Business Law Prof Blog

3 Views on High-Speed Trading and Securities Markets

Michael Lewis, the author of Liar's Poker and The Big Short, has just released a new book, Flash Boys: A Wall  Street Revolt. He argues that high-speed trading results in “rigged” securities markets. I don't always agree with Lewis's positions, but he writes well and it should be an interesting book.

Here are two other interesting takes on the effect of high speed trading on securities markets:

• Yesha Yadav, Beyond Efficiency in Securities Regulation. An academic article arguing that the rise of algorithmic trading “profoundly challenges” notions of market efficiency.

• Scott Patterson, Dark Pools: The Rise of the Machine Traders and the Rigging of the U.S. Stock Market. A very interesting look at the rise of high-speed, computerized trading and its effect on the market.

 

The Conglomerate on Hobby Lobby

Our friends at The Conglomerate recently conducted an excellent online symposium on the Hobby Lobby case.

All of the posts have been collected here.

It was refreshing to read such a thoughtful and balanced set of posts.

How would former Chief Justice Rehnquist have ruled on Hobby Lobby?

In my article, “The Silent Role of Corporate Theory in the Supreme Court’s Campaign Finance Cases,” 15 U. Pa. J. Const. L. 831, I criticized the Supreme Court justices for failing to acknowledge the role of competing conceptualizations of the corporation in their corporate political speech cases.  I noted, however, that former Chief Justice Rehnquist was arguably the lone modern justice to deserve at least some praise in this area.

Justice Rehnquist's stand-alone dissent in Bellotti provides arguably the sole example in these opinions of a Justice affirmatively adopting a theory of the corporation for purposes of determining the constitutional rights of corporations--though not via the express adoption of one of the traditionally recognized theories. Specifically, Justice Rehnquist relied on Justice Marshall's Dartmouth College opinion to conclude that: “Since it cannot be disputed that the mere creation of a corporation does not invest it with all the liberties enjoyed by natural persons . . . our inquiry must seek to determine which constitutional protections are ‘incidental to its very existence.”’ Thus, while it may be true that “a corporation's right of commercial speech . . . might be considered necessarily incidental to the business of a commercial corporation[, i]t cannot be so readily concluded that the right of political expression is equally necessary to carry out the functions of a corporation organized for commercial purposes.” I would argue that this is a formulation most aligned with concession theory because not only does Justice Rehnquist rely on Dartmouth College, but he also goes on to say: “I would think that any particular form of organization upon which the State confers special privileges or immunities different from those of natural persons would be subject to like regulation, whether the organization is a labor union, a partnership, a trade association, or a corporation.”  Stefan J. Padfield, The Silent Role of Corporate Theory in the Supreme Court's Campaign Finance Cases, 15 U. Pa. J. Const. L. 831, 853 (2013) (quoting First Nat'l Bank of Bos. v. Bellotti, 435 U.S. 765 (1978)).

While this is only one data point, I think it suggests the former Chief Justice would have been hesitant to grant corporations any form of free exercise rights, since it is difficult to see how free exercise rights are more incidental to a corporation’s existence than political speech rights.  Cf. Kent Greenawalt, Religion and the Rehnquist Court, 99 Nw. U. L. Rev. 145, 146 (2004) (“With limited qualifications, the Rehnquist Court has abandoned the possibility of constitutionally-required free exercise exemptions.”).

For more on concession theory, I shamelessly suggest my more recent article, “Rehabilitating Concession Theory,” 66 Okla. L. Rev. 327 (2014) (“the reports of concession theory's demise have been greatly exaggerated”).  And if you find that of interest, you can check out my latest SSRN posting, “Corporate Social Responsibility & Concession Theory.”

Going Off Book

This semester, I’m teaching Securities Litigation at Duke Law.  It’s my first time teaching, so I’ve had to construct a syllabus (relying in part on syllabi provided to me by instructors at other law schools who teach similar courses).

There is a casebook, Securities Litigation and Enforcement, that I’ve been relying upon.  However, in my class, I plan to deal not only with federal law claims, but also claims brought under state law.  State law isn’t a part of this casebook, and I haven't found anyone else who has taught it.  So, for this part of the class, I’m on my own.

[More under the cut]

Continue reading

Harvard Negotiation Institute

Just received my confirmation for the Harvard Negotiation Institute, which takes place this June at Harvard Law School.

I decided to jump right into the "Advanced Negotiation" workshop, so we will see how that goes.  It is pricey, but I hope it to be a good investment for my institution and something I can draw on in my classes.

Like I have said before, I believe that negotiation should be a required course at law schools and business schools everywhere (though I realize that is now a self-interested opinion).  Every lawyer and business person spends a great deal of time negotiating. 

After the Institute, I am sure I will blog about the experience. 

Northwestern, NCAA, and Negotiation

Now that I am teaching MBA courses in negotiation, I see negotiations everywhere.

For example, in reading about the extremely interesting NLRB ruling in favor of the Northwestern University football players – holding that the players are “employees” and can unionize – I came across this Sports Illustrated article:  Northwestern ruling sends clear message: NCAA, it's time to negotiate.

Former Northwestern quarterback Kain Colter does a nice job articulating some of the interests from the players’ side of things in this video.

Given this ruling, which will be appealed, and the O’Bannon v. NCAA case which is set for trial on June 9, there is likely to be a great deal of negotiation between the NCAA and players outside of the courtroom over the next few months.  As the cases move closer to potential resolutions in favor of the players, the NCAA’s BATNA (best alternative to a negotiation) weakens.   The NCAA, however, may raise doubts about the players’ BATNA, by raising things like the possible tax implications of a court victory.

These will be complex, multi-party, multi-issue negotiations.  The parties with interests at stake include current and former players, coaches and athletic directors, colleges and universities, the NCAA, and the lawyers on either side.  The sports fans also have interests at stake, but while we may be considered, I doubt we will get an actual seat at the negotiation table. 

The interests of all these groups create quite the confusing web.  The NCAA and the players would be wise to ask questions aimed at uncovering all of the underlying interests of the other parties and try to reach a mutually beneficial resolution outside of court.

For more information, from other professors, on the NLRB ruling in favor of the Northwestern football players see below:

• Marc Edelman (CUNY)
• Darryll Jones (FAMU)
• Kim Krawiec (Duke)
• Michael McCann (New Hampshire) (here and here)
• Steven Wilborn (Nebraska)

Networking, Selfishness, and Friends in Business

Recently, I came across a post on the Wall Street Journal’s website by Warby Parker co-founder Neil Blumenthal entitled My Advice? Stop “Networking.”

This short post caught my eye for two reasons.

First, Warby Parker is a certified B corporation and one of the more visible (they sell glasses… humor is not my strong suit) and successful companies in the for-profit social enterprise movement. 

Second, since my move to a business school last fall, I have heard the term “networking” with increasing frequency.  Sure, “networking” is discussed in law schools and there are some networking events, but in business schools the term “networking” is ubiquitous and the events focused on “networking” are constant. 

"Networking" has some negative connotations, but I think Blumenthal’s attack is misplaced.  Instead of attacking “networking,” Blumenthal would have done better to attack “selfishness.”  

There is nothing wrong, and much good, in the dictionary definition of “networking”:

the exchange of information or services among individuals, groups, or institutions; specifically: the cultivation of productive relationships for employment or business.

Networking can be a wonderful thing, for everyone involved, if you can keep the selfishness at a minimum.  Unfortunately, many people network in a selfish manner. 

Blumenthal also writes about breaking down the walls between our work and personal lives, but sometimes those walls are healthy.  He writes about the joys of involving friends in business, but sometimes involving friends in business is unwise.  

Those of us in the corporate law world have seen and read about countless businesses that turned friend against friend, mentor against mentee, and family member against family member. 

I am thankful that my professional and personal contacts overlap significantly.  Just yesterday, I had two long phone conversations with people I consider both professional contacts and valued personal friends.  That said, I am also thankful that I have friends who have nothing to do with work and some professional contacts who never venture outside of my work circles. 

In short, while I understand Blumenthal’s negative reaction to “networking,” I think "selfishness" is the real problem.  Further, I understand the great happiness he may be experiencing by involving friends in his business, but I also hope he recognizes that business may put great strain on those personal relationships. 

Do consumer boycotts matter to companies?

I wonder how many people are boycotting Hobby Lobby because of the company’s stance on the Affordable Health Care Act and contraception. Perhaps more people than ever are shopping there in support. Co-blogger Anne Tucker recounted the Supreme Court’s oral argument here in the latest of her detailed posts on the case. The newspapers and blogosphere have followed the issue for months, often engaging in heated debate. But what does the person walking into a Hobby Lobby know and how much do they care?

I spoke to reporter Noam Cohen from the New York Times earlier today about an app called Buycott, which allows consumers to research certain products by scanning a barcode. If they oppose the Koch Brothers or companies that lobbied against labels for genetically modified food or if they support companies with certain environmental or human rights practices, the app will provide the information to them in seconds based on their predetermined settings and the kinds of “campaigns” they have joined. Neither Hobby Lobby nor Conestoga Woods is listed in the app yet. 

Cohen wanted to know whether apps like Buycott and GoodGuide (which rates products and companies on a scale of 1-10 for their health, environmental and social impact) are part of a trend in which consumers “vote” on political issues with their purchasing power. In essence, he asked, has the marketplace, aided by social media, become a proxy for politics? I explained that while I love the fact that the apps can raise consumer awareness, there are a number of limitations. The person who downloads these apps is the person who already feels strongly enough about an issue to change their buying habits. These are the people who won’t eat chocolate or drink coffee unless it’s certified fair trade, who won’t shop in Wal-Mart because of the anti-union stance, and who sign the numerous change.org petitions that seek action on a variety of social and political topics. 

I had a number of comments for Cohen that delved deeper than the efficacy of the apps. The educated consumer can make informed choices and feel good about them but how does this affect corporate behavior? Although the research is inconsistent in some areas, most research shows that companies care about their reputations but the extent to which a boycott is effective depends on the amount of national media attention it gets; how good the company’s reputation was before the boycott (many firms with excellent reputations feel that they can be buffered by previous pro-social behavior and messaging); whether the issue is one-sided (child labor) or polarizing (gay marriage, Obamacare, climate change); how passionate the boycotters are; how easy it is to participate (is the product or service unique); and how the message is communicated. 

Many activists have done an excellent job of messaging. The SEC Dodd-Frank conflict minerals regulation made it through Congress through the efforts of NGOs that had been trying for years to end a complex, geopolitical crisis that has killed over 5 million people. They got consumers, social media and Hollywood actors talking about “blood on the mobile” or companies being complicit in rape and child slavery in Congo because when they changed the messaging they elicited the appropriate level of moral outrage. The conflict minerals “name and shame” law depends on consumers learning about which products are sourced from the Congo and surrounding countries and making purchasing decisions based on that information. Congress believes that this will solve an intractable human rights crisis. The European Union, which has a much stronger corporate social responsibility mandate for its member states has taken a different view. Although it will also rely on consumers to make informed choices, its draft recommendations on dealing with conflict minerals makes reporting voluntary, which has exposed the EU to criticism. As I have written here, here, here here and here, relying on consumers to address a human rights crisis will only work if it leads to significant boycotts by corporations, investors or governments or if it leads to legislation, and that legislation cannot harm the people it is intended to help.

So what do I think of apps like GoodGuide, BuyCott and 2ndVote (for more conservative causes)? I own some of them. But I also send letters to companies, vote regularly, call people in Congress and write on issues that inspire me. How many of the apps’ users go farther than the click or the scan?  Some researchers have used the word “slacktivists” to describe those who participate in political discussions through social media, online petitions and apps. The act of pressing the button makes the user feel good but has no larger societal impact. 

What about the vast majority of consumers? The single mother shopping for her children in a big-box retailer or in the fast food restaurant that has been targeted for its labor practices may not have the time, luxury or inclination to buy more “ethically sourced” products.  Moreover, studies show that consumers often overreport on their ethical purchasing and that price, convenience and costs typically win out. The apps’ developers may have more modest intentions than what I ascribe to them. If they can raise consumer awareness- admittedly for the self-selected people who buy the app in the first place- then that’s a good thing.  If the petitions or media attention lead to well-crafted legislation, that’s even better.

 

 

 

“EVERYTHING MUST STAY IN PLACE” – PRESIDENT BUSINESS, THE LEGO MOVIE

A little more than six weeks ago The Lego Movie hit theaters. Without getting into too much detail for those of you who have not yet seen the movie or who will never get around to seeing the movie, in essence it’s about an ordinary guy who’s mistakenly identified as an extraordinary “MasterBuilder”. He is recruited to fight against a Lego villain (President Business-we can call him P.B.) who is intent on gluing everything together. The anti-PB crusaders like having the freedom to dismantle, break, and re-make their Lego creations and shudder at the thought of having everything permanently fixed in place. PB, on the other hand, is intent on perma-gluing the Lego bricks together because he likes the certainty and control of knowing where everything is, and he is wary of innovation or change. Hence, his admonition- “EVERYTHING MUST STAY IN PLACE.”

Now as I watched this battle unfold between President Business’ pro-gluing supporters on one hand, and the pro-change supporters on the other, I could not help but see some similarities between the Lego people’s contested views on the purpose of Legos and our society’s contested views on the purpose of corporations. In The Lego Movie it is a contest between staying in place and the freedom to innovate and create, while in the corporate purpose debate it is a contest between profit maximization/shareholder primacy and ANYTHING ELSE THAT DARES TO SAY ANYTHING OTHER THAN SHAREHOLDER PRIMACY (e.g., creating shared value; stakeholder theory; team production).

While shareholder primacy has both normative and pragmatic appeal, one cannot help but wonder whether this traditional conceptualization of corporations is open to being re-made, or must it be immovable and “stay in place”. In other words, if we accept that our world today is markedly different from the one that existed when shareholder primacy came into vogue, are we selling ourselves short by clinging to a mantra that may no longer be ideal or that may need to be revamped?

Consider a new report by McKinsey [Dr. Maximilian Martin of Impact Economy], titled “Impact Economy, Driving Innovation through Corporate Impact Venturing – A Primer on Business Transformation”.  In essence, the report finds that pursuing a profit-as-usual model with “CSR” as a tangential activity is “fast coming to an end.” According to the report, this is because “[a] new paradigm is emerging in its place that is responding to structural changes in the operating environments of business.” The McKinsey [Impact Economy] report points to four “megatrends” that are nudging corporations towards a more transformative and holistic view of their role and purpose – what McKinsey [Impact Economy] terms “sustainable value creation.” These four trends are: (i) significant opportunities at the Base of the Pyramid (BoP); (ii) a $540 billion market for “Lifestyles of Health and Sustainability Consumption”; (iii) the growth in markets “resulting from green growth and the circular economy”; and (iv) the “modernization of the welfare state.” The conclusion reached by the report is that “companies are well advised to grasp the changing tectonics of value creation and tackle markets accordingly if they want to remain competitive in the long run.”

This new McKinsey [Impact Economy] report is of course not alone in making the case for a more expansive view of corporate purpose (for example, the Aspen Business & Society Program’s report on long-term value creation, or Michael Porter’s work on creating shared value). But what does it take to move the needle? In the Lego Movie, it took President Business and the head of the pro-change supporters realizing that their views were really not that far apart. Maybe that too is the winning answer for the corporate purpose debate – those corporations who are successful in responding to the aforementioned mega trends and other societal needs stand to be the ones who provide the most value creation for society and their shareholders.

UPDATE 4/15/14: The original version of this post improperly identified McKinsey as the source of the “Impact Economy, Driving Innovation through Corporate Impact Venturing – A Primer on Business Transformation” report.  The post has been corrected to reflect the fact that the report was written by Dr. Maximilian Martin of Impact Economy.

Hobby Lobby Corporate Argument Recap

I had the distinct honor and privilege of attending oral argument in the Hobby Lobby/Conestoga case at the Supreme Court today. I will be writing a substantive post on the experience in the future, but for now I wanted to share with you the highlights of the corporate-focused arguments.  It will be quick because the issues of whether corporations are persons and therefore have standing under RFRA and whether corporations can have religious identies got relatively little attention during the 90 minute argument.

Justice Sotomayor lead the charge on the corporate issues challenging Paul Clement (arguing for Hobby Lobby/Conestoga) to identify where the law protects corporate religion and how can a corporation have religious beliefs.  Justice Sotomayor also asked how courts will decide the religion of the corporation-- is it 51% of shareholders' beliefs?  dependent upon officers? the board?  (This line of quesitoning tracks with an argument that I made here in an Op-ed).  Clements, pointing to the scienter doctrine, suggested that the law has already decided that corporations have beliefs and intent. Clement also suggested that the nature of a corporation's belief could be judged by looking at corporate governance documents and that it would become a question of sincerity.  

The sincerity of the corporate religious belief is a thread that Chief Justice Roberts picked up in his questioning of Soliciter General Donald Verrilli, arguing for the Government.  Chief Justice Roberts suggested that he was willing to leave for another day questions about the extention of the exception sought by Hobby Lobby to large, public companies, noting that it would turn, in part, on the sincerity of the corporate belief.

The absence of legal precedent for corporate religious rights advanced by Verrilli was quickly countered by Justice Scalia that corporate religious rights had never been denied.

U.S. v. Lee was raised several times during the oral argument.  This case was signifcant in the oral argument, and I think will be a major part of the final opinion.  At issue in Lee was a religious exemption claim brought by an Amish employer to avoid paying social security taxes. The Lee opinion recognized that religious interests were infringed upon, but found that the countervailing interests in the social security system and the rights of the other employees tipped the balance against the exemption.  The Lee opinion discussed the choice and consequences of entering the marketplace, a theme that was returned to in oral argument today.  Drawing on Lee, both Justices Alito and Breyer questioned whether using the corporate form required the forfeiture of free exercise and religious freedoms.

The issue of whether a corporation is a "person" for purposes of RFRA was largely left to the Dictionary Act, which includes corporations.  Soliciter General Verrilli argued that "free exercise" however was not defined and left open quesitons of applicability to corporations.  No one was distracted by the corporate personhood debate today.

UPDATED:  I am participating in a Huffington Post Live recap on Hobby Lobby oral argument at 2:00 today (March 26th)--access it here.

-Anne Tucker

Last Minute Hobby Lobby Thoughts & Why Reverse Veil Piercing Isn’t the Answer

With oral arguments today in the Hobby Lobby case, I thought I’d pile on a few last thoughts:

(1) As I explained here, entities should be able to take on a racial, religious, or gender identity in discrimination claims.  I would add that I feel similarly about sexual orientation, but (though I think it should be) that is still not generally federally protected. To the extent the law otherwise provides a remedy, I’d extend it to the entity. 

(2) It is reasonable to inquire, why is discrimination different than religious practice?  For me, I just don’t think religious exercise by an entity is the same as extending discrimination protection to an entity.  There is something about the affirmative exercise of religion that I don’t think extends well to an entity.   That is, discrimination happens to a person or an entity. Religious practice is an affirmative act that is different.  Basically, reification of the entity to the point of religious practice crosses a line that I think is unnecessary and improper because discrimination protection should be sufficient.

As a follow up to that, I also think it's a reasonable question to ask: Why is religion different than speech? To me it is different because entities must speak, but entities don’t have to practice religion.  The entity needs speech to conduct business. A public entity speaks in its public filings.  Speech is not just something an entity could do. It is something it must do.  Religion, at the entity level is not necessary. 

(3) Reverse piercing is not as good a solution as it might appear.  Professor Bainbridge suggests that reverse veil piercing is one way in which the religion of the shareholders could be used to justify extending a religious identity to the Hobby Lobby entity, thus allowing the entity to object to certain provisions of the federal healthcare mandate.  His argument is, as usual, reasonable and plausible. Still, as explained above, I don't think this is necessary. 

More important, though, I don’t like expanding the use of any form of veil piercing. Veil piercing is supposed to be used (at least in my view) solely as a heightened level of fraud protection.  It is already used too often and too haphazardly, and further degradation of the line between the entity and others is a dangerous proposition, regardless of the purpose.  That is, as people (and courts) get more comfortable with disregarding the entity, they are more likely to disregard the entity.  As a general proposition, I think that’s a bad outcome. That alone is reason enough for me to hope the Court will pass on reverse veil piercing as a potential remedy. 

Comprehensive Law School Bibliography

 

Two of the reference librarians at my school, Marcia Dority Baker and Stefanie Perlman, have compiled and published a bibliography of all the scholarship by Nebraska College of Law faculty going back to 1892: Marcia L. Dority Baker & Stefanie S. Perlman, A BIBLIOGRAPHY OF UNIVERSITY OF NEBRASKA COLLEGE OF LAW FACULTY SCHOLARSHIP 1892-2013 (2014).

I don’t know if others schools have done anything like this, but I think it’s a great idea. It’s really interesting to look at what people were writing one hundred years ago, and to consider the body of work of my current colleagues, only a couple of whom I believe were here a hundred years ago. I found the 14 pages of entries for the great legal scholar Roscoe Pound, including dozens of books, humbling.

On the domestic front, I’m happy to report that my listing is twice as long as my wife’s, although I’m not sure she will be happy to know that I reported that. I want to make it clear that she was not here a hundred years ago.

The Weekly BLT for March 23, 2014

I'm trying out a new weekly blog post theme, "The Weekly BLT," wherein I highlight a few interesting business law tweets that I've come across in the past week that have not yet made it to the BLPB.

 

 

My CSR Podcast interview with Prof. Volokh on the religious rights of corporations is up: http://t.co/63jizikbZg #CSR #hobbylobby

— Prof David Yosifon (@DavidYosifon) March 17, 2014

"The problem ... is that ... Kiobel ... ignore[s] the robust corporate identity [recognized in Citizens United]" http://t.co/RI0BefWUUr

— Stefan Padfield (@ProfPadfield) March 18, 2014

"Only ... 10 percent of S&P 500 companies reported the number of environmental fines paid." http://t.co/rthzXPwy2w

— Stefan Padfield (@ProfPadfield) March 17, 2014

John Cunningham: "one of the best discussions I’ve ever seen about the application of veil-piercing doctrine to LLCs" http://t.co/xJae7nGqQm

— Stefan Padfield (@ProfPadfield) March 17, 2014

"traditional theory about shareholder voting..does not reflect recent fundamental changes as to who shareholders are" http://t.co/e9LsR4YUtp

— Stefan Padfield (@ProfPadfield) March 17, 2014

New York Times Hobby Lobby Editorial: "Crying Wolf on Religious Liberties"

The New York Times editorial board weighing in on, and against, corporate religious exemptions.

"The Supreme Court has consistently resisted claims for religious exemptions from laws that are neutral and apply broadly when the exemptions would significantly harm other people, as this one would. To approve it would flout the First Amendment, which forbids government from favoring one religion over another — or over nonbelievers."

And they cite the corporate law professors' brief, writing:

"as an amicus brief filed by corporate law scholars persuasively argues, granting the religious exemption to the owners would mean allowing shareholders to pass their religious values to the corporation. The fundamental principle of corporate law is a corporation’s existence as a legal entity with rights and obligations separate from those of its shareholders."

Congratulations to the main brief writing team for a document that has generated a lot of debate and raised the profile of the corporate law issues in this case.

-Anne Tucker

Are poison pills unconstitutional?

Professors Lucian Bebchuk and Robert Jackson have recently posted a paper to SSRN, Toward a Constitutional Review of the Poison Pill.  In the paper, they argue that state laws that facilitate the use of “poison pills” are unconstitutional in the sense that they are in conflict with the Williams Act, because they have the potential to introduce undue delay into the tender offer process.  To the extent Profs. Bebchuk and Jackson purport to be summarizing existing doctrine, I have my doubts....

[More after the jump]

Continue reading

The Number of Delaware Public Benefit Corporations

Statutory provisions allowing for the formation of Delaware Public Benefit Corporations ("PBCs") went effective August 1, 2013.  According to the latest data I have, 87 PBCs have been formed in Delaware .

While 87 is an extremely small number when compared to the more than 1 million entities formed in Delaware, Delaware has already bested all states that have passed a benefit corporation statute, except for California.  California, which has a 20 month head-start on Delaware, has 139 benefit corporations.

Some states, like New Jersey and South Carolina have been stuck at fewer than 5 benefit corporations for well over a year.

The group of researchers I am working with now estimates that there are about 350 benefit corporations in the U.S. (including PBCs), though the data is relatively difficult to obtain from the secretary of state's offices and obtaining reliable, complete data is even more difficult.

Currently, there are no significant tax benefits (at the state or federal level) for social enterprises (like PBCs and benefit corporations) in the U.S., but the U.K. recently announced 30% tax relief for their social enterprises. (The U.K. social enterprises are a good bit different than those in the U.S.). 

It will be interesting to see if the benefit corporation form increases in popularity or languishes. 

Obviously, if tax breaks were given to benefit corporations in the U.S., popularity would likely rise.  That said, tax breaks would also likely lead to misuse of the form and the need for additional oversight.  (Additional oversight is already in place in the U.K.)

Andrew Carnegie, Struggle, and Failure

On spring break, I found a hardcover copy of Professor David Nasaw’s biography of Andrew Carnegie in a Boone, NC thrift shop for $1.  (Good books and good deals are two of my favorite things).  A New York Times book review is available here.

I only made it about 200 pages into the fascinating 801 page biography before returning to work.  I am currently on page 293, but already have some thoughts to share.

Before digging into this book, “failure” was one of the last words I would have associated with Andrew Carnegie.  Carnegie is well known as one of the “captains of industry” (in the steel business) and as an extremely generous philanthropist.  Even the word “struggle” is not a word I would have associated with Andrew Carnegie; from a distance, everything seemed to come easily for him.

But, like most of us, Carnegie experienced failure, and his life was marked by numerous struggles.

[More after the break] 

Continue reading

Corporate Religious Exemptions & Personal Individual Disclosures

My op-ed on the Hobby Lobby case, A Bad Investment: Recognizing Religous Rights of Corporations, is available on Huffington Post. 

The Hobby Lobby arguments are couched in terms of religious freedom, but it is hard to see the net gain for liberties when such a rule could require religious disclosures and could lead to restricting investments to religiously like-minded investors. Elevating private religious beliefs to a matter of market importance threatens to chill the marketplace and erodes the long-respected boundaries between private religious beliefs, the realm of the state and the role of the marketplace.

I will be attending the Hobby Lobby oral arguments at the Supreme Court.  I will be posting updates and analysis here and at twitter (@Anne_M_Tucker) on March 25th (day of argument) and the 26th.

-Anne Tucker

Some light reading just in time for proxy season

It’s proxy season and the Conference Board has released a series of reports on investor engagement and corporate governance. In “The Conference Board Governance Center White Paper: What is the Optimal Balance in the Relative Roles of Management, Directors, and Investors in the Governance of Public Corporations?” the authors provide a 76-page overview of the evolution of US corporate governance, describing key trends and issues.

The report begins by discussing the history of the allocation of roles and responsibilities for governance of public companies. If I thought my law students would read it, I would assign this section to them.  The second part of the paper addresses the legal, social and market trends that have influenced the historical allocation of rights. Specifically, it reviews:

a) the increasing influence of institutional investors resulting from the concentration of ownership in institutional investment, changes in voting rules and practices and more assertive shareholder activism;

b) shifting conceptions about the purpose of the corporation and the duty to maximize corporate value, with a strong emphasis on shareholder wealth maximization;

c) decreased public trust of business leaders following the corporate scandals of 2001-2002 and 2007-2008;

d) federal regulation intended to enhance the influence of shareholders and increase board and management accountability;

e) continuing related to executive compensation and incentives; and

f) the growth of proxy advisory firms in the shareholder voting process. 

Some interesting statistics:

a) in 2013, 25% of all shareholder proposals were sponsored by two individuals and their family members and family trusts;

b) from 2006-2013, 33% of shareholder proposals submitted to Fortune 250 companies were sponsored by investors affiliated with labor; 26% by corporate gadflies; 25% by religious, social impact and public policy organizations; and 15% by other individual investors;

c) 241 activist campaigns were launched in 2012 up from 187 in 2009;

d) 69% of proxy contests against the management of Russell 3000 companies during the 2013 proxy season were launched by activist hedge funds; and

e) one third of the activist hedge fund contests sought full control of the board.

The third part of the report briefly summarizes but does not provide any conclusions about the work of Professors Bainbridge, Stout, Anabtawi, Bebchuk, Laverty, and others. It considers the following questions (but does not answer them):

a) Do federal mandates undermine the benefits of a historically state-driven corporate law?

b) Are further changes to board processes and composition desirable?

c) Should shareholders assume a more active role in corporate governance?

d) Do proxy advisory firms replace, rather than augment, the shareholder voice, and should the proxy advisory industry be subject to greater regulation and oversight?

e) Can changes to voting mechanisms improve the effectiveness of corporate governance?

f) Is short-termism a cause of concern, and is so, what are its causes and remedies?

g) What new challenges are presented by vote decoupling, high-speed trading, and hyper portfolio diversification?

In next week’s post I will discuss the “Guidelines for Engagement” and the “Recommendations of the Task Force on Corporate/Investor Engagement.” In the meantime, I highly recommend downloading these complimentary reports.

Bouchard Nominated to Replace Strine as Chancellor

News from Delaware.gov (H/T Broc Romanek):

Governor Markell today announced the nomination of Andre G. Bouchard, widely recognized as one of the country’s premier corporate law practitioners, to serve as the 21^st Chancellor of the Court of Chancery. If confirmed by the Delaware Senate, Bouchard would succeed the Honorable Leo E. Strine, Jr., who was sworn in as Chief Justice of the Delaware Supreme Court in February.

Bouchard is a graduate of Boston College and Harvard Law School.  Currently, he is the managing partner of Bouchard Margules & Friedlander, P.A in Wilmington, Delaware. 

Looks like my friends in Delaware accurately predicted this nomination back in January.