Business Law Prof Blog

What Law Schools Should Be Teaching and Aren’t

I listened to a podcast today entitled “What Law Schools Should be Teaching, and Aren’t (with Mark Cohen).” Cohen is the founder and CEO of Legal Mosaic. In a previous life he served as a partner in a large law firm, a partner in his own boutique firm, a receiver, and the founder of a now defunct legal tech startup, Clearspire.

Given all of his experience, I value what he has to say about what law schools need to do to prepare students for the current legal marketplace. I recommend that you listen to the podcast yourself, but here is his list of gaps in student knowledge:

1. How to interview clients
2. The importance of project management, collaboration and teamwork
3. How to provide legal solutions and not just merely legal opinions.
4. How to use technology and deal with the rise of legal process outsourcing
5. Marketing and getting clients
6. The importance of emotional intelligence

Many may quibble with his list in an age in which bar passage rates are at historical lows. But I think he has a point, especially since most of students will work for small law firms and will not have the infrastructure/safety net of Big Law. As Cohen mentioned, lawyers increasingly work within a legal supply chain and must provide value beyond what they are being taught in law school. These include the soft skills that business schools typically teach, and which will enable our students to get and keep clients.

I particularly liked his discussion of project management and collaboration. As we know, many law students can’t manage their time properly, don’t like working in groups, and focus more on regurgitating what they are taught in class rather than thinking of creative, constructive solutions. Students also haven’t developed the skills to deal with the increasing automation of document review/drafting and the potential rise of robots, which thankfully, won’t replace lawyers (yet).

I have tried to teach my students to understand the importance of learning their client’s business so that they can provide solutions rather than standard law school exam answers. I grade based on deliverables and time management to the extent that I don’t accept late work (barring extraordinary circumstances). In every class, I have had students do some work in groups, even though they don’t like it at first. I have also stressed the importance of learning to explain complex concepts clearly and concisely through blogging (which also provides marketing opportunities).

Now I plan to see how I can incorporate more of Cohen’s suggestions. Practitioners- is there anything else professors can do to produce more effective and efficient graduates?

LLCs Are Not Corporations: "Corporate" Disclosure Edition

Regular readers know that I monitor courts and other legal outlets for improper references to LLCs as "limited liability corporations" when the writer means "limited liability companies." I get a Westlaw update every day. Really. Every day. So while it may seem that I write about examples a lot, I tend to think I am showing great restraint.  

At times, this is just a semantic issue, or at least a more amorphous "how one thinks about entities" issue.  Usually, at a minimum such cases can cause confusion about entity type and what laws apply, which may eventually lead courts to an improper analysis and application of the wrong laws.  It certainly leads some lawyers to incorrectly characterize their clients and their cases.  

For example, a recent case from the United States District Court for the Western District of Washington gets the law right, but still creates some potential confusion. Consider this excerpt: 

Cash & Carry asserts that the court's jurisdiction is based on diversity of citizenship. (Not. at 2.) For purposes of assessing diversity, the court must consider the domicile of all members of a limited liability company. Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006) (“[A]n LLC is a citizen of every state of which its owners/members are citizens.”); see also Local Rules W.D. Wash. LCR 101(e). Plaintiff Deborah Markham alleges that she is a Washington resident. (Compl. (Dkt. # 2) ¶ 1.2.) However, neither the complaint nor the notice of removal identifies Cash & Carry's members or the domicile of those members. (See id. ¶ 1.3 (alleging that Cash & Carry is “a limited liability corporation formed under the laws of the State of Washington”); Not. at 2.)

DEBORAH MARKHAM, Plaintiff, v. CASH & CARRY STORES, LLC, et al., Defendants., No. C17-0746JLR, 2017 WL 2241136, at *1 (W.D. Wash. May 23, 2017) (emphasis added).  It'd have been great for the court to note that Cash & Carry's claim it was "a limited liability corporation" was incorrect.  Instead, the court then stated, "Furthermore, Cash & Carry's corporate disclosure statement fails to establish Cash & Carry's domicile. (CDS (Dkt. # 4).)" Id. As an LLC, Cash & Carry isn't "corporate," but because of the local rules for the Western District of Washington, it does have an obligation to make a "corporate disclosure." See U.S. Dist. Ct. Rules W.D. Wash., Civ LR 7.1.

 

Federal Rule of Civil Procedure 7.1 requires only: 

Rule 7.1. Disclosure Statement

(a) Who Must File; Contents. A nongovernmental corporate party must file 2 copies of a disclosure statement that:

(1) identifies any parent corporation and any publicly held corporation owning 10% or more of its stock; or

(2) states that there is no such corporation.

(b) Time to File; Supplemental Filing. A party must:

(1) file the disclosure statement with its first appearance, pleading, petition, motion, response, or other request addressed to the court; and

(2) promptly file a supplemental statement if any required information changes.

However, in Washington, the Local Rule 7.1 adds to the requirements of the federal "disclosure statement":

CORPORATE DISCLOSURE STATEMENT

(a) Who Must File; Copies

Any nongovernmental party, other than an individual or sole proprietorship, must file a corporate disclosure statement identifying:

1. any parent corporation and any publicly held corporation owning more than 10% of its stock;

2. any member or owner in a joint venture or limited liability corporation (LLC);

3. all partners in a partnership or limited liability partnership (LLP); or

4. any corporate member, if the party is any other unincorporated association

If there is no parent, shareholder, member, or partner to list in response to items (1) through (4), a corporate disclosure statement must still be filed stating that no such entity exists.

In this instance, the Local Rule changes the disclosure to "corporate disclosure," when it would appear this is really an "ownership" or "financial interest" disclosure.  (And, while I am being picky, isn't it odd to have a subpart "a," when there is not subpart "b?" I suspect this subpart notation is to track subpart a of Federal Rule 7.1, but it still looks odd to me.)  

 

This is not the first time a local rule has created some potential trouble with regard to Federal Rule 7.1.  Back in January of this year I posted Oops: Oregon District Court Rule For LLCs that are Defined as Corporations, which discussed some different concerns for the Oregon District Court's expansion of Rule 7.1. I will note that the LLC reference in the Oregon District Court Local Rule remains incorrect. 

 

I am prepared for the "no harm, no foul" comment. And maybe that's right. But it still seems like courts (and lawyers) should be able to get this right more often. 

Memorial Day Reflections: Choosing the Non-Profit Corporate Form for Organizations Helping the Families of Fallen Warriors

Wikipedia tells us what most (if not all) of us already knew: "Memorial Day is a federal holiday in the United States for remembering the people who died while serving in the country's armed forces."  As I have often noted in conversations and communications with friends, regardless of one's views on the appropriateness of war in general or in specific circumstances, most of us understand the importance of honoring those who have lost their lives in serving their country.  My dad, father-in-law, secretarial/administrative assistant, and many friends and students have served in the U.S. armed forces and survived the experience.  Others have not been so lucky.  I dedicate this post to all of them.

Last week, I had the pleasure of presenting at and attending a conference on Legal Issues in Social Entrepreneurship and Impact Investing—In the US and Beyond (also featuring co-blogger Anne Tucker).  My presentation was part of a panel on securities crowdfunding as impact investing.  But I attended many other presentations and participated in a lunch table talk on choosing the right entity for social enterprise and a brainstorming session on how legal education can better support social entrepreneurship and impact investing.  The conference was fabulous, and I learned a lot by listening to the great folks invited by the organizers--including others on my panel.

As I reflected on the holiday today in light of last week's conference, my thoughts turned to organizations serving the families of fallen warriors and what types of formal entity structures they had chosen.  These organizations are mission-driven and socially conscious.  They exist, at least in part, to serve society.  All of the ones I could think of or easily find in a Web search (among them Children of Fallen Patriots Foundation, That Others May Live Foundation, and Travis Manion Foundation--although I do not intend to endorse any specific organization) are organized as non-profit corporations under various state laws and qualified as exempt from federal income taxes under Section 501(c)(3) of the U.S. Internal Revenue Code.  One might ask why.  

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ICYMI: #corpgov Tweets From the Week (May 28, 2017)

"LLC Punch List: Ten Things to Do After Forming Your Entity" https://t.co/yVb9NbSkyT #corpgov

— Stefan Padfield (@ProfPadfield) May 22, 2017

"SEC Files Charges in Trading Scheme Involving Confidential Government Information" https://t.co/Y4leFxwaOB #corpgov

— Stefan Padfield (@ProfPadfield) May 24, 2017

"companies can develop workable — and profitable — sustainability strategies" https://t.co/P5cz4VRFCT #corpgov

— Stefan Padfield (@ProfPadfield) May 24, 2017

"SHs...approved a resolution calling...[for a] report on the potential business impacts of climate change" https://t.co/i4HufUiqAD #corpgov

— Stefan Padfield (@ProfPadfield) May 26, 2017

"the false belief that it was legitimate ... to ignore the distribution of income" https://t.co/4aPj3wZzte #corpgov

— Stefan Padfield (@ProfPadfield) May 27, 2017

Reality is just a shared illusion

I’m always looking for quirky evidence of market efficiency – or market inefficiency – to share with my students.  For example, there’s the Cuba Beverage thing, and the Trump tweets thing. 

And now, there’s the fake news thing:

As a video circulated that appeared to partially absolve President Donald Trump in the administration’s Russian meddling scandal on trading floors on Thursday, stocks surged for the first time in days on the apparent breaking news.

The video, it turns out, was actually two weeks old, misleadingly edited with the intention of falsely accusing former FBI director James Comey of perjury—and was initially aired by conspiracy website InfoWars on Thursday around noon.

Trump wasn’t cleared. In fact, since the video had been around since May 3rd, nothing had changed at all. But by the time traders found out, the dollar index had spiked anyway.

The fallout of the story is leaving analysts wondering how to absorb information in a market that is suddenly waiting on bated breath for the latest rumors to come out of the White House—even when those rumors are intentionally misleading or untrue.

…

In other words, the news can be fake, but the rally it creates in the stock market is very real.

[Adam] Button, [the chief currency analyst at ForexLive] said that InfoWars isn’t a site that “anyone on Wall Street usually really believes,” but people may change their reading habits after Thursday’s surge.

“People were asking me today, ‘Is Infowars a site I have to start reading now?’ And I said, ‘The answer is yes,’’ said Button.

“You’re not trading on what’s true and what’s false. You’re trading on what the average voter believes is true. It’s a propaganda war.”

…

The markets chose a particularly inauspicious day to use InfoWars source material to determine what’s happening. Less than 24 hours before the rally, InfoWars host and founder Alex Jones was forced to apologize to and retract articles about Chobani as part of a settlement. …

It’s the second time in two months Jones was forced to apologize and pull down content for claims made on InfoWars. In March, Jones read out a written apology on his show to James Alefantis, whom InfoWars had falsely suggested was running a child sex ring tied to Hillary Clinton’s campaign out of the basement of a pizza shop. Content that had included those allegations were pulled down.

“The idea of trading on propaganda—it’s a strange feeling,” said Button. “Politics is a distraction for the most part, but it’s not anymore. This is taking over.”

Still, would Button recommend reading InfoWars just in case it’s a predictor of how the market might react to bombshell political news—even if it isn’t true?

“I want to say, ‘Yeah, read it now,’” he said. “But the rest of me says, ‘Don’t read that garbage.’”

We have seriously entered Keynesian beauty contest territory; traders don’t care what’s real anymore - all that matters is what other people think is real, at least for a brief period of time.

Nike Oregon Project and Morals Clauses

Last Friday, The New York Times ran a story on possible performance enhancing drug use inside the Nike Oregon Project.

The Nike Oregon Project is coached by running legend Alberto Salazar, who, by all accounts, is both incredibly competitive and dedicated to his work.

Among the athletes who are or have been associated with the Nike Oregon Project (and coached by Salazar )are gold medalist (in the 5000 & 10,000m in 2012 and 2016) Sir Mo Farah, gold medalist (in the 2016 1500m) Matt Centrowitz Jr., and silver medalist (in the 10,000m in 2012 and in the marathon in 2016) Galen Rupp. These three athletes have been the most dominant male distance runners for the U.S. over the last two Olympic cycles. 

Allegations of doping is nothing new for the Nike Oregon project coach and athletes. For example, Kara Goucher, U.S. Olympian and former member of the Nike Oregon Project herself, has been extremely vocal with allegations against the group for years. The Times of London published some of the same allegations against the Nike Oregon Project a few months before The New York Times. FloTrack has released what it thinks is the full report from USADA (US Anti-Doping Agency). The allegations are not only of doping, but of drug use that may have engaged the athletes' long-term health. 

I haven't seen any of the contracts for the Nike Oregon Project, but I would be willing to wager they contain morals clauses, allowing Nike to terminate the contracts, for cause, if the coach or athletes' actions tarnish Nike's brand. Often these morals clauses do not even require a finding of liability or guilt - often the mere allegations are enough. 

In this case, however, given the success of these athletes and coach, I expect Nike to wait to see if the allegations are confirmed. If, however, these athletes or coach were less popular and/or underperforming, the morals clause might have come into play earlier. These allegations do already appear to be hurting Nike's reputation among my friends who follow track & field. Sadly, however, I imagine that most of Nike's customers are more aware of the medals won by the athletes than the current allegations made against the athletes and coach.

This summer, I am working on a paper on morals clauses, including a discussion on when these clauses may be unenforceable, so I will continue to follow this story and may update with new information. 

ICYMI: #corpgov SSRN Roundup (May 25, 2017)

"Delaware has yet to provide an answer to certain basic questions pertaining to officers" https://t.co/jvALu0Kr6d #corpgov

— Stefan Padfield (@ProfPadfield) May 19, 2017

"turning sovereignty into a tradable commodity" https://t.co/QEPZgjPie5 #corpgov

— Stefan Padfield (@ProfPadfield) May 19, 2017

"100s of billions of dollars into publicly traded companies that have opted-out of ... fiduciary duties" https://t.co/zqr4Tl6fD2 #corpgov

— Stefan Padfield (@ProfPadfield) May 19, 2017

"piercing the veil if owners ... infuse th[e] corporation with their religious beliefs" https://t.co/bxos3NB1KZ #corpgov

— Stefan Padfield (@ProfPadfield) May 24, 2017

"The European Securities and Markets Authority (‘ESMA’) ... emerged from the ashes of the crises" https://t.co/rD5vofro85 #corpgov

— Stefan Padfield (@ProfPadfield) May 25, 2017

Should social entrepreneurs form nonprofits or benefit corporations?

On June 8, I will answer this and other questions during an interactive session for a group of social entrepreneurs at Venture Cafe in Miami. Fortunately, I will have an accountant with me to talk through some of the tax issues. I was invited by the director of Radical Partners, a social impact accelerator. We estimate that 75% of the audience members will work for a nonprofit and the rest will work in traditional for profit entities with a social mission.

Many entrepreneurs in South Florida have an interest in benefit corporations, but don't really know much about them. Our job is to provide some guidance on entity selection and demystify these relatively new entities. Some of the issues I plan to address in my 20 minutes are:

1) the differences between nonprofits, for profits, and benefit corporations

2) the differences between benefit and social purpose corporations (focusing on Florida law)

3) the biggest myths about benefit corporations (such as perceived tax benefits)

4) tax issues (for the accountant)

5) director duties

6) funding- changing funding model from donors to investors; going public

7) reporting, auditing, and certification requirements

8) benefit enforcement proceedings

9) the role of B Lab and the difference between a B Corp and a benefit corporation (currently 15 Florida companies are certified through B Lab)

10) transparency and accountability issues

We plan to leave about 45 minutes for questions. Not many lawyers in Florida have experience with benefit or social purpose corporations, so I am seeking guidance from our readers. If you are a practitioner and have dealt with these entities in your states, I'm interested in your thoughts. Are a lot of your clients asking about these entities? Have they converted? How do you help them decide whether this change is good for them? I'm also fortunate to have colleagues on this blog who are real thought leaders in the area, and am looking forward to their comments. Personally, I believe that for many business owners, benefit corporations may provide a perceived marketing edge, but not much more, Author Tina Ho has raised concerns about greenwashing. If I'm wrong, let me know below or send me an email at [email protected].

 

Just Because You Can, Doesn't Mean You Should, Detroit Lions Edition

Last weekend, retired NFL receiver Calvin Johnson made news when he revealed that he was not pleased with the Detroit Lions and how they handled his retirement. Johnson is apparently frustrated that the Lions required him to pay back about 10% of the  unearned $3.2 million remaining on his $16 million signing bonus from his 2012 contract. This is apparently a thing for the Lions, who sought all of the unearned signing bonus money remaining on Barry Sanders' contract when he abruptly retired in 1999.

This is in contrast to Tony Romo's retirement, in which the Dallas Cowboys released him, making the $5 million remaining on the signing bonus Romo's.  Cowboys owner Jerry Jones said he was following the “Do Right Rule” when he allowed the team to release him.  The Seattle Seahawks made a similar decision with Marshawn Lynch.  

Some have argued that Johnson is being "pettier" than the Lions in this spat.  Mike Florio, a sports writer and graduate of WVU College of Law, where I teach, argued that "while Johnson has every right to be miffed at the Lions, Johnson also should be miffed at himself. Or at whoever advised him to retire instead of biding his time until the Lions would have released him." Florio correctly notes that Johnson had a big cap number likely to come due had he not retired or accepted a restructured deal, so he was coming from a position of power in negotiating, which would have likely forced the Lions to cut him. Still, that doesn't mean Johnson is wrong to be frustrated.  

Perhaps Johnson didn't ever want to be cut in his career, even at that point in his carerr. Maybe he just wanted to retire.  The Lions were worried, perhaps about "precedent" that other players could use to walk away without paying back the bonus, though there is already such precedent out there, as discussed above, and the Lions have non-binding precedent already in the Barry Sanders case, where an arbitrator said Sanders had to pay back some of his signing bonus.  Beyond that, the response to most players would simply be, "I know we didn't ask Calvin Johnson for any money back. You're not Calvin Johnson." 

It is  true that the Lions could seek money from Johnson, and that Johnson almost certainly, from a legal sense, owed the money.  But having a legal right to something doesn't always mean it is a good idea.  And that is important for lawyers to remember.  The question I would have asked the Lions front office is this: "Is it really worth $320,000 when it is possible that one of your greatest players will feel disrespected by the process? Especially when you already created a rift with one of you other greatest players fifteen years ago?"  

Maybe it was asked, and the answer was yes, but I just don't see the upside.  My guess is that the Lions asked for a lot more and the two sides negotiated to this figure.  But that process, not the payment, is likely what irked Johnson.  Why does it matter? Because it tells future people the team wants, especially coaches and free agents, how the Lions do business.  And when choosing between two similar offers, that could very well lead one to choose the other team.  

I often use these kinds of issues facing a business when teaching the importance of the business judgment rule and allowing a board of directors not to pursue claims it can win (as long as there is no fraud or self dealing).  Sometimes, it is better for the entity to let a claim go than to extend a bad story or scare off potential talent.  Back in 2007, for example, Billy Donovan was hired to leave his head coaching job at the University of  Florida to lead the NBA's Orlando Magic.  Just days later, Donovan decided he did not want to leave Florida, and asked the Magic to let him return to the college game. The Magic decided to let him do so without any financial penalty, though they did ask him to agree not to coach in the NBA for five years.

Why let Donovan back out and return to Florida without a payment?  For one, the Magic needed to hire a new coach, and you want to send a message that you are a good employer.  Second, Donovan was beloved in Florida. He had won two NCAA championships in a key market for the team.  Don't irritate your prime audience is always a good bit of advice.  There was little upside to being difficult. The team was almost certainly irritated, but there is little value in letting that lead to bad publicity and unnecessary public spats. This principle extends well beyond the sports realm, but it is especially important in any area where employers fight for talent, which is common in the sports and entertainment areas. 

In assessing the legal (and business) options for the Calvin Johnson situation, good lawyering requires a recognition that key issues were likely related to perception and respect, not money.  As such, the fact that there was an argument about repayment at all was the issue that made Johnson frustrated (and now could have repercussions in the future free agent market).  It is certainly possible the Lions assessed this risk and decided it was worth it.  I disagree that it was worth it, but that would be a reasonable decision.  (As a life-long Lions fan, I will need more evidence the problem was properly assessed, though I do hold out hope for the new front office.) 

Such decisions, if made simply on the legal merits (e.g., Would I win in court?), run the risk of what Jeff Lipshaw calls "pure lawyering," which is essentially legal reasoning without context or assessment of non-legal impacts or opportunities. As Lipshaw explains in the preface to his book, Beyond Legal Reasoning, A Critique of Pure Lawyering: 

Legal reasoning is merely one way of creating meaning out of circumstances in the real world. In its pure form, it does nothing more than convert a real-world narrative to a set of legal conclusions that have no necessary connection either to truth or morality.

Or the ability to recruit free agents.  

Shareholder Wealth Maximization at the Firm Level

I ask my Advanced Business Associations students to recognize and process theory and policy and relate them to doctrine at the practical level.  This is, as most of you will recognize, a tall order of business for students who have just recently learned what business associations law is and may not yet (at the time they take the course) have applied the law in a practical context outside the classroom.  (The course is open to 2L and 3L students who have already taken Business Associations.)

So, when it came time to lionize my friends Lyman Johnson and David Millon at a symposium honoring their work (which, as you may recall, I first heralded on the BLPB a year ago and wrote a bit about back in October), I decided to put my scholarship pen (keyboard) where my teaching mouth is.  My goal for the symposium was to write something that linked theory and policy through doctrine to law practice and, at the same time, incorporated Lyman's and David's work. The essay I produced in fulfillment of these objectives was recently released and posted to SSRN.  I excerpted from it in my post on Saturday.  The full SSRN abstract follows.

In context, corporate law is often credited with creating, hewing to, or reinforcing a shareholder wealth maximization norm. The now infamous opinion in Dodge v. Ford Motor Co. describes the norm in a relatively bald and narrow way: “A business corporation is organized and carried on primarily for the profit of the stockholders." As a matter of theory and policy, commentators from the academy (law and business) and practice (lawyers and judges) have taken various views on this asserted norm—ranging from characterizing the norm as nonexistent or oversimplified to maintaining it as simple fact.

In an effort to broaden the conversation about the shareholder wealth maximization norm in an applied context, this essay describes shareholder wealth maximization under various state laws (in and outside Delaware) as a function of firm-level corporate governance—corporate law statutes, decisional law interpreting and filling gaps in that statutory law, and corporate charter and bylaw provisions—as applicable to both publicly held and privately held corporations in a variety of states. In this overall context, the essay considers the possibility that holders of shares in for-profit corporations may desire to maximize overall utility in their shareholdings of a particular firm, rather than merely the financial wealth arising from those holdings. To accomplish its purpose, the essay first briefly and generally addresses shareholder wealth maximization as a function of applicable statutory and decisional law and as a matter of private ordering (collecting, synthesizing, and characterizing, in each case, points made in the extant literature) before suggesting the broad implications of that analysis for corporate governance and shareholder wealth maximization and concluding. Ultimately, the essay makes a case for a more nuanced look at the shareholder wealth maximization norm. Given differences in doctrine and public policy among the states and variance in that doctrine and public policy among public, private, and statutory close or closely held corporations within individual states, answers to open questions are likely to (and should) depend on individualized facts assessed through the lens of specific statutory and decisional law and applicable public policy.

I fear that this short piece does not do the subject (or Lyman and David's amazing work) justice.  But my biggest regret is that the essay went to press without the addition of thanks to two special folks in my author's footnote.  I want to call those two colleagues out here.  

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ICYMI: #corpgov Tweets From the Week (May 21, 2017)

Financial Choice Act: "To submit a proposal, SHs would ... need to invest more than $7 billion in Apple." https://t.co/M5h1FqmkFf #corpgov

— Stefan Padfield (@ProfPadfield) May 15, 2017

"California ... equal pay law ... prohibits wage disparities due to gender, race, and ethnicity." https://t.co/bu9l4XdLwj #corpgov

— Stefan Padfield (@ProfPadfield) May 16, 2017

"the offshore corporate law model creates information asymmetry that is difficult to regulate ex post" 23 Colum. J. Eur. L. 401 #corpgov

— Stefan Padfield (@ProfPadfield) May 16, 2017

Regulators should report fines in terms of percentage of violator's annual revenue. #corpgov https://t.co/2l1Ytz3wIa

— Stefan Padfield (@ProfPadfield) May 18, 2017

"[A]dequate political will to confront the massive loss of ... revenue attributable to corporate tax avoidance"? 50 Int'l Law. 275 #corpgov

— Stefan Padfield (@ProfPadfield) May 21, 2017

Loyalty to Whom (or What)?

Loyalty has been in the news lately.  The POTUS, according to some reports, asked former Federal Bureau of Investigation ("FBI") Director James Comey to pledge his loyalty.  Assuming the basic veracity of those reports, was the POTUS referring to loyalty to the country or to him personally?  Perhaps both and perhaps, as Peter Beinart avers in The Atlantic, the POTUS and others fail to recognize a distinction between the two.  Yet, identifying the object of a duty can be important.

I have observed that the duty of government officials is not well understood in the public realm. Donna Nagy's fine work on this issue in connection with the proposal of the Stop Trading on Congressional Knowledge ("STOCK") Act, later adopted by Congress, outlines a number of ways in which Congressmen and Senators, among others, may owe fiduciary duties to others.  If you have not yet been introduced to this scholarship, I highly recommend it.  If we believe that government officials are entrusted with information, among other things, in their capacity as public servants, they owe duties to the government and its citizens to use that information in authorized ways for the benefit of that government and those citizens.  In fact, Professor Nagy's congressional testimony as part of the hearings on the STOCK Act includes the following in this regard:

Given the Constitution's repeated reference to public offices being “of trust,” and Members’ oath of office to “faithfully discharge” their duties, I would predict that a court would be highly likely to find that Representatives and Senators owe fiduciary-like duties of trust and confidence to a host of parties who may be regarded as the source of material nonpublic congressional knowledge. Such duties of trust and confidence may be owed to, among others:

• the citizen-investors they serve;
• the United States;
• the general public;
• Congress, as well as the Senate or the House;
• other Members of Congress; and
• federal officials outside of Congress who rely on a Member’s loyalty and integrity.

There is precious little in federal statutes, regulations, and case law on the nature--no less the object--of any fiduciary the Director of the FBI may have.  The authorizing statute and regulations provide little illumination.  Federal court opinions give us little more.  See, e.g., Banks v. Francis, No. 2:15-CV-1400, 2015 WL 9694627, at *3 (W.D. Pa. Dec. 18, 2015), report and recommendation adopted, No. CV 15-1400, 2016 WL 110020 (W.D. Pa. Jan. 11, 2016) ("Plaintiff does not identify any specific, mandatory duty that the federal officials — Defendants Hornak, Brennan, and the FBI Director— violated; he merely refers to an overly broad duty to uphold the U.S. Constitution and to see justice done.").  Accordingly, any applicable fiduciary duty likely would arise out of agency or other common law.  Section 8.01 of the Restatement (Third) of Agency provides "An agent has a fiduciary duty to act loyally for the principal's benefit in all matters connect with the agency relationship."  

But who is the principal in any divined agency relationship involving the FBI Director?  

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Summer Reading: Visions of Vocation by Steven Garber

In last week’s post, I mentioned Dr. Steven Garber. Recently, I finished his 2014 book Visions of Vocation: Common Grace for the Common Good. This book is among a handful of  books in the faith & work area that I have read over the past few months.

Visions of Vocation is beautifully written, lyrical and rich. Garber’s weaves philosophy, literature, and personal stories throughout the book’s 255 pages.

Garber’s thesis in this talk, which echoes in much of his work, is that “vocation is integral, not incidental to the Missio Dei (mission of God)." Garber says the book Visions of Vocation grew out of these questions: Can you know the world and still love the world? & What will you do with what you know? The first question hits home, as the flaws of jobs and people often become more vivid over time.  After the second question, Garber shows how stoicism and cynicism are unsatisfying responses.  

Garber offers no easy answers, which is, perhaps, on purpose. These are difficult questions in a difficult area, and easy answers may not exist. I finished the book still hoping for some clear principles for integrating faith and work, but maybe the stirring questions were the point. The stories of folks at International Justice Mission and Elevation Burger, among others, do help in thinking about how faith and work fit together, as do the references to Walker Percy and Wendell Berry.

Again, this is not a book that provides a few simple steps or quick takeaways, but for a number of days after finishing it, I am still pondering its contents. For that reason, I think the book was well worth reading.

ICYMI: #corpgov SSRN Roundup (May 18, 2017)

"the first work to investigate the effects of the provision of mandatory CSR" https://t.co/06oDMASsJM #corpgov

— Stefan Padfield (@ProfPadfield) May 12, 2017

"business corporations ... 'deriv[e] their just powers from the consent of the governed'" https://t.co/TqNWWBHSGO #corpgov

— Stefan Padfield (@ProfPadfield) May 13, 2017

"Exchanges specifically for social enterprises may play a useful role" https://t.co/0jp4hKxNuq #corpgov #socent

— Stefan Padfield (@ProfPadfield) May 18, 2017

"Arbitration bylaws threaten to deprive the Delaware courts of their cases." https://t.co/ORw5khxKg6 #corpgov

— Stefan Padfield (@ProfPadfield) May 13, 2017

"TechFins" have "capacity to leverage the data gathered in their primary business into financial services" https://t.co/f7B0stFo0l #corpgov

— Stefan Padfield (@ProfPadfield) May 18, 2017

Seven Ted Talks that Will Change the Way You Look at Business (According to Entrepreneur Magazine)

I try to watch at least one Ted Talk a day. I learn new substantive topics and I also learn from listening to the speakers break down complex topics in an engaging way--a key skill for the classroom. I don’t know that any of the videos in a recent article written for business people really transformed my thinking about business, but I did find some parts interesting and inspiring.

Here they are for your viewing pleasure:

• Myths of Entrepreneurship
• Why Work Doesn't Happen at Work
• 10 Things to Know Before You Pitch to a Venture Capitalist
• What Consumers Want
• What Makes us Feel Good about Our Work
• The Power of Time Off
• Build a Tower, Build a Team

What is Loyalty?

This past week was a big one for loyalty stories.  First, we have the New York Times reporting that President Trump asked former FBI director James Comey for his pledge of loyalty, to which Comey apparently promised "honesty."  (The White House disputes this report.) 

Then, we have a high school quarterback in Illinois being forced to decommit from the University of Wisconsin's, apparently because he tweeted that the University of Georgia had offered him a scholarship.  The student called Wisconsin Coach Budmayr, telling him he had the offer and said he was "still 100% committed to the Badgers." The next day Budmayr apparently told him that he was no longer a good fit for Wisconsin and that he should keep looking.  The reason: lack of loyalty.  

Obviously, I only have the facts as they have been portrayed in these articles, and there are two sides to every story.  Nonetheless, these anecdotes got me to thinking about loyalty and how people tend to perceive the concept. 

To some, loyalty means fidelity.  This can be in the physical or emotional sense, as in the marriage context.  Some view extend it to ideological loyalty.  And to some, it means undying, uncompromising agreement and support.  It is this last idea that troubles me, because often it means that the loyalty is misguided. 

Merriam-Webster dictionary defines loyal as follows:

1. unswerving in allegiance: such a

a :  faithful in allegiance to one's lawful sovereign or government were loyal to the king    

b:  faithful to a private person to whom faithfulness is due a loyal husband

 c :  faithful to a cause, ideal, custom, institution, or product a loyal churchgoer

2. showing loyalty a loyal friend

3. obsolete :  lawful, legitimate

The Trump-Comey scenario is clearly type 1(a), but I think the same is true of the Badger football situation. The concept of requiring absolute loyalty to the cause as a prerequisite for being part of the team.  

The problem, of course, is what it means to be faithful and to whom.  In the Comey situation, Comey's loyalty is to the FBI, the country, and the truth, not the person in the White House. Trump has sort of acknowledged this, although it is not clear what the president had in mind if he really did ask Comey for such a pledge.  But it is clear that if Comey were to have pledged loyalty to the president, he would clearly have created the risk of compromising his loyalty to the country and the truth.  

For football, this is harder to define.  Is it to the team?  To the coach? To the other players?  To the program?  Everything? 

Blind allegiance is rarely a good thing, and can often lead to bad outcomes.  In the Badger football case, it seems the coach was either (a) looking to get out of the commitment and took an excuse, (b) really believes assurances from one of his commits are hollow, or (c) wanted to send a message about allegiance.  It is entirely possible it was some combination of the three. 

When it comes to the high school player, I can imagine a scenario where the player was excited to be pursued, and he was showing off a little.  Hard to blame a kid for that, frankly.  Despite assurances to the contrary, the Badger coach wanted none of it.  His team, his call, but I don't like it. 

In my view, loyalty runs two ways.  And loyalty should have room for misunderstandings, at a minimum, if not mistakes. Even it it doesn't, in the case of college player and college coach, the coach is the grown up.  He or she should act like it.  That means, if you have a real problem with the player, state it. And if you really don't want them any more, say it.  I have no idea what the coach said, and in fairness to him, he may be the one taking the high road here by not airing issues publicly. 

I can't say these stories raise any clear answers for me.  But they do raise questions about loyalty, and what it means.  I think that's worth thinking about, especially for lawyers and future lawyers. Both of these stories make me uncomfortable. It's worth it to me to think about why and what that means. And I think we should all spend a little time thinking about it. 

Creating a More Productive Space for Social Entrepreneurship - A Unique Birthday Present

Today, I am spending my birthday attending and presenting at the Fifth Annual Midwest Symposium on Social Entrepreneurship in Kansas City, Missouri.  I owe my presence here to my entrepreneurship colleagues and friends Tony Luppino (UMKC Law) and John Tyler (Kauffman Foundation).  Thanks for the awesome birthday present, guys.

There's so much I have to say about just the first day of this event.  (I also will be here and presenting tomorrow.)  The proceedings so far have been incredibly thought-provoking and instructive.  Most intriguing has been the focus around creating an ecosystem for social entrepreneurship.  Of course, law and lawyers have roles in that.  Hence, this blog post . . . .

Specifically, I want to devote today's post to the four essential action-elements necessary to generate a successful, sustained future for social entrepreneurship as posited and described by Mark Beam, Maverick in Residence at the Kauffman Foundation, in his kick-off keynote presentation this morning.  (As an aside, I will note that Mark started his talk with a brief recounting of the origin of the word "maverick," which was independently fascinating.)  Here are Mark's four elements, as I captured them in my notes (likely imperfectly), together with a bit of summary definitional commentary.  He contended that, to build a sustainable ecosystem for social entrepreneurship, we must:

1. Redefine work (recognizing entrepreneurship as work; taking into account the power and effects of technology, but knowing it needs to serve us and the human potential)
2. Nurture entrepreneurial ecosystems that mimic and integrate natural systems (e.g., helping people to help themselves; moving resources from the “haves” to the “have-nots”)
3. Evolve our capacity to serve more of the entrepreneurial community through ecosystem design (referring to three megatrends outlined by Kauffman Foundation CEO Wendy Guillies--demography, geography, and technology; opening up entrepreneurship to all to increase business, start-ups employment, productivity)
4. Tell new stories (relating anecdotes that connect us; “we create the future through the stories we tell ourselves”—visioning the future through stories)

That may not sound like much, but trust me.  The talk (beautifully delivered with amazing graphics, photography, and media content) was much better than my quick summary of the outtakes.

What Mark said made a lot of sense to me based on my related experience and work.  But I found myself thinking about the role of the lawyer in these action items.  How can lawyers--especially business lawyers--who support social enterprise help social entrepreneurship to productively move forward?

Continue reading

ICYMI: #corpgov Tweets From the Week (May 14, 2017)

"a SAFE (a 'Simple Agreement for Future Equity') ... may be offered in crowdfunding offerings" https://t.co/gTg3EP2D8b #corpgov

— Stefan Padfield (@ProfPadfield) May 10, 2017

"Experts examine dynamics of downward trend in U.S. IPOs ... do not blame over-regulation" https://t.co/ezV4lcQNOx #corpgov

— Stefan Padfield (@ProfPadfield) May 12, 2017

"Jack Bogle believes the stock market will return only 4% annually over the next decade" https://t.co/HxEiwijOif #corpgov

— Stefan Padfield (@ProfPadfield) May 13, 2017

"Roughly 78 percent of Americans disapprove of the Court's landmark ruling in Citizens United" 20 N.Y.U. J. Legis. & Pub. Pol'y 101 #corpgov

— Stefan Padfield (@ProfPadfield) May 14, 2017

"Ruling: Refusal to Print Gay Pride Shirts Not Discrimination" https://t.co/mt9CnVLBZ7 #corpgov

— Stefan Padfield (@ProfPadfield) May 14, 2017

When men are too emotional to make important judgments

Joshua Fershee started a conversation about incompetent male leaders, so in keeping with that theme, here are a couple of other interesting data points.

First, a new study shows that male loan officers are more willing to lend money to other men – especially men they bond with.  (Bloomberg story here; paper here).  That doesn’t work out so well for the banks; these loans are more likely to default.  Women loan officers do not suffer from the same bias.

Second, another study shows that male analysts are biased in favor of male CEOs – again, an effect that doesn’t hold for women.  (WSJ story here; paper here).

The critical point, for me, is that these biases exist even though they are unprofitable (in short term thinking, anyway; they may be very profitable for men as a group, long term).  It’s an obvious point but it bears repeating:  prejudice resists evidence.  The market cannot cure problems that prejudice bars it from perceiving.

As for why women do not, in these studies, suffer from the same bias (or do not suffer to the same degree), it's not that women are especially rational as compared to men; it's simply that, to quote the immortal philosopher, Douglas Adams:

It is difficult to be sat on all day, every day, by some other creature, without forming an opinion about them. On the other hand, it is perfectly possible to sit all day, every day, on top of another creature and not have the slightest thought about them whatsoever.

Mutuality in Business - University of Oxford & Mars Corporation

From a Facebook post by Dr. Steven Garber, I recently learned of the mutuality in business project by Mars Corporation and University of Oxford.

Quoting from the website:

A collaborative project with the Mars Corporation exploring mutuality as a new principle for organising business. Mutuality - a principle that emphasises the fair distribution of the burdens and benefits of a firm’s activities - is seen as a promising new organising value with the potential to strengthen relationships and improve sustainability.

"Mutuality in business" seems to be yet another term for social responsibility in business. We already have so many terms for the social business concept - blended value, business for good, CSR, creative capitalism, multi-stakeholder governance, natural capitalism, shared value capitalism, social entrepreneurship, social enterprise, social innovation, sustainability, triple bottom line. Many people are trying to create, differentiate, and mark their corner in this social business space.

Despite the addition of yet another social business term, the information at the website is interesting, especially the research projects.