Friday, March 20, 2015

Etsy's Dilemma

Etsy

The biggest recent news in the social enterprise world is that certified B corporation Etsy is going public.

Despite confusing press releases, Etsy is not legally formed as a benefit corporation, they are only certified by B Lab. (In one of the coolest comments I have received blogging, an Etsy representative admitted that they confused the "benefit corporation" and "certified B corporation" terms and corrected their public statements). If you are new to social enterprise, the differences between a "certified B corporation" and a "benefit corporation" are explained here.  

Etsy, however, will face a dilemma as noted in this article sent to me by Alicia Plerhoples (Georgetown). The B Lab terms for certified B corporations require Etsy to convert to a public benefit corporation (Delaware's version of the benefit corporation) within four years of the Delaware law becoming effective. Delaware's public benefit corporation law went effective August 1, 2013.

So, unless B Lab changes its terms, Etsy will lose its certified B corporation status if it does not convert to a public benefit corporation on or before August 1, 2017.

Given that converting to a public benefit corporation while publicly-traded would be extremely difficult--obtaining the necessary vote (currently 90% in Delaware, with a proposal being considered to move it back to the more typical 2/3), paying dissenters' rights, etc.--I imagine Etsy will need to make this decision before it goes public. Perhaps, Etsy will postpone the decision, and hope that they can just quietly lose their certification in 2017 or that B Lab will make an exception for them. Etsy's CEO is on record promising social responsibility, but we will see whether that promise includes maintaining B Lab certification and making a legal entity change.  

Currently, I am not aware of any publicly-traded benefit corporations, though Delaware public benefit corporation Plum Organics is a subsidiary of publicly-traded Campbell Soup Company.

Many interesting issues would stem from a publicly-traded benefit corporation; I have added a number of items to my article ideas list this morning.

This Etsy story is one I hope to follow, so stay tuned.

 

March 20, 2015 in Business Associations, Corporate Governance, Delaware, Haskell Murray, Social Enterprise | Permalink | Comments (2)

Thursday, March 19, 2015

This I Believe: On Corporate Purpose and the Business Judgment Rule

Prof. Bainbridge yesterday posted about The Modern Corporation Statement on Company Law.  The statement has ten fundamental rules, of which number ten is:

Contrary to widespread belief, corporate directors generally are not under a legal obligation to maximise profits for their shareholders. This is reflected in the acceptance in nearly all jurisdictions of some version of the business judgment rule, under which disinterested and informed directors have the discretion to act in what they believe to be in the best long term interests of the company as a separate entity, even if this does not entail seeking to maximise short-term shareholder value. Where directors pursue the latter goal, it is usually a product not of legal obligation, but of the pressures imposed on them by financial markets, activist shareholders, the threat of a hostile takeover and/or stock-based compensation schemes.

Prof. Bainbridge is with Delaware Chief Justice Strine in that profit maximization is the only role (or at least only filter) for board members.  As he asserts, “The relationship between the shareholder wealth maximization norm and the business judgment rule, . . . explains why the business judgment rule is consistent with the director's "legal obligation to maximise profits for their shareholders." 

Chief Justice Strine has noted that the eBay decision, which I have written about a lot, says that "the corporate law requires directors, as a matter of their duty of loyalty, to pursue a good faith strategy to maximize profits for the stockholders."  I think this is right, but I remain convinced that absent self-dealing or a “pet project,” directors get to decide that what is in the shareholders' best interests.

I have been criticized in some sectors for being too pro-business for my views on corporate governance, veil piercing law, and energy policy.  In contrast, I have also been said to be a “leftist commentator,” in some contexts, and I have been cited by none other than Chief Justice Strine as supporting a “liberal” view of corporate norms for my views on the freedom of director choice. 

When it comes to the Business Judgment Rule, I think it might be just that I believe in a more hands-off view of director primacy more than many of both my “liberal” and “conservative” colleagues. Frankly, I don’t get too exercised by many of the corporate decisions that seem to agitate one side or the other.  I thought I’d try to reconcile my views on this in a short statement. I decided to use the model from This I Believe, based on the 1950s Edward R. Murrow radio show.  (Using the Crash Davis model I started with was a lot less family friendly.) Here’s what I came up with [Author's note, I have since fixed a typo that was noted by Prof. Bainbridge]:   

I believe in the theory of Director Primacy.  I believe in the Business Judgment Rule as an abstention doctrine, and I believe that Corporate Social Responsibility is choice, not a mandate. I believe in long-term planning over short-term profits, but I believe that directors get to choose either one to be the focus of their companies.  I believe that directors can choose to pursue profit through corporate philanthropy and good works in the community or through mergers and acquisitions with a plan to slash worker benefits and sell-off a business in pieces. I believe that a corporation can make religious-based decisions—such as closing on Sundays—and that a corporation can make worker-based decisions—such as providing top-quality health care and parental leave—but I believe both such bases for decisions must be rooted in the directors’ judgment such decisions will maximize the value of the business for shareholders for the decision to get the benefit of business judgment rule protection. I believe that directors, and not shareholders or judges, should make decisions about how a company should pursue profit and stability.  I believe that public companies should be able to plan like private companies, and I believe the decision to expand or change a business model is the decision of the directors and only the directors. I believe that respect for directors’ business judgment allows for coexistence of companies of multiple views—from CVS Caremark and craigslist to Wal-Mart and Hobby Lobby—without necessarily violating any shareholder wealth maximization norms. Finally, I believe that the exercise of business judgment should not be run through a liberal or conservative filter because liberal and conservative business leaders have both been responsible for massive long-term wealth creation.  This, I believe.      

March 19, 2015 in Business Associations, Corporate Governance, Corporate Personality, Corporations, CSR, Delaware, Joshua P. Fershee, LLCs, M&A, Social Enterprise | Permalink | Comments (5)

Wednesday, March 18, 2015

Avantages de Participation à des Conférences Internationales Interdisciplinaires (Benefits of Attending Interdisciplinary International Conferences)

Greetings from Lyon, France, where I am presenting a work-in-process at an international conference on microfinance and crowdfunding organized by the Groupe ESC Dijon Borgogne (Burgundy School of Business) Chaire Banque Populaire en Microfinance.  As the only legal scholar, the only U.S. researcher, and the only presenter with an orange-casted arm (!), I stand out in the crowd.  So what is a one-armed U.S. law professor like me, with limited French language skills, doing in a place like this on my spring break?  Among other things, I am:

  • Broadening my academic and practical view of the world of business finance;
  • Making new connections, personally and substantively;
  • Getting different, pointed feedback on my ongoing crowdfunding work; 
  • Offering assistance and new perspectives (U.S.-centric, legal, regulatory, etc.) to scholars and industry participants from a spectrum of countries; and
  • Securing potential partners and resources for future projects.

Although most of the participants speak English, I am still living at the edge of my socio-lingual comfort zone.  It helps that I am an off-the-charts extrovert.  Regardless, however, the benefits of attendance have been immediate and meaningful.

Questions for our readers:

Do you participate in interdisciplinary research conferences?  

If not, why not?  

If so, what scholarly traditions were emphasized?  What did you find most beneficial . . . or most difficult?

Have you attended international research conferences?  

If not, is it because of cost, personal discomfort, or another reason?  

If so, how (if at all) have you benefitted from your attendance?  What insights can you offer those considering doing the same?

March 18, 2015 in Conferences, Corporate Finance, Entrepreneurship, Joan Heminway | Permalink | Comments (0)

Tuesday, March 17, 2015

How to Get in Your Own Way: Tesla Shut Out of West Virginia

West Virginia (like Michigan and New Jersey, among others) has decided to follow other states in limiting options for Tesla sales.  As the Charleston Gazette reports: 

On the floor later Friday evening, the House put an amendment in a bill designed to shore up car dealers’ legal standings in dealings with auto manufacturers that effectively blocks innovative electric car manufacturer Tesla from doing business in the state.

The floor debate is best left forgotten: Several delegates played the crony capitalism card, talking about how their local car dealers are generous in sponsoring Little League teams and community events (not to mention campaign contributions), while other sneered about the company being owned by California billionaire Elon Musk (some called him “Monk,” but fortunately no one referred to him as “Elton”), and claiming the company relies on federal subsidies.

Never mind that it was stated that fewer than a dozen West Virginians own Teslas, or that a boom in demand for electric-powered cars might just be a good thing for a state that provides coal for electric power plants.

If you're about a free (or at least more free) markets, why stop a competitor from competing?  Sorry, but the federal subsidy argument for the auto industry went out the window when the government bailed out GM and Chrysler.  

Beyond that, for the life of me, I can't understand why coal friendly constituencies seem so often to be hostile to electric vehicles. (In fairness, Kentucky just added a Tesla charging station.)  If it uses electricity, you should be all for it. Why is running a car on electricity any different than leaving the lights on all night?  If you're for consumption, who cares who does it? 

There is some debate about whether electric cars are better for the environment than gasoline powered cars.  This remains an open question.  But there's little doubt that increased demand for electricity is generally good for the coal industry.  

More important, though, if consumers want to buy a Tesla, why not let them?  What's the value in blocking consumers from buying the vehicles they want?  Oh yeah, rent seeking and cronyism.  By the way, the West Virginia legislature knows we can buy cars in other states, right? 

March 17, 2015 in Corporations, Current Affairs, Joshua P. Fershee, Law and Economics | Permalink | Comments (1)

Monday, March 16, 2015

Law Teaching: Deep and Shallow Knowledge

The depth of everyone's knowledge varies from subject to subject. I have a deep understanding of many areas of securities law, but a very shallow understanding of physics. (I’m not even in the wading pool.) But, even in subjects I teach—business associations, securities law, accounting for lawyers—the depth of my knowledge varies from topic to topic.

When I’m teaching the Securities Act registration exemptions, my knowledge base is very deep. I research and write primarily in that area. I know the law. I know the lore. I know the policy.
In other areas, my knowledge is much shallower. In some cases, I know just enough to teach the class. My business associations class sometimes touches on entity taxation issues, but I’m far from an expert on entity taxation. (My tax colleagues would say “far, far, far.”)

One’s knowledge deepens over time, of course. That’s one of the great joys of becoming an expert, whether you’re a law professor or a practitioner. I know more now about every topic I teach (including entity taxation) than I knew when I began teaching 27 years ago.

Several years ago, I decided to teach a course on investment companies and investment advisers. I started from scratch. I had no such class in law school and I didn’t practice in that area, so I had to learn the details myself before teaching the class. Now, having taught the class many times and having written two articles that deal with issues in the area, my knowledge base is much deeper.

All law professors have shallow and deep areas of knowledge. Over time, all of us should try to deepen our knowledge in the shallower areas. This improves our teaching and, less obviously, improves our scholarship. I tell my students that a broad education benefits the specialist, and my own experience confirms that. I have often drawn on what I learned in one of my shallower areas while writing an article in a deep area.

Professors also need to be careful that our teaching isn’t negatively affected by our shallow and deep areas.

  • Be sure your course coverage (and your exam coverage) is based on the importance and relevance of the topics and the needs of the students, not on your knowledge base. There’s a natural psychological tendency to focus on what we know best, which is usually also what we’re most interested in. Don’t minimize a topic just because your knowledge of the topic is shallow. Don’t stress a topic just because your knowledge is deep. I would like to spend my entire securities regulation course talking about Securities Act exemptions, but I don’t.
  • Be careful to maintain the same classroom atmosphere in shallow and deep areas. When I’m teaching in a deep knowledge area, I’m often just scratching the surface of what I know. I sometimes have to fight to stay excited about the material and avoid going on autopilot. When I’m teaching in a shallow area, the discussion is fresher and more exciting to me. I’m more likely to learn from my students and I can empathize with their struggles to master the material. The key is to keep an even keel—to keep the discussion equally fresh and exciting, no matter how deep or shallow your knowledge.
  • Don’t overwhelm the students with your deep knowledge. They need to spend some time in the shallow end before you can take them into the depths. It’s taken you years to develop your deep knowledge; you can’t replicate that for your students in an hour or two.
  • Admit when your knowledge is shallow. “I don’t know” is a perfectly appropriate response even when your knowledge is deep, even more so when your knowledge is shallow. And “I don’t know” is much better for you and your students than trying to fake it. Use these opportunities to deepen your knowledge and get back to the students with your answer. I can’t count how many times in my career I have faced situations like that.

I apologize for disillusioning any readers who, based on this blog, believed I was omniscient and had deep knowledge of everything.

 

March 16, 2015 in C. Steven Bradford, Law School, Teaching | Permalink | Comments (0)

Sunday, March 15, 2015

ICYMI: Tweets From the Week (Mar. 15, 2015)

March 15, 2015 in Stefan J. Padfield | Permalink | Comments (0)

Saturday, March 14, 2015

Proposed Amendments to the DGCL

The Delaware Legislature is set to consider new legislation concerning litigation-limiting bylaws and charter provisions.

As discussed here, the new legislation would, among other things:

(1) Explicitly authorize corporations to include in their charter or bylaws forum selection clauses that designate Delaware courts as the exclusive forum for shareholder litigation;

(2) Explicitly forbid corporations from including in their charters or bylaws forum selection or arbitration clauses that prohibit bringing claims in Delaware courts; and

(3) Prohibit fee-shifting bylaws and charter provisions.

[More under the cut]

Continue reading

March 14, 2015 in Ann Lipton | Permalink | Comments (0)

Friday, March 13, 2015

The Sweet Briar Situation

If you keep up with higher education news, you have already read about the decision to close Sweet Briar College. This story hit close to home, in part because I am a professor and in part because I graduated from a small liberal arts college.

My biggest question is why the administration took so long to tell the students and faculty. By making the announcement in the spring semester, the administration seems to have harmed students who will be looking to transfer and faculty members who will be looking for new jobs. More reading on the faculty members' situation is available in The Atlantic.

Given the general demand for students, I assume the students will be able to find new college homes, though their options might be be somewhat more limited than if the announcement were made in the fall. Most of the Sweet Briar College faculty members, however, will be in an incredibly tough bind. Most academic hiring happens during the fall semester.

With a nearly $100 million endowment (some of which is supposedly restricted), one wonders whether the administration could have kept the school open for one more school year, for the benefit of the faculty and students looking for a place to land. Alternatively, what prevented an announcement this past fall? Perhaps administration worried about students and faculty leaving en masse if given longer lead time, but if the school is closing anyway, I do not see why that would be a problem. Perhaps creditors played a role?

Also, I wonder why the school did not make a more desperate and direct plea to their alums. Instead of abruptly announcing that the school would close, why didn't the administration say that the school would close unless they raise X dollars in Y time period?

As outsiders, we obviously do not know all the facts, but, in any event, it appears to be a sad situation.

March 13, 2015 in Ethics, Haskell Murray, Teaching | Permalink | Comments (1)

Teaching Students to Deal with Ambiguity and Complexity

One of my pet peeves when I was in practice was working with junior lawyers or student interns who refused to take a position on anything when I asked for research. Perhaps because of the way law schools teach students, they tended to answer almost every question with “on the one hand but on the other hand.” This particularly frustrated me during my in house counsel years when I was juggling demands from internal clients in over a dozen countries and just wanted to know an answer, or at least a recommendation. Over at Legal Skills Prof Blog and PrawfsBlawg, they lay part of the blame on issue spotting exams. I use issue spotting essay exams, so perhaps I am perpetuating the problem, but I find that students have a love-hate relationship with ambiguity. They like to be ambiguous in essays but hate ambiguity in multiple choice questions.

I just finished administering multiple choice exams to my civil procedure and business associations students. Typically, I use essays for midterms and a combination of testing techniques for the final exam. I’m not a fan of multiple choice because I believe that students can get lucky. On my final exams I use some standard multiple choice but I also use a hybrid style where students have to pick the correct answer and then write one sentence about why each other choice was wrong. It's a pain to grade, but I get an idea as to how much they really understand. But with a combined 130 exams for midterms, I decided to go with the straight multiple choice. In addition to making life easier for me with grading, it will help prepare the students for the bar exam.

I chose to ask particularly complex multiple choice questions. The civil procedure students didn’t just have to answer about personal jurisdiction. Most answers combined at least two other topics or federal rules, in some instances with at least one part that could be incorrect. The BA exam was similar. After both exams a number of students complained that the questions were too ambiguous and they would have preferred essays. Ironically, many of the students who were most concerned about the nature of the questions did very well on the exam, which leads me to believe that some of them lack the confidence in their own analytical abilities.

I think students prefer essays because of the freedom to do the “this/that” or “throw everything on the wall and see what sticks” type of "analysis." With the multiple choice questions that I used, the students had to do a much deeper level of analysis to choose the right answer- or to determine that none of the answers fit- which they hate. Often the concepts were restated in a way that probably wasn’t in their notes or the book. Those who memorized suffered the most.

Yesterday, I reminded my students that the law is ambiguous. Lawyers must think on multiple levels very quickly to answer what may seem like a simple question. In the alternative, often students overthink issues when the answer is more obvious.

If you have any thoughts on how to get students more comfortable with deeper levels of analysis and navigating through ambiguity, please post comments below or email me at [email protected].

 

March 13, 2015 in Business Associations, Law School, Marcia Narine Weldon, Teaching | Permalink | Comments (3)

Competition: Winning and How You Play the Game

C6Glr.AuSt.79

At Belmont, we have been basking in the glow of a dramatic win in the men’s basketball OVC championship game.

While I could not be prouder of all the members of our team, many of whom are majoring in business, I am most proud of the way they played and conducted themselves – with heart, effort, intelligence, humility, confidence, and class. Murray State, holder of a 25-game win-streak and ranked #25 in the country coming into the game, played just as hard and conducted themselves with class as well.

The OVC championship game was the best basketball game I have ever seen and it was a shame that either team had to lose. In the unlikely event that any selection committee members are reading this, I think Murray State deserves a spot in the NCAA tournament as well; how do you justify dropping a team from #25 to outside the top-68 teams after a well-played 1-point loss to another strong team?

Since that basketball game, I have been thinking a lot about “winning” as compared to “how you play the game.” Growing up, I was insanely competitive and was obsessed with winning. I loved the quote attributed to Vince Lombardi: “winning isn’t everything, it is the only thing” and I despised the claim that “it isn’t whether you win or lose, it is how you play the game.” (Interestingly, some argue that Lombardi never said those words, claiming instead that he said “[w]inning is not everything, but making the effort to win is,” which is much closer to the statement I despised.) 

Perhaps, I am getting softer as I age or maybe it is being a father that is changing me, but I now believe that how you play the game is much more important than whether you win or lose. Results of games, like Belmont’s recent one, could turn on a fraction of an inch, but conduct during the entire game (and before and after the game) tells you a great deal more about the character of the competitors. 

I am still not in the “everyone gets a trophy” camp and I still think winning and losing are important parts of competition, but I do think that “winning” should be subordinated to certain overriding principles. When the overriding principles govern, you get things like Bobby Bowden sharing his playbook with the Marshall University team that lost most of its members in a plane crash OR the carrying of an injured opponent around the bases OR the helping of a fallen runner. When winning is seen as “the only thing,” teams and individuals skirt rules to gain an advantage (doping in baseball, cycling, and track; recruiting violations; spygate; deflategate; etc.)

Next week I will apply some of these concepts to business. 

March 13, 2015 in Ethics, Haskell Murray, Sports | Permalink | Comments (0)

Thursday, March 12, 2015

Should Law Professors Abstain From Online NCAA Tournament Pools?

This Sunday, the NCAA will announce the 68 basketball teams that are scheduled to participate in this year's men's basketball tournament.  Then, the true "madness" begins.  

At many schools, one or more professors will likely organize an NCAA Tournament pool.  The pool will likely include entry fees and prize money. The pool's rules and standings will often appear on a public website.

All of this may sound like innocuous fun -- especially during the anxiety-ridden days of waiting for ExpressO and Scholastica acceptances to arrive.  However, law professors playing in online, pay-to-enter NCAA Tournament pools technically are acting in violation of several federal laws -- albeit, laws that are rarely enforced,

One federal law that seems to prohibit online, pay-to-enter NCAA Tournament pools is the Interstate Wire Act of 1961.  This act disallows individuals from “engaging in the business of betting or wagering [through the knowing use of] a wire communication for the transmission in interstate or foreign commerce.”  According to various recent court decisions, the Wire Act applies to contests hosted via the Internet, as well as those hosted over the phone.  And even though the act was originally passed to crack down on organized crime, even "upstanding" individuals such as law professors, at least in theory, are not immune from prosecution.

A second federal law that seems to prohibit online, pay-to-enter NCAA Tournament pools is the Professional and Amateur Sports Protection Act ("PASPA").  Passed in 1992 at the behest of America’s five premier professional sports leagues (including the NCAA), PAPSA makes it illegal for any private person to operate a wagering scheme based on a competitive game in which “professional or amateur athletes participate."  Of course, PASPA includes a grandfather clause that exempts previously authorized government sponsored sports gambling in four states -- Nevada, Delaware, Oregon, and Montana.  But it doesn't include any exception whatsoever for private March Madness pools.

Finally, a third federal law that may disallow online, pay-to-enter NCAA Tournament pools is the Uniform Internet Gambling Enforcement Act.  This act, which was passed most recently in 2006, makes it illegal for those "engaged in the business of betting or wagering" to “knowingly accept” funds in connection with the participation of another person in unlawful Internet gambling.  Although the UIGEA offers a special carve-out provision for “fantasy sports,” this carve-out does not apply to March Madness pools because winning outcomes are based on the final score of actual game results, and not individual player performances

Of course, the likelihood of anyone going to jail for simply participating in an online NCAA Tournament pool may seem next to nil.  But if you are going to play in one of these contests, I have two simple recommendations: (1) let someone else other than you collect the money; and (2) encourage the host to 'grade' the brackets by hand, rather than posting contestant names and picks on an Internet website.

March 12, 2015 in Ethics, Games, Sports, Web/Tech | Permalink | Comments (1)

Wednesday, March 11, 2015

Women on Board(s): New Perspectives from Crowd Theory?

As someone who likes to write from time to time on women on corporate boards, I sometimes feel like I am writing about last year's "news."  In other words, not much seems to sound new.  So, I am always in search of a novel problem to explore or a different vantage point through which fresh insights can be obtained.

My most recent contribution in this regard is a symposium piece that looks at women on boards through the lens of the literature on crowds--whether they be mad or wise.  Boards can be crowds (albeit small ones), based on prevailing definitions.  Moreover, crowd behaviors can be gendered.  So, it seemed like a reasonable idea.

The fruit of this labor is my most recent article, Women in the Crowd of Corporate Directors: Following, Walking Alone, and Meaningfully Contributing.  The substantive portion of the abstract is as follows:

With the thought that new perspectives often can be helpful in addressing long-standing unresolved questions, this article approaches an analysis of women’s roles on corporate boards of directors from the standpoint of crowd theory. Crowd theory — in reality, a group of theories — explains the behavior of people in crowds. Specifically, this article describes theories of the crowd from social psychology and applies them to the literature on female corporate directors, looking at the effects on both women as crowd members and boards as decision-making crowds.

Unfortunately, while the crowd theory perspective provides some insights, they are not altogether conclusive. Specifically, while women may bring distinct ideas and experience to boards of directors when they become board members, crowd theory does not provide a clear picture of the nature or extent of those differences or how they may contribute to productive, efficient board decision making. More work still is needed in this area. However, existing research does indicate that women encourage productive board development activities — activities that may include, for example, introducing the board to structures and policies that may promote board wisdom. This is a useful insight that should be further explored.

This is, as the abstract indicates, a preliminary exploratory piece.  But it does at least represent a change from the current literature in the field, which focuses on (among other things) the search for an alternative to gender quotas (see, e.g., here and here).

I had the opportunity to present the paper at William & Mary a few weeks ago.  Unfortunately, the school was closed that morning as a result of a snow storm the day before.  Since I was already in Williamsburg (but could not stay to present the paper later in the day), current and incoming editors of the William & Mary Journal of Women and the Law invited me to deliver the paper to them over breakfast in a local restaurant.  The impromptu forum turned out to be a lovely way to discuss the paper with the students--a number of whom had read the piece carefully and had interesting questions and observations.  I hope that some of you enjoy the article as much as those students did!

March 11, 2015 in Business Associations, Corporate Governance, Corporations, Joan Heminway | Permalink | Comments (0)

Tuesday, March 10, 2015

Practical Lessons in the Business World: You Don't Have to Use Their Draft

Today in my Energy Law Seminar, I sprung an exercise on my class.  I gave each member of the class a confidentiality and non-disclosure agreement (NDA).  Half the class works for a venture fund and the other half works for a technology inventor who was seeking investment. (I give them some more details about the proposed deal the NDA would help facilitate. (The exercise is based on an issue I worked on some years ago.)

I instruct them to read the  NDA, then they can meet with others assigned the same side. They can come up with their negotiating points, then I turn them loose with the other side.  

I always enjoy watching students work like this.  They are forced to react, and it lets them be a little creative.  I also like this exercise, because it has multiple layers. They get to ask me me what they need to know for the business points, and I later get to talk to them about the options they may not have considered.  

I have done this a few times, and the students always negotiate what they see as the key issues. Their issue spotting is usually good, but they often miss a big option (a couple students do often have an idea what's up).  Here's the twist: the NDA I give them is absurdly one-sided and in fact reserves the secret information for the venture fund (who is only providing money), and not the inventor (who has the technology and information they want kept secret).    

They can, of course, negotiate with this document and try to get a workable NDA based on the deal points, but the better answer for the investor representatives is to decline the entire document. The NDA is so one sided, there is no fixing it.  The better answer is to ask for a more balanced version or to offer to draft one for the potential counterparty  to consider.  

Sometimes, of course, you have no room for negotiations, such as when you rent a car.  You can mark up the contract, but with Avis, it's take it or leave it.  The same can be true for certain clients who need funding or a supply contract, but often, there is room to talk.  The real life version of the negotiation provides a perfect example:  I told the venture fund the NDA was too one-sided and that it couldn't work for us. I suggested that we could try a draft or that we'd be happy to look at a different option.  The venture fund's reply: "Oh sure, we have one that is far more balanced that doesn't have the provisions that seem to concern you most. You'll have an email in a few minutes."  

When we talk about deal points and key issues, sometimes it's easy to forget to teach students some other big keys to business law.  The takeaways: 

(1) If at all possible, only use draft documents that reflect a sense of mutuality (e.g., reciprocal indemnification clauses). "Fixing" one-sided documents is fraught with risk.  

(2) Don't be afraid to ask. Often, though I don't care for it, people like to start with offers to "see what I can get." (I see this as counterproductive, at least where a long-term relationship could be built.)

(3) Negotiate in proportion to the issue before you. The NDA is often so you can negotiate the deal. If you make that initial part too antagonistic, you may never even get to negotiating the actual deal, which can mean everyone loses. 

March 10, 2015 in Entrepreneurship, Joshua P. Fershee, Law School, Negotiation, Teaching | Permalink | Comments (1)

Monday, March 9, 2015

Western Carolinia University - Assistant Professor of Legal Studies Position

WCU

Western Carolina University has posted an opening for an assistant professor of legal studies.  More information is available here. The position is fixed-term and non-tenure-track, though it comes with the title "assistant professor." 

Last year, I greatly enjoyed my time presenting at Western Carolina University. WCU is in a beautiful part of the country, about an hour from Ashville, NC. WCU has a strong group of legal studies professors and has one of the nation's few Business Administration and Law degrees at the undergraduate level.

I've updated my list of legal studies professor positions in business schools. Many of the positions have now been filled, but I placed the newer postings in bold font. 

March 9, 2015 in Business Associations, Business School, Haskell Murray, Jobs | Permalink | Comments (0)

Crooks and Killers: Investment in Modern Russia

Sergei Magnitsky. Remember that name any time you’re considering doing business in Russia or any other country in which the "rule of law" is a meaningless masquerade for the uncontrolled whims of the powerful.

Magnitsky was a young Russian accountant working for the Hermitage Capital Management firm created by Bill Browder to invest in Russia. When Browder stepped on the toes of some of the Russian business oligarchs, Magnitsky was thrown into prison, beaten, refused essential medical care, and basically murdered.

I learned Magnitsky’s story in a new book by Bill Browder, Red Notice: A True Story of High Finance, Murder, and One Man’s Fight for Justice. Browder created Hermitage Capital shortly after the breakup of the Soviet Union. The book details Hermitage’s dramatic rise and, when Browder publicly fought the attempts by the Russian oligarchs to dilute his minority investments, Hermitage’s eventual fall. Browder and almost everyone else associated with Hermitage managed to flee Russia, some after being detained, but Magnitsky, the firm's young accountant, refused to leave. When he was imprisoned and questioned, he refused to tell his captors the lies they wanted to hear, and his refusal eventually resulted in his death.

The story is captivating; the book reads like a novel. It’s also enlightening. I didn’t really understand the economic side of Putin’s Russia until I read this book. The word “corruption” only begins to describe what’s going on.

Red Notice has something for everyone. If you’re interested in the investment management business, if you’re interested in the rule of law, if you’re interested in investor rights, if you’re interested in modern Russia, or if you’re just interested in a well-told story, you will enjoy Browder’s book. I highly recommend it.

March 9, 2015 | Permalink | Comments (0)

Sunday, March 8, 2015

ICYMI: Tweets From the Week (Mar. 8, 2015)

March 8, 2015 in Stefan J. Padfield | Permalink | Comments (0)

Saturday, March 7, 2015

Bad actor waivers

There’s been a lot of controversy recently over the SEC’s use – or perhaps I should say, non-use – of the automatic “bad actor” disqualifications for firms that commit securities violations.  The disqualification provisions place certain limits on the activities of firms that are found to have committed securities violations.  Dodd Frank added a big stick to the list of penalties:  It added an automatic disqualification from participating in private placements under Rule 506 of Regulation D.  It’s a severe penalty; private placements are extremely lucrative.

But the SEC can waive the automatic disqualification – and frequently does, even for “recidivist” firms that repeatedly rack up securities violations.  It imposes fines, perhaps outside monitoring, but it waives disqualifications – especially the Rule 506 disqualification.

The issue has recently hit the public eye because Democratic Commissioners Luis Aguilar and Kara Stein have been objecting to the grant of waivers to recidivist firms.  In their view, waivers are an important tool for deterring securities violations, and the SEC has improperly adopted a policy of granting them “reflexively.”

In light of all of this, the SEC has promised to issue guidelines as to how Rule 506 waiver decisions are made; Commissioner Daniel Gallagher thinks the matter may ultimately have to be resolved by Congress.

Until recently, hasn’t been clear just how often these waivers have been granted, and who has received them.  But Urska Velikonja just posted a new paper that gathered data on 201 waivers issued between 2003 and 2014.  These waivers involved Regulation D disqualification, Regulation A disqualification, and also disqualification from the use of automatic shelf registration statements to raise capital.  Velikonja finds that: (1) large financial firms received over 80% of the waivers; smaller firms and nonfinancial firms rarely receive them even though they are much more likely to be the target of an enforcement action; (2) the SEC typically does not offer any real justifications for its decision to grant or withhold a waiver, but the pattern appears to be that the Commission does not grant waivers for firms accused of offering fraud or issuer disclosure violations; usually, they’re granted for firms accused of unrelated misconduct, such as violations of the broker-dealer and investment adviser rules – presumably because the Commission views the latter firms as presenting a lower recidivism risk; and (3) the number of waivers has declined over time, and the SEC has recently begun utilizing partial waivers.

(More under the jump)

Continue reading

March 7, 2015 in Ann Lipton | Permalink | Comments (0)

Friday, March 6, 2015

Social Enterprise in the Mainstream

Social enterprise has made two relatively recent appearances in the mainstream media:

(1) David Brooks on "How to Leave a Mark" in the NYT.

(2) George Roberts on "Bringing a Business Approach to Doing Good" in the WSJ.

In addition, a few law schools have started focusing more on social enterprise, including through the Georgetown Social Enterprise and Nonprofit Clinic and the Social Enterprise Law Association at Harvard Law School

Interest in social enterprise is and has been increasing, but the legal frameworks could still use significant work as my co-blogger Joan Heminway noted last month.

March 6, 2015 in Business Associations, Haskell Murray, Law School, Social Enterprise | Permalink | Comments (0)

March Madness Is Coming -- And Legally Speaking, It Is Madness

Ten days from now will mark the start of the 2015 NCAA men's basketball tournament -- one of the most watched sporting events of the year.   Recently, the NCAA sold 14 years worth of television broadcast rights to the NCAA Tournament for $10.8 Billion.  On an annual basis, that comes to an annual sum of  $770 Million per year.  

The athletes who play in these games, by contrast, do not receive any share of the derived revenues, nor are they allowed to endorse products or sign autographs for money.  In addition, the most successful teams in this tournament will have athletes that are required to miss upwards of nine class days based on a tournament schedule that is created to accommodate television broadcasts.

As a guest blogger for the month of March, I will be discussing the legal issues related to NCAA amateurism and the economic realities of the NCAA men's basketball tournament.  Some of the topics I will discuss include why the NCAA is indeed an economic cartel, why the U.S. district court's decision in O'Bannon v. NCAA does not go far enough to protect college athletes, why perhaps the National Labor Relations Board should grant college athletes the right to unionize, and how the NCAA men's basketball tournament could be structured differently if student education, rather than athletic revenues, were truly a top priority.  

Thank you to Haskell Murray for providing me with this wonderful forum to share my ideas and scholarship.  And to all of the Business Law Prof Blog readers, please do not worry: I have no plans to be a Debbie Downer.  I will, however, talk seriously about the economic and legal realities of college sports and how we, as academics, can make a difference.

March 6, 2015 in Current Affairs, Ethics, Games, Sports | Permalink | Comments (0)

Preparing today's students for the legal market

It’s always nice to be validated. Day two into torturing my business associations students with basic accounting and corporate finance, I was able to post the results of a recent study about what they were learning and why. "Torture" is a strong word-- I try to break up the lessons by showing up to the minute video clips about companies that they know to illustrate how their concepts apply to real life settings. But for some students it remains a foreign language no matter how many background YouTube videos I suggest, or how interesting the debate is about McDonalds and Shake Shack on CNBC.

My alma mater Harvard Law School surveyed a number of BigLaw graduates about the essential skills and coursework for both transactional and litigation practitioners. As I explained in an earlier post, most of my students will likely practice solo or in small firms. But I have always believed that the skills sets are inherently the same regardless of the size of the practice or resources of the client. My future litigators need to know what documents to ask for in discovery and what questions to ask during the deposition of a financial expert. My family law and trust and estates hopefuls must understand the basics of a business structure if they wish to advise on certain assets. My criminal law aficionados may have to defend or prosecute criminal enterprises that are as sophisticated as any multinational corporation. Those who want to be legislative aides or go into government must understand how to close loopholes in regulations.

What are the top courses students should take? The abstract is below:

We report the results of an online survey, conducted on behalf of Harvard Law School, of 124 practicing attorneys at major law firms. The survey had two main objectives: (1) to assist students in selecting courses by providing them with data about the relative importance of courses; and (2) to provide faculty with information about how to improve the curriculum and best advise students. The most salient result is that students were strongly advised to study accounting and financial statement analysis, as well as corporate finance. These subject areas were viewed as particularly valuable, not only for corporate/transactional lawyers, but also for litigators. Intriguingly, non-traditional courses and skills, such as business strategy and teamwork, are seen as more important than many traditional courses and skills.

Did you take these courses? Has your school started adding more of this type of coursework and does your faculty see the value? Do you agree with the results of this survey? Let me know in the comments or email me at [email protected].

March 6, 2015 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Jobs, Law School, Marcia Narine Weldon, Securities Regulation, Teaching | Permalink | Comments (2)