Business Law Prof Blog

The internet is a wonderful thing; this week, it has brought us two powerful new tools related to business law.

First, the Center for Political Accountability has aggregated the political spending disclosures of public companies in a handy, searchable website. Granted, it's a limited tool: it only includes companies in the S&P 500 (or that were in the S&P 500 as of 2015) - and unfortunately the descriptions on the site are less than clear on this point. To that extent, then, it is useful as a sample of corporate behavior, but not as useful for specific shareholder or consumer action. In that vein, I view it as something of a pilot project, demonstrating the theoretical power of the internet to harness these kinds of disclosures. There are already apps that make it easier for consumers to express their political preferences – Boycott Trump and Buycott.com, for example. This new site is another weapon – or potentially one – in the arsenal.

Marcia has expressed doubt that these kinds of campaigns work, and certainly there’s the countermobilization problem – a campaign on one side the political aisle may motivate those on the other side – but my own view is more in the behavioral vein: if you make it easier to do, it’s more likely people will do it. So, yes, there are a lot of reasons why consumers or shareholders might not vote via their dollars, but at each point where you make it easier for them to express political preferences with their spending/investing decisions, the number who do so will increase, and at some point you may see a consistent impact.

Second, we have the white collar crime heat map, which presents a zip-by-zip breakdown of areas where white collar crime proliferates. I was horrified to discover the extent of my daily jeopardy in the years in which I worked in midtown Manhattan; I feel much safer now that I live in New Orleans.

More seriously, the site is not a new joke, but it remains a relevant one: namely, as a comment on what we as a society accept as racial/class/cultural markers of criminality, even as white collar crime remains – numerically speaking – a far greater problem than street crime.

For more analysis of this problem, I leave you with Jessica Williams of The Daily Show:

The Daily Show with Jon Stewart

April 29, 2017 in Ann Lipton | Permalink | Comments (0)

Friday, April 28, 2017

Full Expectation Damages

By Haskell Murray

We are in the middle of the final exam period, so this post will be short.

A friend of mine recently told me about a situation where he had been cheated out of a few thousand dollars. A clear contract was involved, and based on the facts I was told, the other party seems obviously in the wrong.

These situations, even if clear from the legal side, are often not worth pursuing through litigation in our current U.S. system. As most readers surely know, in the U.S. parties generally have to pay their own lawyers regardless of the outcome. In some situations, the lawyers may take the case on contingency, but most lawyers I know will not take a contingency case where the maximum recovery is a few thousand dollars. Maybe small claims court would be appropriate, but the learning and time costs involved may outweigh the potential recovery.

Perhaps this is as it should be. Perhaps we want parties to settle these smaller disputes outside the courts.

But, especially when the party in the wrong is much larger, and especially when the wrong is quite clear, it seems like we might want the courts involved to prevent this type of bad action from going without a remedy. Of course, class actions may be possible in some, though certainly not all, circumstances.

The law could make these situations more worthy of pursuit. Full expectation damages, that would put the harmed party where she would have been if the contract had been properly carried out, should consider not only legal fees but also the time and emotional energy expended to bring the claim. I do know that courts sometimes shift legal fees in egregious situations, but I think this is pretty rare, and I don't think I have ever heard of a situation where the plaintiff was reimbursed for her time and emotional energy expended in bringing the case. However, isn't that what true expectation damages would require? Without the breach, the plaintiff would not have spent time, energy, and money pursuing the claim. Recovery for this type of damage would also discourage breach, as the defendant would stand to lose significantly more than if he just carried out the contract as agreed.

That said, I do see how this could be abused by overeager attorneys, so I imagine it would have to be used somewhat sparingly and only in clear cases.

April 28, 2017 in Contracts, Haskell Murray, Litigation | Permalink | Comments (1)

Thursday, April 27, 2017

CALL FOR PAPERS: AALS Section on Transactional Law and Skills

The following comes to us from Brian Quinn:

Access to the Courts in the Transactional Setting

2018 AALS Annual Meeting
San Diego, CA

This call for papers solicits unpublished papers that analyze the question of access to the courts in a variety of transactional law settings.

From small business disputes, to mandatory consumer arbitration, to restrictions on shareholder lawsuits, it is no longer obvious that parties will have access to courts in the event of a dispute. In many cases small businesses may negotiate for alternative dispute resolution in commercial contracts as more efficient than going to courts. In others, like in the context of consumer contracting, restricting access to the courts is not typically subject of negotiation, and many consumer transactions now come with mandatory arbitration clauses. In recent years, in response to an explosion in shareholder and class action litigation, corporations also began to look to a variety of self-help remedies (often aided by state legislatures), including exclusive forum provisions and fee-shifting provisions among others, to restrict access to the courts by shareholders.

Taken together one could reasonably question whether the current trajectory in common business and consumer settings to limit parties and third parties access to the courts through a variety of transactional mechanisms is good policy or it goes too far.

The Section on Transactional Law and Skills invites submissions from any full-time faculty member of an AALS member school who has written an unpublished paper, is working on a paper, or who is interested in writing a paper on this topic to submit a 1 or 2-page proposal to the Chair of the Section by August 31, 2017. Papers accepted for publication as of August 31, 2017 that will not yet be published as of the 2018 meeting are also encouraged. The Executive Committee will review all submissions and select proposals for presentation as part of our AALS 2018 Section Meeting.

Please direct all submissions and questions to the Chair of the Section, Brian JM Quinn, section chair, at the address below:

Brian JM Quinn
Boston College Law School
885 Centre St., Newton MA 02459
Email: [email protected]

April 27, 2017 in Stefan J. Padfield | Permalink | Comments (0)

Wednesday, April 26, 2017

What's next for conflict minerals legislation? My views and the GAO report

By Marcia Narine Weldon

Last week, a reporter interviewed me regarding conflict minerals.The reporter specifically asked whether I believed there would be more litigation on conflict minerals and whether the SEC's lack of enforcement would cause companies to stop doing due diligence. I am not sure which, if any, of my remarks will appear in print so I am posting some of my comments below:

I expect that if conflict minerals legislation survives, it will take a different form. The SEC asked for comments at the end of January, and I've read most of the comment letters. Many, including Trillium Asset Management, focus on the need to stay the course with the Rule, citing some success in making many mines conflict free. Others oppose the rule because of the expense. However, it appears that the costs haven't been as high as most people expected, and indeed many of the tech companies such as Apple and Intel have voiced support for the rule. It's likely that they have already operationalized the due diligence. The SEC has limits on what it can do, so I expect Congress to take action, unless there is an executive order from President Trump, which people have been expecting since February.

The Senate Foreign Relations subcommittee on Africa held a hearing on conflict minerals on April 5, and some of the witnesses and Senators talked about what hasn't worked with the rule. Although the situation has improved, the violence continues, most notably with the murder of a member of the UN Group of Experts just last week. Rick Goss from the Information Technology Council testified the while the Rule has had some benefits such as increased transparency and raising global awareness, there are also things that don't work. He discussed fact that the illicit trade in gold continues and criminal elements are still exploiting other resources. A number of his and other witness' proposed solutions were more holistic and geopolitical and went beyond the SEC's purview, and I think that's where the government should look when trying to address these issues. You may see a push toward a safe harbor, which came up in some of the comment letters, and which was a point of discussion during the Senate testimony. With a safe harbor, the issuer could rely on supplier certifications.

Lack of enforcement or less enforcement could cause more issuers to continue to do business or start doing business there because it will be less onerous. On the other hand, with with the EU's conflict mineral rules, which will come into play in 2021 and which covers the same minerals (but is not limited in geography) you may find that the big issuers decide to stay the course with due diligence.

I have been focusing my research on the consumer aspect of these name and shame laws. While there have been conflict-free campuses and conflict-free cities (and some of them sent letters to the SEC), I haven't seen solid evidence that shows that consumers are boycotting the companies that aren't doing the full due diligence that 1502 requires or rewarding those that do. Apple is a stand-out in conflict minerals compliance but they also happen to sell something that people really want.

Although firms like Trillium state that investors like the transparency, they are likely benefitting from an improved supply chain in general because companies that attempted to follow 1502 by necessity had to upgrade systems and supplier protocols.

So in sum, I think that the firms that are already doing what they are supposed to may continue to do so (or scale back just a little) and may tout these voluntary efforts in their CSR reports. Those who have been unable to determine the origin of their minerals won't likely do any more than they have to or may just source their minerals elsewhere.

If Congress keeps the rule, I recommend that the SEC:

1) limit reporting obligations to those companies that manufacture products;

2) add a de minimis exception to the Conflict Minerals Rule; and

3) include a safe harbor provision to allow issuers to rely upon defined contract provisions and supplier certifications.

Ideally, theTrump government should take the onus of the responsibility for solving this human rights crisis off the private sector and instead work with the Congolese government, other governments, and NGOs on holistic solutions, especially as it relates to the members of the armed forces, who are also involved in illegal mineral trade and human rights abuses.

Just today, the GAO issued a report on conflict minerals. Dodd-Frank requires an annual report on the effectiveness of the rule "in promoting peace and security in the DRC and adjoining countries." Of note, the report explained that:

After conducting due diligence, an estimated 39 percent of the companies reported in 2016 that they were able to determine that their conflict minerals came from covered countries or from scrap or recycled sources, compared with 23 percent in 2015. Almost all of the companies that reported conducting due diligence in 2016 reported that they could not determine whether the conflict minerals financed or benefited armed groups, as in 2015 and 2014. (emphasis added).

The Trump Administration, some SEC commissioners, and many in Congress have already voiced their concerns about this legislation. I didn't have the benefit of the GAO report during my interview, but it will likely provide another nail in the coffin of the conflict minerals rule.

April 26, 2017 in Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Human Rights, International Law, Legislation, Marcia Narine Weldon, Securities Regulation | Permalink | Comments (1)

Call for Submissions - Collective Book on Legal Innovation

By Haskell Murray

COLLECTIVE BOOK ON LEGAL INNOVATION

Call for submissions

The program « Law & Management » developed by the European Center of Law and Economics (known as CEDE in French) of ESSEC Business School, is an innovative and pioneering research program which aims to study the use of law as a competitive factor.

In this regard, the members of the research program « Law & Management » have decided to publish a collective book focusing on legal innovation. This book, co-edited by A. Masson (ESSEC) and D. Orozco (Florida State University), will analyze, by crossing the points of view of lawyers and creative specialists, the concept and life cycle of legal innovations, techniques and services, whether they are related to legislation, legal engineering, legal services, legal strategies…, as well as the role of law as a source of creativity and interdisciplinary teamwork. All the techniques that could facilitate legal innovations from the perspective of design thinking to predictive design, through the customer experience will be analyzed.

The program Board is now opening the call for proposals. Papers proposals (consisting in a brief summary in English) of a maximum length of 1000 words, should be sent to A. Masson ([email protected]) by May 8th, 2017. A least one practical example of legal innovations on which the papers will rely on must be mentioned in the proposals.

The proposals will be reviewed and selected by a scientific committee. Authors will receive a definitive answer by June 6th, 2017. The final manuscripts will be expected by October 9th, 2017.

A conference, following the publication of the book, will be organized in Paris in 2018.

With the support of the Paris Île-de-France Regional Chamber of Commerce and Industry and the French Corporate Counsel Association (AFJE).

April 26, 2017 in Books, Business Associations, Call for Papers, Entrepreneurship, Haskell Murray | Permalink | Comments (0)

What Is Ideological Diversity in the Legal Academy?

By Joshua Fershee

More than a few legal blogs and scholars have taken note of a recent paper by Adam Bonica (Stanford University), Adam S. Chilton (University of Chicago), Kyle Rozema (Northwestern University) and Maya Sen (Harvard University), “The Legal Academy’s Ideological Uniformity.” The paper finds that those in the legal academy are more liberal than those in legal profession generally. Anecdotally, I have to say I am not surprised.

The abstract of the piece is as follows:

We find that approximately 15% of law professors are conservative and that only approximately one out of every twenty law schools have more conservative law professors than liberal ones. In addition, we find that these patterns vary, with higher-ranked schools having an even smaller presence of conservative law professors. We then compare the ideological balance of the legal academy to that of the legal profession. Compared to the 15% of law professors that are conservative, 35% of lawyers overall are conservative. Law professors are more liberal than graduates of top 14 law schools, lawyers working at the largest law firms, former federal law clerks, and federal judges. Although we find that professors are more liberal than the alumni at all but a handful of law schools, there is a strong relationship between the ideologies of professors from a law school and the ideologies of alumni from that school. However, this relationship is weaker for schools with more conservative alumni.

Jonathan Adler recently discussed the paper in a piece for The Volokh Conspiracy, How ‘ideologically uniform’ is the legal academy? Adler notes, that the paper's "findings are based upon an examination of reported political donations. While this is an admittedly imperfect measure of ideology, it does allow for comparisons across population groups." I agree on both counts.

I am particularly interested in (and a bit skeptical of) the use of political donations as the proxy for ideology. I understand why the authors used that proxy: the information is available and it does, as Adler says, provide for comparisons. My skepticism is not about their process or choice, but merely about whether it tells us very much about legal ideology. I think it tells us primarily about political party. And even there, in a primarily two-party system, it only tells us about preferences between those two parties, and if the data is primarily presidential, about those two specific candidates.

My point is that legal ideology is often different that political party choice. When choosing between two parties, we all have priorities of our views, too. For example, I am a far bigger believer in the ability of markets to solve problems than many of my colleagues. I am more skeptical of government intervention and increased regulation than many of my colleagues. But because of a few priorities that tip my balancing test, I would almost certainly come out "liberal" in using my modest contributions to political parties as the assessment of my ideology.

In assessing legal ideology, though, I would argue diversity comes more from how we view the law than particular candidates or certain social issues. Obviously, it is much harder to assess that, but I think it should matter when considering how law schools teach.

Some legal programs (like SEALS) have been seeking diversity of viewpoints, along with other measures of diversity, for panel and discussions groups. This is a good thing. It's not always easy to assess, though. Maybe we should just ask. Here's how I'd assess my own legal ideology: When it comes to economic regulation, my thinking is much more in line with former law professor and SEC Commissioner Troy A. Paredes than I am with, say, Elizabeth Warren. When it comes to business entities law, I am far more Bainbridge than Bebchuck. For environmental law, more Huffman or Adler than Parenteau. Of course, I have at various times agreed and disagreed with them all.

I, like many others, am very skeptical of an ideological litmus test or quota system. And yet I also think there is value in embracing different perspectives and viewpoints. Ultimately, I don't care how someone votes when I assess whether they are a good legal scholar, a good colleague, and a good teacher. I do care that they value diversity of all kinds (including ideological), and I care that they believe in encouraging and faciltitating productive discourse. There is little value in lockstep thinking in any arena, and that is particularly true in legal education. I'm glad this discussion is part of how we consider moving forward in legal education.

April 26, 2017 in Corporate Governance, Current Affairs, Joshua P. Fershee, Law and Economics, Law School, Lawyering, Research/Scholarhip, Teaching | Permalink | Comments (0)

Monday, April 24, 2017

Lawyers and Compliance: Business Entity Clients with Control Persons Who Recklessly Disobey

As a business lawyer in private practice, I found it very frustrating when the principals of business entity clients acted in contravention of my advice. This didn't happen too often in my 15 years of practice. But when it did, I always wondered whether I could have stopped the madness by doing something differently in my representation of the client.

Thanks to friend and Wayne State University Law School law professor Peter Henning, who often writes on insider trading and other white collar crime issues for the New York Times DealBook (see, e.g., this recent piece), I had the opportunity to revisit this issue through my research and present that research at a symposium at Wayne Law back in the fall of 2015. The law review recently published the resulting short article, which I have posted to SSRN. The abstract is set forth below.

Sometimes, business entity clients and their principals do not seek, accept, or heed the advice of their lawyers. In fact, sometimes, they expressly disregard a lawyer’s instructions on how to proceed. In certain cases, the client expressly rejects the lawyer’s advice. However, some business constituents who take action contrary to the advice of legal counsel may fall out of compliance incrementally over time or signal compliance and yet (paradoxically) act in a noncompliant manner. These seemingly ineffectual varieties of the lawyer/client relationship are frustrating to the lawyer.

This short article aims to explain why representatives of business entities who consider themselves law-abiding and ethical may nevertheless act in contravention of the business’s legal counsel and offers preliminary means of addressing the proffered reasons for these compliance failures. The article does not address willful noncompliance or even willful blindness. Rather, it makes observations about behavior that falls squarely into what the law typically recognizes as recklessness. An apocryphal lawyer-client story relating to insider trading compliance provides foundational context.

The exemplar story derives from things I witnessed in law practice. Perhaps some of you also have experienced clients or business entity client principals which/who act contrary to your advice in similar ways. Regardless, you may find this short piece of interest.

April 24, 2017 in Compliance, Conferences, Corporate Governance, Joan Heminway, Lawyering, Securities Regulation | Permalink | Comments (2)

Sunday, April 23, 2017

ICYMI: #corpgov Tweets From the Week (April 23, 2017)

.@ProfPadfield wraps up Spring issue of Headnotes with his response to @carbonej & Levit on the "Death of the Firm": https://t.co/63lScwL5hn
— Minnesota Law Review (@MinnesotaLawRev) April 18, 2017

House Dodd-Frank reform bill would sharply limit shareholder proposals https://t.co/NljrPyGmgl
— Professor Bainbridge (@ProfBainbridge) April 21, 2017

Vanguard Explains Updates to Its Voting Policies on Environmental and Social Proposals https://t.co/pW8k3qyS4k #corpgov #ESG
— OCEG (@oceg) April 21, 2017

1/2: Friedman/Jensen/Meckling agency theory v. a “Company-Centered Model” https://t.co/csugZAturh #corpgov
— Stefan Padfield (@ProfPadfield) April 22, 2017

2/2: "Friedman asserts that [a corporation] cannot have responsibilities b/c it is an 'artificial person'" https://t.co/csugZAturh #corpgov
— Stefan Padfield (@ProfPadfield) April 22, 2017

April 23, 2017 in Stefan J. Padfield | Permalink | Comments (0)

Saturday, April 22, 2017

They should have called it “crying wolf”

I’m sure we’ve all been riveted by the colorful activist campaign led by Elliott Management Corp challenging the board of directors at Arconic Inc. In some tellings, it’s a classic battle over whether companies should focus on immediate returns to shareholders (and whether activist pressure encourages short-term thinking), or whether companies should invest in innovation and research in hopes of a longer-term payoff.

This week, Elliott’s challenge netted it a scalp in the form of the forced resignation of the CEO, Klaus Kleinfeld, for sending a personal letter to the head of Elliott Management that vaguely threatened to reveal some apparently scandalous behavior undertaken during the 2006 World Cup. While denying that any such behavior occurred, Elliot Management demanded Kleinfeld’s ouster, and the Arconic Board complied.

But the battle rages on. Earlier this month, Arconic announced that if investors voted to seat Elliott’s board nominees, it could trigger the change-of-control provisions in Arconic’s deferred compensation and retirement plans, thus forcing Arconic to make a $500 million pay out.

Which just prompted this Section 14 lawsuit by an Arconic investor, accusing Arconic of manufacturing “fake news” because there is, in fact, no risk of a change of control. At which point, I mourn the missed opportunity for a “wolf” reference.

(The plaintiff's argument, by the way, is that a set of directors appointed earlier at Elliott’s urging do not count as part of a new controlling group, and therefore Elliott’s latest nominees constitute only a minority of the board. The case is City of Atlanta Firefighters’ Pension Fund v. Arconic et al., No. 1:17-cv-02840 (S.D.N.Y.).)

Joking aside, courts have recently looked askance at dead hand proxy puts, even if they do have shareholder value-enhancing effects in the context of loan agreements and bond offerings. The Arconic situation is a bit more unusual, however, because the obligations are to company employees rather than lenders, and I don’t know whether the same economic effects exist in that context. The fact that the trust at issue was established for “a select group of management and/or highly compensated employees and former employees” raises the specter – in future cases if not this one – of a new twist on the old golden-parachute-as-takeover-defense. I am curious to see what courts make of it.

April 22, 2017 in Ann Lipton | Permalink | Comments (0)

Friday, April 21, 2017

Priorities, Principles, Politicians, and Professors

By Haskell Murray

In this semester's student mentorship group, we have been discussing personal priorities and principles. The consensus from the students seems to be that this topic is not only useful, but also more difficult than originally envisioned. A number of the students expressed a lack of clarity regarding their own priorities and life principles, but they recognized the need for deep thinking about those things.

Outlining priorities and principles could be a useful exercise for politicians and professors as well. Without a clear understanding of our priorities and principles, we often drift toward our political parties and the visible rewards dangled in front of us.

Regarding both politicians and professors, I am most inspired by those who take stands that do not benefit their party or themselves, but rather make the stand because it is the “right thing” to do. Professors, obviously, have more freedom to seek and speak the truth, but I think that professors' impact will be greater if they stick to their principles regardless of the party in power.

Of course sticking to priorities and principles does not guarantee a good or admirable outcome. One must have “good” priorities and principles. What qualifies as “good” is beyond the scope of this short blog post, but I do think priorities and principles that are selfless (or as selfless as we are capable of being) tend to be good ones.

April 21, 2017 in Business School, Ethics, Haskell Murray, Service, Teaching | Permalink | Comments (0)

Thursday, April 20, 2017

ICYMI: #corpgov SSRN Roundup (April 20, 2017)

"conflicting empirical results in studies on the wealth effects of staggered boards" https://t.co/Hm8cmUxT5Z #corpgov
— Stefan Padfield (@ProfPadfield) April 14, 2017

"limited liability. What makes it special is that it may not be created by contract" https://t.co/rQzRLnZgtc #corpgov
— Stefan Padfield (@ProfPadfield) April 14, 2017

"use behavioral compliance strategies to combat rationalizations &..repair..'Cadillac compliance' programs" https://t.co/SUxpUb4jRr #corpgov
— Stefan Padfield (@ProfPadfield) April 14, 2017

"offshore corporate law model creates information asymmetry that is difficult to regulate" https://t.co/MwFBRBkLJa #corpgov
— Stefan Padfield (@ProfPadfield) April 14, 2017

2/2: "Critical Legal Studies inspired history of labor law" https://t.co/aQVXVBBd6g #corpgov
— Stefan Padfield (@ProfPadfield) April 18, 2017

accounting standards: "greater use of managerial estimates...associated w/ negative stock price reactions" https://t.co/I6SMdinUXs #corpgov
— Stefan Padfield (@ProfPadfield) April 19, 2017

April 20, 2017 in Stefan J. Padfield | Permalink | Comments (0)

Wednesday, April 19, 2017

Is Hashtag Activism Finally Changing Corporate Culture?

By Marcia Narine Weldon

Ratings behemoth Bill O'Reilly is out of a job at Fox News “after thorough and careful review of the [sexual harassment] allegations” against him by several women. Fox had settled with almost half a dozen women before these allegations came to light, causing advertisers to leave in droves once the media reported on it. According to one article, social media activists played a major role in the loss of dozens of sponsors. Despite the revelations, or perhaps in a show of support, O’Reilly’s ratings actually went up even as advertisers pulled out. Fox terminated O’Reilly-- who had just signed a new contract worth $20 million per year-- the day before its parent company’s board was scheduled to meet to discuss the matter. The employment lawyer in me also wonders if the company was trying to preempt any negligent retention liability, but I digress.

An angry public also took to social media to expose United Airlines' after its ill-fated decision to have a passenger forcibly removed from his seat to make room for crew members. However, despite the estimated 3.5 million impressions on Twitter of #BoycottUnited, the airline will not likely suffer financially in the long term because of its near monopoly on some key routes. United’s stock price nosedived by $800 million right after the disturbing video surfaced, but has rebounded somewhat with EPS beating estimates. Check out Haskell Murray's recent post here for more perspective on United.

Pepsi and supermodel Kendall Jenner also suffered more embarrassment than financial loss after people around the world erupted on social media over an ad that many believed trivialized the Black Lives Matter movement. Pepsi pulled the controversial ad within 24 hours. Some believe that Pepsi may suffer in sales, but I’m not so sure. Ironically, Pepsi’s stock price went up during the scandal and went down after the company apologized.

Pepsi and United both suffered public relations nightmares, but the skeptic in me believes that consumers will ultimately focus on what’s most important to them- convenience, quality, price, and in Pepsi’s case, taste. I recently attended my 25^th law school reunion, and all of my colleagues who used a ride sharing app used Uber nowithstanding its well-publicized leadership scandals and the #deleteuber campaign. Indeed, many social media campaigns actually backfire. The #grabyourwallet boycott of Ivanka Trump’s brand raised public awareness but may have actually led to its recent record sales.

Reasonable people can disagree about whether social media campaigns and threats of consumer boycotts actually cause long-standing and permanent changes in corporate culture or policy. There is no doubt, however, that CEOs and PR departments will be working more closely than ever in the age of viral videos and 24-hour worldwide Twitter feeds.

April 19, 2017 in Corporations, CSR, Current Affairs, Employment Law, Ethics, Financial Markets, Marcia Narine Weldon | Permalink | Comments (1)

Tuesday, April 18, 2017

Before CSR, There Was The Trust Bank

By Joshua Fershee

Before I became a lawyer, I had the privilege of working with a number of great people at a public relations firm in Los Angeles. That firm was founded by Al Golin, who passed away last week, and by all accounts, he will be missed. Mr. Golin was the PR person behind McDonald's, and it was a very symbiotic relationship.

I did not meet Mr. Golin, personally, but his vision was definitely part of the firm culture. Early on, his vision of good business was on display. As the New York Times reported:

Before corporate social responsibility and cause-related marketing became fashionable, Mr. Golin was instrumental in creating what he called a trust bank. He encouraged the McDonald’s Corporation to sponsor Ronald McDonald Houses for children with life-threatening illnesses, an All-American High School Marching Band, an All-American High School Basketball Game and the Jerry Lewis Muscular Dystrophy Telethon — all to build good will that could be drawn upon when the company needed public support.

I can't say Mr. Golin is the reason I believe firms can be good corporate citizens without laws requiring them to do so, but I frankly like the idea that firms can compete to be recognized as such. The baseline should be set by law, but the rest is up for the market to determine. Mr. Golin suggested companies should choose to set the bar high. I agree.

He left a great firm behind, with a lot of good people who certainly follow his advice. May he Rest In Peace.

April 18, 2017 | Permalink | Comments (0)

Happy Birthday to The Surly Subgroup!

Please join me in celebrating the one-year blogiversary of the Surly Subgroup! The Surly Subgroup is a tax blog with several contributing tax professors, including my colleague, Shu-Yi Oei (soon to be ex-colleague, sadly, as she will soon be leaving Tulane for Boston College). If you're interested in tax issues with 'tude, you should check it out!

April 18, 2017 in Ann Lipton | Permalink | Comments (0)

Monday, April 17, 2017

Bonus Post for a Monday: International Haiku Poetry Day

I rarely post twice in one day, but I am making an exception today. After posting this morning, I learned that today is International Haiku Poetry Day. I loved Haiku poetry as a kid. I still love it as an adult. It has structure--a structure that, in my opinion, encourages both brevity and creativity.

In honor of this special day, I wrote a personal haiku for my Facebook page.

Yoga feeds the soul
And calms the body and mind.
Breathe and move. Repeat.

I am pretty proud of that one, inspired by my Monday night Iyengar practice. So, I thought I would try my hand at a BLPB haiku. Here goes.

A new President.
Time to revamp business regs!
Uncertainty reigns.

The inspiration for this haiku is obvious . . . . :>)

Prefer more humorous verse? I also loved limericks. So, I checked to see whether there might be an International or National Limerick Day. Indeed, it appears that we will celebrate limericks on Friday, May 12, 2017. Hmm . . . .

April 17, 2017 in Current Affairs, Joan Heminway | Permalink | Comments (2)

Visioning the Publicly Held Benefit Corporation

As Haskell earlier announced here at the BLPB, The first U.S. benefit corporation went public back in February--just before publication of my paper from last summer's 8th Annual Berle Symposium (about which I and other BLPB participants contemporaneously wrote here, here, and here). Although I was able to mark the closing of Laureate Education, Inc.'s public offering in last-minute footnotes, my paper for the symposium treats the publicly held benefit corporation as a future likelihood, rather than a reality. Now, the actual experiment has begun. It is time to test the "visioning" in this paper, which I recently posted to SSRN. Here is the abstract.

Benefit corporations have enjoyed legislative and, to a lesser extent, popular success over the past few years. This article anticipates what recently (at the eve of its publication) became a reality: the advent of a publicly held U.S. benefit corporation — a corporation with public equity holders that is organized under a specialized U.S. state statute requiring corporations to serve both shareholder wealth aims and social or environmental objectives. Specifically, the article undertakes to identify and comment on the structure and function of U.S. benefit corporations and the unique litigation risks to which a publicly held U.S. benefit corporation may be subject. In doing so, the article links the importance of a publicly held benefit corporation's public benefit purpose to litigation risk management from several perspectives. In sum, the distinctive features of the benefit corporation form, taken together with key attendant litigation risks for publicly held U.S. benefit corporations (in each case, as identified in this article), confirm and underscore the key role that corporate purpose plays in benefit corporation law.

Ultimately, this article brings together a number of things I wanted to think and write about, all in one paper. While many of the observations and conclusions may seem obvious, I found the exploration helpful to my thinking about benefit corporation law and litigation risk management. Perhaps you will, too . . . .

April 17, 2017 in Anne Tucker, Business Associations, Corporate Governance, Corporations, Current Affairs, Haskell Murray, Joan Heminway, Litigation, Management, Social Enterprise | Permalink | Comments (0)

Sunday, April 16, 2017

ICYMI: #corpgov Tweets From the Week (April 16, 2017)

"The data is confirming. Shareholder primacy is judge-made law." https://t.co/7Fj9LIQWcG #corpgov
— Stefan Padfield (@ProfPadfield) April 11, 2017

"Multistate bar exam scores drop to lowest point ever" https://t.co/l12IS5GUOr
— Stefan Padfield (@ProfPadfield) April 14, 2017

.@jadler1969: "Law School Faculties Need More Intellectual Diversity" https://t.co/Ji1C1v346K
— Stefan Padfield (@ProfPadfield) April 14, 2017

“too big to disclose”: "matters..significant..in absolute terms may be deemed immaterial & remain undisclosed" 64 UCLA L. Rev. 602 #corpgov
— Stefan Padfield (@ProfPadfield) April 16, 2017

Are "an enterprise & its agents..a single actor incapable of the meeting of..minds necessary to form a conspiracy"? 105Geo.L.J.871 #corpgov
— Stefan Padfield (@ProfPadfield) April 16, 2017

"on the same day..the chief justice.. [upheld] viewpoint..discrimination in Morse, he..announced.. [WRTL]" 71 U. Miami L. Rev. 359 #corpgov
— Stefan Padfield (@ProfPadfield) April 16, 2017

April 16, 2017 in Stefan J. Padfield | Permalink | Comments (0)

Saturday, April 15, 2017

And now for something completely different about Snap and shareholder rights

So I was looking over Snap’s S-1, and I discovered this:

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for:

any derivative action or proceeding brought on our behalf;

any action asserting a breach of fiduciary duty;

any action asserting a claim against us arising under the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws; and

any action asserting a claim against us that is governed by the internal-affairs doctrine.

Our amended and restated certificate of incorporation further provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.

The first provisions are a fairly unremarkable (these days) set of forum selection clauses, but in that last point, Snap has gone a step further by attempting to control the forum of federal claims in addition to state claims. In so doing, Snap is obliquely referring to the ongoing dispute about whether SLUSA requires that Section 11 class actions be litigated in federal court, or whether, instead, class actions under Section 11 may be maintained in state court. The Supreme Court is considering whether to rule on this issue, but Snap has apparently decided to belt-and-suspender it.

I don’t know if this is a common provision in IPO documents these days, but I do hope that if the enforceability of the provision is ever litigated, courts will not blindly assume that such provisions are “contractual” and therefore as binding as any other forum selection provision in an ordinary contract between transacting parties.

I’ve written quite a bit about whether charters and bylaws are contractual, and the enforceability of forum selection provisions. See Manufactured Consent: The Problem of Arbitration Clauses in Corporate Charters and Bylaws, 104 Geo. L.J. 583 (2016); Limiting Litigation Through Corporate Governance Documents, in Research Handbook on Representative Shareholder Litigation (Sean Griffith et al., eds., forthcoming 2017). One of the arguments I've repeatedly made is that courts should not simply assume that charters and bylaws may dictate terms about federal claims as they have about state law internal affairs claims.

Charters and bylaws are not like ordinary contracts; instead, the state of incorporation determines the permissible provisions, the procedures by which they can be amended, the fiduciary duties of managers when invoking these provisions, and the rights and powers of shareholders to influence their content. (For example, states decide whether the clause must appear in the charter, whether shareholders must vote, and whether and under what conditions management may waive these provisions). States are not positioned to make the appropriate policy determinations when the matter involves a federal, rather than state, regulatory scheme.

Indeed, it is not obvious that Delaware even authorizes the charter provision that Snap has adopted. In 2015, Delaware amended its law to authorize corporations to adopt charter and bylaw provisions that select Delaware as a forum for internal affairs claims. See DGCL § 115. As I have argued previously, that statute (and related Delaware caselaw) should be interpreted to mean that only internal affairs claims, and not other kinds of claims, may be governed by charters and bylaws. But even if the statute is interpreted to allow corporations broad freedom to dictate the terms on which plaintiffs may bring federal securities claims, as some have suggested, see John C. Coffee, Update on “Loser Pays” Fee Shifting; Stephen M. Bainbridge, Fee-Shifting: Delaware’s Self-Inflicted Wound, 40 Del. J. Corp. L. 851 (2016), the broader point is that there is no reason that Delaware should be deciding these important matters of federal policy.

To be sure, one might argue that this is no different than ordinary contracts – state law, too, determines the rules that govern ordinary contracts, and yet these contracts may contain enforceable forum selection provisions regarding federal rights.

But that is not quite the same. We may assume that Congress generally intended to import into federal law certain state law standards regarding contracts and corporate law, but that presumption may be overcome depending on the particular state law in question. See generally Kamen v. Kemper Financial Services, 500 U.S. 90 (1991). It is not obvious that Congress intended that state corporate law – including idiosyncratic approaches to shareholder powers within the corporation – would govern forum selection for federal claims, especially since state law did not even grant corporations these powers until 2013. See Boilermakers Local 154 Ret. Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch. 2013).

But more fundamentally, as I have explained in the context of arbitration, within the corporate structure, shareholders and directors are not on equal footing. Shareholder power is sharply limited by legal ground rules that vest directors with broad discretion to take action on behalf of the corporation as they see fit. The justification for this power differential is that corporate directors are better positioned to make decisions on behalf of the corporation, and that shareholders are too uninformed, selfish, or heterogeneous to be trusted with the power to determine the corporation’s fate. Such an approach is at odds with the general concept of “contract,” which is predicated on the assumption that each party is capable of bargaining for his or her self interest, and that welfare across parties is maximized when the parties are permitted to bind themselves to arrangements they believe best for themselves. Unlike in contract, within the corporation, shareholders are not treated as autonomous arm's length bargainers. See also Jill E. Fisch, Governance by Contract: The Implications for Corporate Bylaws (California Law Review, forthcoming).

So, bringing this back to Snap’s articles of incorporation, if courts or the SEC decide that – for reasons of federal policy – it is best for companies and their shareholders that corporations be permitted to select a federal forum for federal securities claims in their charters/bylaws, that’s one thing, and on that point I remain agnostic. But what they should not do is assume that Snap’s charter is a “contract” that binds the shareholders to a federal forum, in the same manner as a forum selection clause in an ordinary contract between transacting parties.

April 15, 2017 in Ann Lipton | Permalink | Comments (0)

Friday, April 14, 2017

UMKC Administrative Law Symposium - Call for Papers