViacomCBS

I’ve previously written about Shari Redstone and the controversies surrounding Viacom and CBS; this week, VC Slights kindly gave me something new to blog about when he denied defendants’ motion to dismiss shareholder claims associated with the Viacom/CBS merger.

The CliffsNotes version is that due to a dual-class voting structure, Shari Redstone was the controlling shareholder of CBS and Viacom, and for several years fought to combine the two companies.  Her dreams were finally realized in 2019 when the two merged in a stock-for-stock deal.  Former Viacom shareholders sued, alleging that this was a transaction in which a controlling stockholder – Redstone – stood on both sides, and that the deal sold out the Viacom shareholders to benefit CBS and Redstone. 

Normally, of course, deals in which a controlling stockholder has an interest are subject to entire fairness scrutiny unless they are cleansed in the manner prescribed by Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014).  Notwithstanding the failure to employ those protections here, the defendants creatively claimed that business judgment review was appropriate – and moved to dismiss on that basis – arguing that mere presence on both sides does not trigger heightened scrutiny; instead, plaintiffs must additionally show that the controller received a nonratable benefit, which did not happen in the CBS/Viacom merger.

To me, that’s kind of redundant; by definition, standing on both sides of a transaction means that the controller received something not available to the minority stockholders.  In this case, Redstone was able to trade her CBS stock for shares in the combined entity – a benefit that Viacom stockholders did not share.  (Well, okay, probably some Viacom stockholders did, but that’s a whole ‘nother issue I’ve talked about pretty endlessly).   

VC Slights, however, was unsatisfied with leaving things there, perhaps because it begs the question why Redstone would have favored CBS over Viacom in the exchange ratio.  And the answer to that, according to the plaintiffs, was because Redstone wanted Robert Bakish at Viacom to head the combined entity, and a favorable-to-CBS exchange ratio was the price that the CBS board demanded for installing him.  Normally, it might be reasonable to trade merger consideration for a particular governance arrangement, so plaintiffs further argued that this arrangement was unfair to the Viacom stockholders because Bakish wasn’t worth the price.  Redstone wanted him in place for personal reasons (to cement her control by installing an ally).

In any event, all of this left Slights with the question whether (1) standing on both sides is enough to trigger fairness scrutiny absent a nonratable benefit to the controller, and (2) if not, did plaintiffs allege enough of one?

His answers, respectively, were (1) to reserve judgment and (2) yes.

What’s interesting here?

First, though Slights chose not to decide whether entire fairness must always apply when a controller stands on both sides, in discussing the question, he had something of an intriguing footnote.  He wrote:

I note that Viacom and CBS’s dual-class structures, whereby NAI possessed more than 80% of the voting power but faced only 10% of the economic risk in both companies, commends Plaintiffs’ “mere presence” argument for careful consideration in this case. See David T. White, Delaware’s Role in Handling the Rise of Dual-, Multi-, and Zero-Class Voting Structures, 45 Del. J. Corp. L. 141, 153–54 (2020) (positing that in dual-class structures, “the owners of the majority voting rights in these companies are less concerned when riskier moves fail as compared to their counterparts at ‘one share-one vote’ corporations”); Lucian A. Bebchuk & Kobi Kastiel, The Perils of Small-Minority Controllers, 107 Geo. L.J. 1453, 1466 (2019) (observing that “small-minority controllers are insulated from market disciplinary forces [in dual-class companies] and thus lack incentives generated by the threat of replacement, which would mitigate the risk that they will act in ways that are contrary to the interests of other public investors”); id. (“[D]ualclass structures with small-minority controllers generate significant governance risks because they feature a unique absence of incentive alignment.”).

As we all know, dual class share structures are increasingly popular, and concerns have been raised that they present a challenge to Delaware corporate doctrine, which assumes that stockholders have economic incentives proportional to their interests and that a functioning market for corporate control justifies a deferential judicial stance.  I could of course be overreading the footnote, but to me it suggests a hint of a step toward Delaware developing differential scrutiny for disputes involving dual-class shares, especially since the Note he cites by David White argues precisely that the business judgment rule is inapposite in dual-class cases.

Second, after concluding that Redstone’s personal interest in consolidating her control was a sufficient nonratable benefit justifying entire fairness scrutiny, he further held that plaintiffs had stated a claim against the controller for breach of fiduciary duty.  But that left the question whether plaintiffs had also stated a claim against the directors on Viacom’s special committee for breaching their duties by, essentially, bowing to Redstone’s demands.

Now the interesting thing here is that plaintiffs did not allege that the Viacom directors were interested in the transaction themselves; the entire basis for the allegations of disloyalty arose from their obedience to Redstone.

Thus the question: Assuming plaintiffs have alleged facts to suggest a transaction was unfair due to a conflict, can they state a non-exculpated claim for breach of fiduciary duty against disinterested directors who were involved with that transaction, solely due to their dependence on the person with the conflict?

To answer that question, Slights quoted In re Cornerstone Therapeutics, Inc. Stockholder Litigation, 115 A.3d 1173 (Del. 2015):

To state “a non-exculpated claim for breach of fiduciary duty against an independent director protected by an exculpatory charter provision,” Plaintiffs must allege “facts supporting a rational inference that the director harbored self-interest adverse to the stockholders’ interests, acted to advance the self-interest of an interested party from whom they could not be presumed to act independently, or acted in bad faith.”

Cornerstone did say that, ‘tis true, but it still begs the question whether mere lack of independence is enough, or whether something more is required.  (VC Glasscock asked that question in connection with a dispute over Oracle’s acquisition of NetSuite, and sought additional briefing on the matter.  Which was never filed; the plaintiffs voluntarily dismissed their claims against the relevant defendants.)

Because here’s the thing.  There’s dependence, and there’s dependence.  There’s director dependence that comes from essentially agreeing to work for the controller rather than to work for the corporation, and there’s director dependence that comes from, you know, being unconsciously biased to favor a friend.  That’s particularly true today, since Leo Strine worked so hard to expand the concept of director dependence to include “mutual affiliations” that would make it “difficult to assess [a person’s] conduct without pondering his own association with [that person],” In re Oracle Corp Deriv. Litig., 824 A.2d 917 (Del. Ch. 2003), and “relationships [that] give rise to human motivations compromising the participants’ ability to act impartially toward each other,” Sandys v. Pincus, 152 A.3d 124 (Del. 2016).  Acquiescing to a controller’s demands comes very close to a “conscious disregard” for the director’s duties, or an intent to “act[] with a purpose other than that of advancing the best interests of the corporation.” Stone v. Ritter, 911 A.2d 362 (Del. 2006).  Simple lack of objectivity, though, is much more like a good faith failure to recognize the flaws in one’s own judgment.

Which is why it is not obvious that there’s a blanket rule that dependence, alone, states a claim for disloyalty. 

That said, Slights elided this issue, which he could do successfully because, although he framed his analysis in terms of director “dependence,” he actually found that plaintiffs had alleged a more serious kind of dependence – a “controlled mindset,” whereby they simply worked to advance Redstone’s goals.  And that, coupled with other allegations about their relationship to Redstone, was enough to “plead reasonably conceivable breaches of the duty of loyalty.”

Third, the final interesting data point in Slights’s examination of director independence had to do with the legal significance of the directors’ fear that Redstone would fire them if they failed to do her bidding.  Now, the doctrine is sort of confused when it comes to directors’ fear of being removed by a controller – in the context of derivative lawsuits, it’s not grounds for a finding of dependence unless the directors have a personal need to remain on the job; in the context of cleansing a controller conflict, we assume generally that directors fear removal

Here, though, the question was whether fear of removal was enough to create dependence such that it suggested disloyalty on the directors’ part – which is a whole ‘nother question (one which, I would think, might actually raise the bar for a finding of dependence).  And to answer that, Slights said that while he would not generally assume directors are dependent simply because they serve at the pleasure of the controller, it was not necessary for the plaintiffs to allege that these directors had an especial need for their positions in light of Redstone’s specific history of threatening to remove board members at Viacom and CBS who bucked her authority.  The fact that they labored under that realized threat created an inference of dependence.

So takeaway here?  The definition of dependence and its legal significance shifts across contexts – and depending on how the dual-class case law shapes up, the same may turn out to be true of control.

January 2, 2021 in Ann Lipton | Permalink | Comments (2)

Friday, January 1, 2021

How To Thrive in 2021

Happy New Year!

I first posted this on Thrive Global a few weeks ago. In the spirit of the New Year, I'm sharing it with you all. 

It’s time to work on your happiness like it’s a full-time job. 2020 has challenged everyone and 2021 may not be much better. You’ve made it this far so now it’s time to reclaim your power at work with these five tips.

  • Worklife balance is a myth. Whether you’re working from home or actually going to a work site, there’s no such thing as work life balance and there never has been. It’s impossible to devote your full attention to work and family at the same time — something will suffer. As time management guru David Allen explained, you can do anything you want, you just can’t do everything you want. Learn how to say no to anything that isn’t absolutely necessary. For me, if it’s not a hell yes, then it’s a hell no. Unless you can’t say “no,” use your non-work time to do something that brings you joy and sustains you. Find a passion project. When you focus on life balance, your work life will improve.
  • Change your thoughts and change your life. Do you focus on everything that’s happened to you? Why not reframe that to believe that everything happens for you? What are the lessons that you can learn from the curveballs that life has thrown at you? A job loss could be your impetus to start your own business or go back to school. An abusive boss may be what you need to get out of your comfort zone and look for another job. Changing your mindset will help you at home and at work because you’ll get much less frustrated over things you can’t control. You’ll soon be the go-to person because you’ve shown that you can be flexible and you’re able to pivot. Resilience and grit are key currencies in the workplace, particularly in the age of COVID.
  • Forgive no matter what. Before you stop reading, I didn’t say that you have to forget. Anger and resentment impacts everyone in your life and it can affect your health. You’re either complaining to your colleagues about your family or complaining to your family about your colleagues. Don’t demand an apology and don’t dwell on the fact that you’re “right.” Forgive without conditions and treat everyone as though they only have 24 hours to live. Forgiveness is a gift, not to the other person but to yourself. Once you forgive someone, they no longer have power over you because they no longer take up space in your head or your heart. You don’t even have to tell the person you’ve forgiven them, but it helps. Acknowledge any role you’ve played in the issue, apologize, and then forgive. Even if you don’t want to be magnanimous, just think of how much you’ll upset the power dynamic with the person who hurt you if you make it clear that you’re no longer angry with them. Remember, the opposite of hate isn’t love, it’s indifference. No matter what they’ve done, let it go and set yourself free. You’ll be much lighter and a much more pleasant person to be around.
  • Words have power. We’ve all heard about the power of affirmations and gratitude. I wake up in the morning and journal about what I’m grateful for, even if what I want hasn’t happened yet. I’m specific and I write in the present tense. I see, feel, smell, taste and hear what I would experience if what I wanted was true. Sooner or later, some variation of what I journaled or something better comes to pass. When you dream big, you achieve big. Think of that job or promotion as though it were already yours. But words are equally powerful when you speak negatively. Do you say, “I always get sick,” “the boss will never promote me,” or “I hate my job”? Think about what you say to yourself and how that corresponds to where you are in your life. I’ve literally gone to the hospital within days of telling  someone they were going to cause me to have a heart attack or stroke. Twice.
  • Have your FU fund and make sure people know about it. This is my most important tip. Never let your employer think you need the job. Know your value and then add tax to it. When you have a “forget you” fund, you’re not tied to either a job or a relationship for financial reasons. This affects how people treat you because they know that you can leave without a second thought if you see something unethical, get passed over for a promotion, or don’t get the respect you deserve. When I was in corporate America, I had saved enough to live for two years without working. My boss knew it and so did the board of directors. But let’s be honest, some of us are struggling just to pay the bills. In that case, start thinking of your side hustle. What skills are in demand? What kinds of certifications can you take online? How many other languages do you know? Are you using LinkedIn or Clubhouse to make meaningful contacts? If you have time for Facebook, TikTok, Instagram, and Netflix, you have time to learn something new so that you can level up your skills and be ready for any opportunities that open up either in your current workplace or someplace else.

Old habits are hard to break. If you’re a people pleaser, think self-care is selfish, have limiting beliefs, or have resentments that you can’t let go of, some of these tips may seem out of reach. If so, find an accountability partner and just pick one or two to work on. It will change your life. Don’t just survive 2021. Thrive.

If this woo woo stuff appeals to you, feel free to follow me on Instagram at @illuminatingwisdom or check me out on my website. 

Finally, I hope to "see" some of you at AALS on January 8 at 1:15 EST at the Section on Socio-Economics, Co-Sponsored by Business Associations, Minority Groups and Securities Regulation: For Whose Benefit Public Corporations? Perspectives on Shareholder and Stakeholder Primacy. Join me and co-bloggers Joshua Fershee and Stefan Padfield, along with:

  • Robert Ashford, Professor of Law, Syracuse University College of Law
  • Lucian Arye Bebchuk, James Barr Ames Professor of Law, Economics, and Finance and Director, Program on Corporate Governance Harvard Law School
  • Margaret M. Blair, Milton R. Underwood Chair in Free Enterprise; Professor of Law,Vanderbilt University Law School
  • June Rose Carbone, Robina Chair in Law, Science and Tech, University of Minnesota Law School
  • Sergio Alberto Gramitto Ricci,Cornell Law School
  • Michael P. Malloy, Distinguished Professor of LawUniversity of the Pacific, McGeorge School of Law
  • Edward L. Rubin, University Professor of Law and Political ScienceVanderbilt University Law School
  • George B. Shepherd, Emory University School of Law

Stefan is giving us 8 minutes each, so there's no way you can get bored. See you there!

January 1, 2021 in Corporate Governance, Lawyering, Marcia Narine Weldon, Psychology, Wellness | Permalink | Comments (0)

Wednesday, December 30, 2020

Happy New Year & Four Bank Supervision Literature Reviews

BLPB readers, I hope that everyone is enjoying the holiday season and the semester break!  I also want to get an early start on wishing everyone a HAPPY NEW YEAR!!! 

Before we leave 2020, I wanted to share that if you missed Bank Supervision: Past, Present, and Future, a stellar virtual conference hosted by the Federal Reserve Board of Governors, Harvard Law School, and the Wharton School on December 11, you can still access the conference materials here.  There's lots of great stuff, including four literature reviews (below) that banking law profs researching in this area are certain to find helpful.  Enjoy!  And a big shout-out to the hosts for such a successful event!

Literature Review on Economics: Beverly Hirtle, Banking Supervision: The Perspective from Economics

Literature Review on Law: Julie Andersen Hill, Bank Supervision: A Legal Scholarship Review

Literature Review on History: Sean H. Vanatta, Histories of Bank Supervision

Literature Review of Supervisory Practices: Jonathan Fiechter and Aditya Narain, Enhancing Supervisory Effectiveness –Findings from IMF Assessments

December 30, 2020 in Colleen Baker, Financial Markets | Permalink | Comments (0)

Monday, December 28, 2020

Recent Part-Time and Visiting Law Faculty Postings: Temple Law and Boston University Law

This post catches up on a few recent position listings that may be of interest to business law faculty and have not yet been posted here.




Position Summary: The Temple University Beasley School of Law was recently notified that it will receive funding from the IRS to open and operate a Low Income Taxpayer Clinic (LITC) on its Main Campus in North Philadelphia which will also serve taxpayers in northeastern Pennsylvania. It is therefore soliciting applications for the position of Visiting Practice Professor of Law and Director of the LITC, which is expected to operate on a part-time basis during 2021. The position will begin on January 15, 2021 or as soon thereafter as practicable, and will run through the end of the calendar year. The Clinic Director will be expected to establish and operate the LITC, including developing a panel of pro bono attorneys and performing community outreach, and to take a leadership role in applying to the IRS for a multi-year grant, which will likely need to be submitted in June, 2021. In addition, the Clinic Director will be expected to develop and teach a course through which students can enroll to participate in the LITC for academic credit in 2021.

It is anticipated that this part-time, visiting position will be enhanced and converted into a clinical faculty position upon receipt of a multi-year grant from the IRS. A national search for an individual to fill the clinical faculty position will be conducted if the multi-year grant is received; the individual selected to fill the part-time visiting position will be eligible for consideration for the clinical faculty position.

Minimum Qualifications: Candidates must have an excellent academic record and a J.D. degree, as well as experience working in an LITC or equivalent organization, either as a student or practicing lawyer, or other tax practice experience. Candidates must have sufficient tax law expertise to perform and oversee the substantive and procedural aspects of client representation, and be either admitted to practice before the U.S. Tax Court or eligible for such admission.

Temple University values diversity and is committed to equal opportunity for all persons regardless of age, color, disability, ethnicity, marital status, national origin, race, religion, sex, sexual orientation, gender identity, veteran status, or any other status protected by law; it is an equal opportunity/affirmative action employer, and strongly encourages veterans, women, minorities, individuals with disabilities, LGBTQI individuals, and members of other groups that traditionally have been underrepresented in law teaching to apply.

To Apply: Potential candidates are encouraged to contact the selection committee’s Chair, Professor Alice Abreu, at with the following: 1) cover letter and/or statement of interest; 2) resume or CV; 3) the names, affiliations, and contact information for at least three individuals who can serve as professional references; and 4) any other material that demonstrates the candidate’s ability to succeed in the position, such as a publication, brief, or similar document.

Applications should be submitted as soon as possible; interviews, which will be conducted online, could begin as early as January 4, 2021. The position will remain open until filled. 




BU Law is hiring for a Visiting Clinical Assistant Professor to teach in the BU/MIT Technology Law Clinic, part of BU Law’s unique collaboration with MIT to provide legal assistance to current MIT and BU students. This is a two-year position, for the 2021–22 and 2022–23 academic years.  

BU Law believes that the cultural and social diversity of our faculty, staff, and students is vitally important to the distinction and excellence of our academic programs. To that end, we are especially eager to hear from applicants who support our institutional commitment to BU as an inclusive, equitable, and diverse community.

More information and application instructions are available at Applications received before January 31, 2021 will be given full consideration.

December 28, 2020 in Clinical Education, Joan Heminway, Jobs, Teaching, Technology | Permalink | Comments (0)

Sunday, December 27, 2020

Should We Call it Moral Money?: Ownership Matters and Commitment Too

In my previous post on the "Study on Directors' Duties and Sustainable Corporate Governance" ("Study on Directors' Duties") that Ernst & Young prepared for the European Commission (Commission), I focused on the transformative power of corporate governance. I said that stakeholder capitalism would have a practical value if supported by corporate governance rules based on appropriate standards such as the ones provided by the Sustainable Development Goals (SDGs).

Some of my pointers for the Commission were the creation of a regulatory framework that enables the representation and protection of stakeholders, the representation of “stakewatchers,” that is, non-governmental organizations and other pressure groups through the attribution of voting and veto rights and their members’ nomination to the management board (similar to German co-determination). I also suggested expanding directors' fiduciary duties to include the protection of stakeholders’ interests, accountability of corporate managers, consultation rights, and additional disclosure requirements.

In my last guest post in this series dedicated to the Study on Directors’ Duties, I ask the following questions. Do investors have a moral duty to internalize externalities such as climate change and income inequality, for example? Do firm ownership and investor commitment matter? Should investors’ money be “moral” money? 

In their study Corporate Purpose in Public and Private FirmsClaudine Gartenberg and George Serafeim utilize Rebecca Henderson’s and Eric Van den Steen’s definition of corporate purpose, that is, “a concrete goal or objective for the firm that reaches beyond profit maximization.” In their paper, Gartenberg and Serafeim analyzed data from approximately 1.5 million employees across 1,108 established public and private companies in the US. In their words:

[W]e find that employee beliefs about their firm’s purpose is weaker in public companies. This difference is most pronounced within the salaried middle and hourly ranks, rather than senior executives. Among private firms, purpose is lower in private equity owned firms. Among public companies, purpose is lower for firms with high hedge fund ownership and higher for firms with long-term investors. We interpret our findings as evidence that higher owner commitment is associated with a stronger sense of purpose among employees within the firm.

With institutional investors on the rise, these findings are important because they redirect our attention from the board of directors’ short-termism discussion to shareholders' nature, composition, ownership, and long-term commitment. When it comes to owner commitment, Gartenberg and Serafeim say:

Owner commitment could lead to a stronger sense of purpose for multiple reasons. First, to the extent that commitment translates to an ability to think about the long-term and avoid short-term pressures, this would enable a firm to focus on its purpose rather than on solely short-term performance metrics. Second, committed owners may invest to gain and evaluate more soft information about firms, which in turn may allow managers to invest in productive but hard to verify projects that otherwise would not be approved by less committed owners (e.g., Grossman and Hart, 1986). Third, committed owners might mitigate free rider problems inside the firm, allowing employees to make firm-specific investments with greater confidence that they will not be subject to holdup by firm principals (Alchian and Demsetz 1972; Williamson 1985), which in turn could enhance the sense of purpose inside the organization. A similar argument could hold for customers, suppliers, and other stakeholders, who could see a strong sense of corporate purpose from owner commitment as a credible signal that enables the development of trust or ‘relational contracts’ (Gibbons and Henderson 2012; Gartenberg et al. 2019).

Gertenberg’s and Serafeim’s paper also discloses other findings. They found that firms are more likely to hire outside CEOs when less committed investors control the firms. Additionally, those firms are more likely to pay higher executive compensation levels, particularly relative to what they pay employees. Those firms also engage more frequently in mergers and acquisitions and other corporate restructuring processes. A simple explanation for this would be that such firms have higher agency costs since their ownership is more dispersed.

If we understand the company’s ownership structure, we know the purpose of the company. Therefore, there must be an underlying mechanism to better understand the company’s ownership structure because it will help us understand the company's purpose better. 

Besides, Gertenberg’s and Serafeim’s findings spell out that financial performance and corporate ownership positively impact corporate culture, employees' satisfaction, and employee work meaningfulness. Putting it differently, the corporate culture, employees' satisfaction, and employee work meaningfulness can be standards for evaluating the impact of corporate ownership, governance, and leadership.

Now that the focus is on investors, what can they do to change corporate behavior and consequently impact stakeholders like employees? They can be actively engaged through proxy voting. In their paper Shareholder Value(s): Index Fund ESG Activism and the New Millennial Corporate Governance, Barzuza, Curtis, and Webber explain that index funds often are considered ineffective stewards. The authors also explain how index funds have claimed an active role by challenging management and voting against directors to promote board diversity and sustainability.

Still, institutional investors manage their companies’ portfolios depending on the market, which is heavily impacted by systemic shocks we know will eventually occur. The Covid-19 pandemic has shown us how volatile markets are and our current economic model is.

Corporate laws of most European Union (EU) countries determine that the board of directors must act in the company's interest (e.g., Unternehmensinteresse in Germany, l'intérêt social in France, interesse sociale in Italy, etc.). Defining what the interest of the company is has shown to be a rather tricky endeavor. Gelter explains that, in all cases, one side of the debate claims that the company's interest is different from the interest of shareholders. In the US, the purpose of the company is commingled with the idea of shareholder wealth maximization.

To overcome the tension between prioritizing shareholders' wealth maximization and corporate purpose that considers shareholders' and stakeholders' interests, the Commission should take into account the following dimensions in developing policies in corporate law and corporate governance. 

  1. Investors’ ownership and their impact on intangibles like employees’ satisfaction and employee work meaningfulness.
  2. Governance structure and how it relates to the company’s ownership structure.
  3. Governance structure and how it integrates stakeholders’ interests in the decision-making process.
  4. Board diversity and recruitment.
  5. Institutional investors’ financial resilience.

Finally, investors should demand CEOs and boards of directors show how they are changing the game and moving the needle toward a more sustainable and resilient conception of the corporation. Why? Because ownership matters and commitment too.

December 27, 2020 in Agency, Business Associations, Comparative Law, Corporate Governance, Corporations, CSR, Financial Markets, Law and Economics, M&A, Private Equity, Shareholders | Permalink | Comments (0)

Saturday, December 26, 2020

The I in We

I am fascinated by Chancellor Bouchard’s opinions in the WeWork dispute, available here and here.

The backstory: In the wake of WeWork’s collapsed IPO, SoftBank – which was one of WeWork’s significant investors – agreed to buy additional equity from the company, to complete a tender offer for a large amount of WeWork’s outstanding equity, and to lend WeWork $5.05 billion.  It ended up buying the equity and the debt, but the tender offer fell through.  At that point, WeWork – on the authority of the 2-person Special Committee who had negotiated the SoftBank deal – filed suit against SoftBank for breaching its obligations under the contract.  The Board of WeWork – by then consisting of 8 people: the 2 members of the Special Committee, 4 others designated by and obligated to Softbank, and 2 more with SoftBank affiliations – appointed two new, ostensibly independent directors to serve as a new committee to investigate the litigation.  One of the Special Committee members objected to the appointment; the other abstained from the vote.

The new committee was charged with determining whether the Special Committee had authority to sue SoftBank.  To the utter shock of absolutely no one, they concluded that, in fact, the Special Committee had no such authority, that the Special Committee could not continue the lawsuit due to certain conflicts, and that in any event continuing the lawsuit was not in the best interests of the company.  Critically, one of the conclusions that the new committee reached was that WeWork – the company – had little to gain from the litigation because it was the tendering stockholders, and not the company, who would benefit from the completion of SoftBank’s tender offer.  Thus, the new committee sought to terminate the litigation. Bouchard was therefore confronted with warring committees, and had to decide whether the litigation against SoftBank would continue.

Probably the least interesting aspect of Bouchard’s decision was his determination that the test of Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981) – originally developed to determine the propriety of allowing a special committee to terminate derivative litigation – would be used to evaluate the new committee’s decision here.  That test requires that the court evaluate whether the new committee was independent acted in good faith, and conducted a reasonable investigation of the issues.  Assuming it did so, the court must evaluate whether in its own “business judgment” the motion to terminate the litigation should be granted.

Here, Bouchard held that assuming the new committee was independent and acted in good faith, its investigation was not reasonable, because it ignored several facts that suggested the Special Committee had the authority to litigate against SoftBank and did not properly weigh the benefits against the burdens of completing the litigation.  Bouchard also held that under Zapata’s second prong, in his judgment, the litigation should continue.  Thus, he refused to allow the new committee to terminate the lawsuit.

In a companion opinion, he evaluated SoftBank’s motion to dismiss the WeWork/Special Committee complaint against it.  Among other things, he held that WeWork had standing to sue over the failed tender offer, even though – as the new committee had also emphasized – the proceeds of the tender offer would go to tendering stockholders and not to the company itself.

What stands out here?

First, though Bouchard said he had “no reason to doubt” the good faith and independence of the new committee, I am not operating under such constraints.  The 2-man committee was appointed for a two month term, for which each was paid $250K, and the expected outcome of their investigation was undoubtedly known to each of them.  As Bouchard pointed out, they acted under significant constraints: not only were they on a clock, their limited mandate meant they could not, for example, take control of the litigation themselves and thus eliminate any purported conflicts under which the Special Committee acted.  Truly independent directors, who were acting in good faith, might have refused such a charge, but these directors had no such qualms, and they reached exactly the conclusions that their patrons expected of them.

The entire circumstances of their appointment should, I would think, raise questions about their good faith and independence, and honestly, I wonder how often courts are willing to take at face value the conclusions of directors who are appointed for a particular purpose in the expectation they will reach a particular result.  For example, I recall In re Oracle Corp. Derivative Litig., 824 A.2d 917 (Del. Ch. 2003), where two new ostensibly independent board members were appointed for the sole purpose of investigating claims against the incumbent board and concluded (again, shockingly) that the claims had no merit.  The court decided – controversially – that the new board members were not independent, but did so because of preexisting ties to the company, and not because of the circumstances of their appointment. 

There have previously been studies of how often board special committees conclude that derivative litigation against defendant board members has merit, and usually (but not always), they recommend dismissal.  But what has not been studied, as far as I know, is how often new directors are appointed to create a special committee, whether they are more likely to recommend dismissal than incumbent directors, and whether courts are more or less likely to take their recommendations seriously.  It’s possible sample sizes are just not big enough to draw conclusions, but I personally would be interested in an analysis of how new directors differ from incumbent directors in terms of their conclusions and/or the terms of their appointment.

I also note this: Delaware courts start with the presumption that corporate directors are so conscious of their fiduciary duties and so constrained by reputational concerns that they would not lightly betray their obligations for the crass material benefits that a board position can provide.  But if that’s going to work, reputations have to mean something, and once damaged, they should not lightly be rehabilitated.  Which is why I was so concerned by VC Zurn’s opinion in Rudd v. Brown.  There, the plaintiffs alleged that an activist shareholder appointed a compliant director to a company’s board in order to force a merger.  The plaintiffs claimed that this particular director lacked independence, because he had developed a sort of gun-for-hire reputation: activists had repeatedly appointed him, knowing he would champion acquisitions they favored.  Zurn rejected the argument in a footnote:

Plaintiff also asserts in briefing that Brown had “a long history of being appointed to companies’ boards to push a merger or acquisition for short-term profit, including other companies that Engaged had targeted for a sale in the past.” Pl.’s Answering Br. at 37. Insofar as Plaintiff asserts that this gives rise to conflict, that assertion fails. Plaintiff provides no support for the proposition that a director is conflicted purely by virtue of his track record, and I am aware of none.

With this kind of precedent in hand, the newly-appointed WeWork directors had no worries that they were accepting a quarter-million dollars at the expense of their reputations with respect to future opportunities.  But what if they had such concerns?  What if appointing stockholders, as well, had to worry about directors’ past history of compliance?  What if a past history of noncompliance helped burnish directors’ credentials as independent monitors?  Wouldn’t that create a better system, where courts and minority stockholders had more faith in the special committee process?

Second, there’s the standing/harm issue.  Both of Bouchard’s opinions – the one dealing with the new committee’s attempt at dismissal, and the one dealing with SoftBank’s dismissal motion – had to address the argument that WeWork the company was not harmed by SoftBank’s abandonment of the tender offer, since it was the individual stockholders, and not the company, who missed out.  And this interests me because, in a roundabout way, it touches on the issue I raised a couple of weeks ago – namely, when a merger agreement falls through, is the harm to selling stockholders direct or is it derivative?

In this case, the new committee and SoftBank argued that the tendering stockholders did not have a direct claim against SoftBank for breach of contract because they were not parties to SoftBank’s contract with WeWork, and the contract itself specified there were no third party beneficiaries.  They also argued that if the tendering stockholders had a problem with the termination of WeWork’s litigation, their remedy was a derivative action.  See Op. at fn 253.  And then they argued that WeWork was not in fact harmed by the termination of the tender offer because WeWork would not have collected the proceeds.

That is … quite the paradox.

Rather than fully engage this thorny question of who suffers a harm from a terminated stock sale, Bouchard concluded that WeWork as a company suffered a harm because if SoftBank increased its equity stake, it would have more of an interest in monitoring WeWork’s performance.

That is, I have to say, unsatisfying.  I mean, by that logic, SoftBank would have the greatest interest in monitoring WeWork’s performance if it was planning to buy the whole company.  But we know from Revlon that when there’s an offer to sell the whole company for cash, it’s an endgame transaction – we’re not worried about the company’s future after that point; instead, we’re worried about the selling stockholders. 

Anyway, all of this just highlights to me that it’s a blip in the law, and perhaps unresolvable.  At the end of the day, in a shareholder-wealth-maximization world, all harms to the company matter because they are harms to stockholders, and the direct/derivative distinction is not a fact of nature, but a policy judgment as to which types of claims should be handled by the board in the first instance and which should not.  So it stands to reason there wouldn’t be complete doctrinal coherence for the edge cases.

December 26, 2020 in Ann Lipton | Permalink | Comments (1)