Saturday, February 29, 2020
Three Times Federal Courts Got Materiality Wrong, and One Time They Didn’t
I often skim through recent opinions issued in private securities class actions, just to see what the latest issues are and how courts are addressing them. So this week, I’ll talk about a few that caught my eye. As the subject line indicates, most of this discussion concerns materiality, but there are some extra issues tossed in.
And yes, this is a very long one, so behind a cut it goes:
February 29, 2020 in Ann Lipton | Permalink | Comments (2)
Wednesday, February 26, 2020
ICYMI: #corpgov Midweek Roundup (Feb. 26, 2020)
If you have trouble viewing the embedded Tweets, please try a different browser (I recommend Internet Explorer).
"The Dark Side of Corporate Social Responsibility": "Our results are consistent with the argument that allowing directors to consider stakeholders’ interests makes directors less accountable." https://t.co/3V522nzqVg #corpgov
— Stefan Padfield (@ProfPadfield) February 24, 2020
"ESG initiatives also contemplate disclosure of a company’s tax policy or 'approach' to tax, as well as governance and risk management processes relating to tax." https://t.co/Xfd4xraFJn
— Stefan Padfield (@ProfPadfield) February 23, 2020
"The Supreme Court’s decision in Cyan, ruling that state courts have concurrent jurisdiction over claims relating to public offerings under the Federal Securities Act of 1933 has dramatically (and negatively) altered the landscape for companies going public today." https://t.co/CiIcx670uJ
— Stefan Padfield (@ProfPadfield) February 25, 2020
"studies found a significant positive correlation between tax avoidance and institutional ownership, indicating that the emerging ownership structure in the U.S. economy – common ownership – plays an outsized role in instances of corporate tax avoidance" #corpgov https://t.co/6UoCxebPcA
— Stefan Padfield (@ProfPadfield) February 20, 2020
"Certain key ESG risks—notably, risks related to corrupt business practices, privacy and data security, climate change, greenhouse gas emissions, diversity and labor practices—are already being evaluated in the context of M&A due diligence ...." https://t.co/2ob1UREOlf
— Stefan Padfield (@ProfPadfield) February 20, 2020
February 26, 2020 in Stefan J. Padfield | Permalink | Comments (0)
Tuesday, February 25, 2020
LLCs Are Not Corporations: A New Hero Emerges
The Honorable Aida M. Delgado-Colón made me smile today. As BLPB readers know, An LLC By Any Other Name, Is Still Not a Corporation. Finally, I received a notice of a court acknowledging this fact and requiring a party to refer to their legal entity correctly. Judge Delgado-Colón writes:
Pursuant to this Court’s sua sponte obligation to inquire into its own subject matter jurisdiction and noticing the unprecedented increase in foreclosure litigation in this District, the Court ordered plaintiff to clarify whether it is a corporation or a limited liability company (“LLC”).
Here, the Court cannot ascertain that diversity exists among the parties. Rule 11(b) of the Federal Rules of Civil Procedure holds attorneys responsible for “assur[ing] that all pleadings, motions and papers filed with the court are factually well-grounded, legally tenable and not interposed for any improper purpose.” Mariani v. Doctors Associates, Inc., 983 F.2d 5, 7 (1st Cir. 1993) (citing Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 393 (1990). Despite Rule 11’s mandate, the Court finds significant inconsistencies among plaintiff’s representations, which to this date remain unclear. As noted at ECF No. 53, plaintiff has repeatedly failed to explain why its alleged principal place of business is in New Jersey instead of Michigan. To make matters worse, plaintiff now claims to be a “limited liability corporation”1 under Delaware law.
February 25, 2020 in Corporations, Delaware, Joshua P. Fershee, Litigation, LLCs | Permalink | Comments (2)
Monday, February 24, 2020
National Business Law Scholars Conference 2020 @ The University of Tennessee College of Law
National Business Law Scholars Conference (NBLSC)
June 18-19, 2020
Call for Papers
The National Business Law Scholars Conference (NBLSC) will be held on Thursday and Friday, June 18-19, 2020, at The University of Tennessee College of Law.
This is the eleventh meeting of the NBLSC, an annual conference that draws legal scholars from across the United States and around the world. We welcome all scholarly submissions relating to business law. Junior scholars and those considering entering the academy are especially encouraged to participate. If you are thinking about entering the academy and would like to receive informal mentoring and learn more about job market dynamics, please let us know when you make your submission.
Please use the conference website to submit an abstract or paper by March 31, 2020. If you have any questions, concerns, or special requests regarding the schedule, please email Professor Eric C. Chaffee at [email protected]. We will respond to submissions with notifications of acceptance shortly after the deadline. We anticipate the conference schedule will be circulated in May.
Conference Organizers:
Afra Afsharipour (University of California, Davis, School of Law)
Tony Casey (The University of Chicago Law School)
Eric C. Chaffee (The University of Toledo College of Law)
Steven Davidoff Solomon (University of California, Berkeley School of Law)
Joan MacLeod Heminway (The University of Tennessee College of Law)
Kristin N. Johnson (Tulane University Law School)
Elizabeth Pollman (University of Pennsylvania Carey Law School)
Jeff Schwartz (University of Utah S.J. Quinney College of Law)
Megan Wischmeier Shaner (University of Oklahoma College of Law)
February 24, 2020 in Call for Papers, Conferences, Joan Heminway | Permalink | Comments (0)
Sunday, February 23, 2020
Call for Papers: The Central Bank of the Future Conference
At the University of Michigan's Center on Finance, Law & Policy, an important project is underway on The Central Bank of the Future. It’s a great, timely topic. The project’s website explains that: “In partnership with the Bill and Melinda Gates Foundation, this project explores the mandate and design of central banks to consider whether they might play an even stronger role in promoting financial inclusion, financial health, and a more inclusive economy. More broadly, it creates a vision for what the "central bank of the future" might look like and focuses in particular on how emerging technology could support central banks in their efforts to promote financial inclusion, growth, and development.”
The March 20, 2020, deadline is fast approaching to submit academic papers, policy proposals, and pitches for technology products or services to the Central Bank of the Future Conference (w/ co-host Federal Reserve Bank of San Francisco), November 16-17, 2020. A link to all of the details of the call for papers is here.
February 23, 2020 in Call for Papers, Colleen Baker | Permalink | Comments (0)
Friday, February 21, 2020
A study in evolution
Sean Griffith recently wrote a book chapter explaining how plaintiffs’ merger-related challenges developed over time. Plaintiffs began by seeking disclosure-only settlements, but after Trulia stamped out the practice in Delaware, plaintiffs began bringing claims in federal court challenging corporate proxies under Rule 14a-9. And once they got there, they realized they did not have to limit themselves to merger litigation, and began bringing other kinds of proxy-related claims, and eventually these morphed into individual, rather than class, actions.
That’s what I thought of when I read the new books and records complaint filed against Facebook in Employees’ Ret. Sys. Of Rhode Island v. Facebook, No. 2020-0085-JRS.
In it, Rhode Island’s pension fund is seeking privileged documents related to Facebook’s $5 billion settlement with the FTC over allegations that it violated a previous FTC settlement regarding its data practices. Much of the complaint is redacted – the plaintiff received some documents already, just not the privileged ones it is seeking now – but the basic allegation is that, according to news reports, the FTC wanted to charge Mark Zuckerberg personally, but the company refused, and accepted a larger fine to protect him. The plaintiff now claims that this was the equivalent of giving a “non-ratable” benefit to a controlling shareholder. I.e., the company could, theoretically, rationally conclude that keeping its CEO out of legal crosshairs was the best course of action for the company as a whole, but when that CEO is also a controlling shareholder, those decisions must either be made using the procedural protections of Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014) (“MFW”) (negotiation by independent directors and conditioned on independent stockholder approval), or reviewed for entire fairness by a court ex post. Therefore, argues the Rhode Island fund, it is entitled to books and records to evaluate potential claims, and under Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970), even attorney-client privileged documents should be made available.
This case is just getting started – all that’s happened is that the complaint was filed – but it reminded me of the 14a-9 situation because we’re seeing a similar kind of evolution with respect to controlling shareholder arguments.
(I am not – let’s be clear! – suggesting that the Facebook complaint is frivolous in the way that a lot of 14a-9 litigation has been accused of being. This is just about how claims shift over time.)
It began, as I’ve frequently argued (in this essay, plus numerous blog posts, most recently last week), when Delaware tightened the screws on merger-related challenges with Corwin v. KKR Fin. Holdings LLC, 125 A.3d 304 (Del. 2015), MFW, and also C&J Energy Services v. City of Miami General Employees’ and Sanitation Employees’ Retirement Trust, 107 A.3d 1049 (Del. 2014). Those cases made it very difficult for plaintiffs to challenge a merger unless they were able to demonstrate that the merger involved a controlling stockholder. Suddenly, everything turned on demonstrating that even minority blockholders had effective control of the company, which put enormous pressure on courts to find the presence of a controller when transactions appeared to be conflicted or suspicious in some way.
But there was more. This sharp divide between transactions that could be cleansed with a shareholder vote, and those that could not, led courts to question whether the MFW/Corwin divide should be extended to nonmerger transactions – which they decided to do, in cases like IRA Trust FBO Bobbie Ahmed v. Crane, 2017 WL 7053964 (Del. Ch. Dec. 11, 2017), In re Ezcorp Inc. Consulting Agreement Derivative Litig., 2016 WL 301245 (Del. Ch. Jan. 25, 2016), and Tornetta v. Musk, 2019 WL 4566943 (Del. Ch. Sept. 20, 2019) (the latter of which I blogged about here).
Now, suddenly, new rule: Any transaction with a controller gets entire fairness review absent MFW protection.
And that rule was even extended into the books-and-records space, where the failure to use MFW protections in a given transaction was deemed suspicious enough to weigh in favor of granting plaintiffs access to internal documents. We saw that happen in CBS, which I blogged about here. At the time, I said:
Slights determined that the mere fact that CBS made no attempt to adhere to MFW cleansing was itself evidence of wrongdoing for Section 220 purposes. That interests me [because] it extends MFW into a novel space: previously, its purpose was to trigger business judgment review for controlling shareholder transactions, but now it will also be used to “cleanse” for the purpose of avoiding a 220 demand.
Leading us to where we are now: An argument that even a legal settlement is subject to the MFW/Corwin divide, and therefore can be bootstrapped to justify plaintiffs’ access to internal (privileged) documents.
I wouldn’t begin to guess how this case will play out – to be honest, I am sympathetic to the argument but I worry about implications (i.e., starting with Tesla’s and Musk’s settlement with the SEC, which may have become worse for the company because of Musk’s initial recalcitrance) – but it strikes me that this is a rulification problem.
In the earliest days, Delaware didn’t sharply distinguish between controlling shareholder transactions and other kinds of interested transactions. And the development of the law was messy, in its common-law way. Sometimes Delaware suggested independent-director cleansing was enough, sometimes not, the types of transactions that received extra scrutiny were sometimes limited to “transformative” transactions, sometimes not; it was as much an issue of how the court felt about a given scenario than anything else. It was only recently that courts began to set down a bright-line rule that all controlling shareholder transactions would receive entire fairness scrutiny absent MFW protections, and to some extent, that rule was hastened by MFW itself, as courts struggled to identify the cases to which it applied. And we’re now seeing the implications of that, because it turns out, when a controlling shareholder is involved in corporate governance, lots of otherwise-mundane business decisions could implicate their interests. Throw back in the issue of whether someone’s a controlling shareholder in the first place, and you’ve just invited bedlam. One rule (MFW) begets another (all controlling shareholder transactions, except the demand requirement) which presumably will beget another (except for some set of cases) and possibly more (except these factors do/do not contribute to the inquiry whether someone is a controller in the first place).
Not sure I have any great conclusions to draw here, but if Delaware doesn’t watch out, it’s going to become the MBCA.
February 21, 2020 in Ann Lipton | Permalink | Comments (0)
Thursday, February 20, 2020
Rulemaking on Dollar-Trick Expungements & Stanford Fellowship Announcement
FINRA Expungement Fee Change
FINRA has begun to move to address some of the concerns about abuse of its expungement process, which allows stockbrokers to wipe customer complaints and dispute information off their public records. FINRA's stated process calls for these requests for non-monetary relief to be heard by a panel of three arbitrators, requiring at least two of them to vote in favor of expungement.
Yet some creative lawyers found a way to put expungement claims before a single arbitrator. The "dollar-trick" arbitrations proceed by requesting $1 dollar of relief and expungement. Because the case had a low monetary value, FINRA's forum had had shunted these dollar trick claims to single-arbitrator panels. As the PIABA Foundation reported, stockbrokers using this alternative process paid much less in fees, causing FINRA to miss out on $8,000 or more in revenue per case. Brokers seeking expungement under this process also benefitted by only needing to convince one arbitrator to grant extraordinary relief rather than two. If you're wondering what happens to the claims for $1.00 in damages, the stockbroker usually drops the $1.00 claim at the hearing and simply focuses on his expungement request.
To address this, FINRA recently announced a new rule proposal to stop the "dollar-trick" expungement exploit. Essentially, it aims to close this alternative process down. When comments will be due remains unclear. Although it has been posted to the FINRA website for a few days now, it has not yet shown up on the SEC website.
This rule change is a small step in the right direction. Still, the entire idea may be fundamentally flawed. Private arbitrations should probably not resolve whether the public gets access to information.
Stanford Fellowship
Unrelated, Stanford's Rock Center for Corporate Governance is now taking applications for fellows. It's a solid program and has helped connect some really wonderful scholars to the business law community.
February 20, 2020 | Permalink | Comments (0)
Wednesday, February 19, 2020
ICYMI: #corpgov Midweek Roundup (Feb. 19, 2020)
If you have trouble viewing the embedded Tweets, try a different browser (I recommend Internet Explorer).
"Is this the beginning of the end of climate greenwashing?": BP "said it would stop funding 'corporate reputation advertising'" https://t.co/EQAWxvCxI1 #corpgov ht @AnnMLipton @tiffkhsu
— Stefan Padfield (@ProfPadfield) February 15, 2020
"Short selling serves a critical function in the capital markets by encouraging price discovery & preventing the formation of asset bubbles. But recent years have seen a rise in 'negative activism,' a novel phenomenon that has flourished in the era of social media ...." #corpgov https://t.co/0HMG3tQWmL
— Stefan Padfield (@ProfPadfield) February 18, 2020
An "emerging trend in financial services is banks' increasingly common refusal to do business with industries for political reasons." Does this "contradict the very rationale for the privileges and protections granted to banks in the law"? 13 NYU J.L. & Liberty 66 #corpgov
— Stefan Padfield (@ProfPadfield) February 16, 2020
"AI is coming for all professions including that
— Stefan Padfield (@ProfPadfield) February 13, 2020
of board directors." #corpgov https://t.co/UiwmKbe2KI
Really? "eliminating the 'personal benefit' requirement and replacing it with a 'wrongfulness' standard can help eliminate the uncertainty" https://t.co/m00DyyIQBG
— Stefan Padfield (@ProfPadfield) February 13, 2020
February 19, 2020 in Stefan J. Padfield | Permalink | Comments (0)
Three Job Postings
These job postings were forwarded to me by a reader of the blog.
(1) Kickstarter - General Counsel - Brooklyn, NY
(2) Hills Stern & Morley LLP - Lateral Partners & Associates - Washington D.C.
Hills Stern & Morley LLP, a successful boutique firm focused on global transactions and based in Washington, seeks lateral partners to expand and complement its current practice areas in (i) project finance and development, (ii) energy and infrastructure finance, (iii) private equity fund formation and investment, (iv) private acquisitions, and (v) general corporate and finance. Must have strong academic credentials, a stable work history, and relevant deal experience; portable business and a track record of business development are strongly preferred. The firm offers an attractive alternative to the Big Law business model, a collegial work environment, and an impressive client list (including multiple development finance institutions). Interested in a better platform to expand your practice? Please send your CV, deal list and contact info to Michael Abbey at [email protected].
HSM is also looking for seasoned associates to support our practice areas. Why not enhance your skills working with experienced partners on exciting global transactions and enjoy life outside the office as well? Please send your CV, deal list and contact info to Michael Abbey.
(3) Social Finance - Assistant General Counsel - Boston, MA
See extensive information about the position under the page break.
February 19, 2020 in Haskell Murray, Jobs, Social Enterprise | Permalink | Comments (0)
Monday, February 17, 2020
Designing Legal Documents
In an email exchange with Stanford business law clinician Jay Mitchell, I learned of this intriguing post on legal document design. Jay takes the design thinking context way beyond my "legal design" idea of using IRAC in corporate finance drafting as a means of ensuring that students are engaging with applicable law and norms in their drafting, and in doing so, he makes a number of interesting observations and points that relate to both document planning and drafting, on the one hand, and teaching planning, drafting, and overall business law practice, on the other. Here are a few.
- "The physical design of clinic work-products and client communications is a constant concern. It’s humbling, idea-generating, and inspiring to look at graphic design and wayfinding books and see great solutions to complex information design challenges."
- "Our world is one of entities; structures; flows of information, money, and property rights; time periods; decision-making processes; legal, tax, and accounting principles; and dense and difficult documents — and then helping clients operationalize all this across multiple functions and geographies. Seems like we need good tools for capturing, assessing, and conveying information. Visual executions can provide those tools. They have great communicative capacity: shape, color, line, line weight, line effects, and white space are all at hand, and, as noted, people just get pictures."
- "Design outlooks and practices seem to distill and operationalize knowledge, from a variety of disciplines, in ways relevant to a lawyer, service provider, professional writer, and producer of tangible products. Our clients notice the attention to user, context, and functionality, as well as factual and legal accuracy, in our advice, client communications, contracts, and governance materials."
- "In a setting where students are drafting and doing other legal tasks for the first time, we need to give them room to try, receive feedback, and try again."
- After advocating sketching (using shapes, colors, etc. on a whiteboard) with students: "Sketching enables us to visibly and slowly break down a situation, and then to build it back up, step by step. It lets, or maybe forces, us to leave out detail; it helps reveal higher-order relationships that are otherwise difficult to discern. It helps us define the problem and possible solutions. Those qualities make it a good tool for identifying the most important features in an unstructured environment . . . ."
- "What are seen as core elements of design thinking are now familiar: observation, empathy, ideation, and experimentation. Designers focus on the realities and needs of people for whom they’re designing a product or process. They frame problems and generate lots of ideas. They test those ideas through low-fidelity prototypes, over and over. They try to “keep people at the center” of their work. These are useful notions for the clinical teacher or senior lawyer working with new lawyers." (footnote omitted)
Jay notes along the way in describing the impact of design thinking on his teaching and practice: "I’ve learned more about legal documents, about their features and footprints, about what they demand of user and thus producer. Which leads to thinking harder about what to make, what to include, and how to present information in effective ways. And to productive discussions with students not only about work-product but also client respect and client reality." Great stuff. I know that our contract drafting curriculum at UT Law focuses on presentation as well as content (as do, I am sure, most similar law school programs of that kind). Jay's post is great food for thought in executing on that focus.
February 17, 2020 in Contracts, Joan Heminway, Teaching | Permalink | Comments (0)
Sunday, February 16, 2020
Amazon's #1 New Release in Banking Law: Zaring's The Globalized Governance of Finance
What’s the #1 new release in Banking Law on Amazon? I’m glad you asked! It’s Professor David Zaring’s first book, The Globalized Governance of Finance (Cambridge University Press). In 2008, Zaring joined Wharton's Legal Studies and Business Ethics Department as an assistant professor. At the time, I was a PhD student in the Department and also focused on banking law. So, it was really exciting for me to have a banking law scholar join us and I’m thrilled to now have a chance to highlight his new book. My copy is on its way from Amazon, so for now, I’ll share Zaring’s description of his book and my own thoughts with BLPB readers soon!
The book pulls together work I’ve done on the regulatory networks – the Basel Committee, IOSCO, IAIS, e.g., – that have become the global taste for harmonizing financial regulation. I think the regimes, and their relative bindingness (especially Basel), are interesting in their own right, and they are also an interesting way of doing global governance, where the sine qua non is often thought to be a treaty enforced by a tribunal, a la the World Trade Organization.
But in finance, you see neither of those things, and still robust oversight that American regulators, regardless of administration, seem to embrace. Even as the Trump administration has pushed for changes in trade law, Randal Quarles of the Fed has been installed as chair of the Financial Stability Board, the network of networks that keeps everything moving. The Obama administration tried to get a Basel-like process into its trade deals, and issued an executive order encouraging agencies to harmonize regulations.
Moreover, since the financial crisis, regulators have doubled down on these networks, adding political oversight from the G-20, a middle manager in the FSB, and standardizing notice and comment rulemaking at the network level. That, I think, makes the whole scheme look increasingly like a cross-border bureaucracy. After all, American agencies make policy through notice and comment rulemaking overseen by career regulators overseen by political leaders. So too Basel, IOSCO, IAIS, and the other networks.
February 16, 2020 in Books, Colleen Baker, Financial Markets | Permalink | Comments (0)
Saturday, February 15, 2020
Who's a Controlling Stockholder: Delaware Strikes Again
Back to a subject near and dear to my heart: The increased pressure on the definition of “controlling stockholder” occasioned by Corwin v. KKR Fin. Holdings LLC, 125 A.3d 304 (Del. 2015) and Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014) (“MFW”). I’ve posted about this on several prior occasions, and written an essay on the subject, so I would be remiss if I didn’t discuss VC Laster’s new ruling in Voigt v. Metcalf. The facts, as taken from the opinion, are these:
CD&R was a 34.7% blockholder of a publicly-traded corporation called NCI. In earlier years, CD&R had held as much as 68%. CD&R had a stockholder agreement that, among other things, guaranteed it a certain number of board seats – but also guaranteed a certain number of seats for the unaffiliated stockholders – guaranteed that its nominees would have seats on key committees, and gave it blocking/consent rights for various board actions, though none were triggered in this case.
In early 2018, three things happened nearly simultaneously: Metcalf, one of the independent/unaffiliated directors of NCI, was elevated to Chair; CD&R acquired a majority stake in a company called New Ply Gem; and Metcalf proposed that NCI acquire New Ply Gem. To negotiate the deal, Metcalf met with certain NCI directors who were also CD&R representatives/designees.
Eventually, NCI created a Special Committee to evaluate the transaction, and hired Evercore. Well, actually Metcalf hired Evercore before the committee was even formed, and the Committee was told that Evercore had no conflicts – which was untrue, because Evercore was currently working for another CD&R portfolio company. The Committee decided to keep NCI’s counsel, Wachtell.
Evercore recommended that New Ply Gem be acquired with NCI stock valued, post-deal, at roughly 1/3 of NCI’s total equity. This valuation was based on CD&R’s own valuation when it acquired New Ply Gem. CD&R – via the NCI board members – insisted on closer to a 50/50 split. The Committee agreed. The Committee asked for a majority-of-minority voting condition; CD&R refused. When the deal was announced, NCI’s stock price fell, and of the unaffiliated stockholders, only 55% voted in favor.
After the transaction closed, an NCI stockholder brought a derivative lawsuit and, for our purposes, the critical question was whether CD&R was a controlling shareholder. If not, the deal was likely cleansed by the shareholder vote – and even if there were disclosure deficiencies (spoiler: there were), plaintiff would have to establish that the Special Committee was interested/dependent on CD&R to succeed on his claim. But if CD&R was a controlling shareholder, the deal was subject to entire fairness review.
VC Laster concluded that CD&R was a controlling shareholder, and refused to dismiss.
So, what’s notable here?
[More under the jump]
February 15, 2020 in Ann Lipton | Permalink | Comments (0)
Thursday, February 13, 2020
New Business Law Journal - ASU's Corporate and Business Law Journal
Arizona State University's Sandra Day O'Connor College of Law now has a new business law journal, the Corporate and Business Law Journal. It's stated mission is:
The Corporate and Business Journal is a forum for the publication and exchange of ideas and information about trends and developments within business and corporate law. The Journal publishes articles and comments on various topics, including corporate governance, securities regulation, capital market regulation, employment law, and the law of mergers and acquisitions. Historically, corporate and business law has been heavily influenced by east coast institutions and practitioners. Accordingly, CABLJ offers a unique opportunity for students, scholars, and the Arizona community as a whole to readily engage in the discourse surrounding these practice areas.
Congratulations to ASU on the launch of the new journal!
Interestingly, the Corporate and Business Law Journal also has a companion forum for short pieces running over 500 words in length: http://cablj.org/blog/ It might be a great place for things that are too short to develop into a full essay or article.
February 13, 2020 | Permalink | Comments (0)
Wednesday, February 12, 2020
ICYMI: #corpgov Midweek Roundup (Feb. 12, 2020)
If you have trouble viewing the embedded Tweets, try a different browser (I recommend Internet Explorer).
"BlackRock 'voted in favour of CEO Joe Kaeser and the Siemens board. This clearly exposes Larry Fink’s pledges to promote sustainability as blunt greenwashing,' Greenpeace Germany said in a statement." https://t.co/8Xa7QsXnKH #corpgov
— Stefan Padfield (@ProfPadfield) February 7, 2020
"Although securities regulations tend to be generally harmonized, this Article sheds light on significant differences in the rules governing the definition of what is material information with regard to unfolding future events." 88 U. Cin. L. Rev. 67 #corpgov
— Stefan Padfield (@ProfPadfield) February 8, 2020
"J&J ... had tried to keep [CEO] Mr. Gorsky from testifying, arguing that he had no involvement"; "judge ordered him to testify, ruling that Mr. Gorsky’s public statements about J&J’s talc powders made his testimony relevant to the case" https://t.co/tXt6tmOYne #corpgov
— Stefan Padfield (@ProfPadfield) February 7, 2020
BlackRock’s Investment Stewardship team voting bulletin on Siemens. https://t.co/SWWgiDcG1m #corpgov
— Stefan Padfield (@ProfPadfield) February 7, 2020
"Just as limited liability partitions off the assets of a firm's owners from the assets of the firm itself, agency law partitions off the assets of a firm's managers from the firm's own assets." Gabriel Rauterberg, The Essential Roles of Agency Law, 118 Mich. L. Rev. 609 #corpgov
— Stefan Padfield (@ProfPadfield) February 11, 2020
February 12, 2020 in Stefan J. Padfield | Permalink | Comments (0)
Tuesday, February 11, 2020
LLCs: The Uncola (Bankruptcy Edition)
The United States Bankruptcy Court for the Western District of Kentucky has opened my eyes to some bankruptcy law issues I hadn't previously seen. The court also committed what I consider to be a cardinal sin: the court refers to an LLC as a "limited liability corporation." An LLC is a "limited liability company," which is a statutorily different entity than a corporation.
The court states: "Sunnyview and TR are limited liability corporations. They are not individuals and do not meet the definition of insiders under 11U.S.C.§ 101(31)(B)[sic]." In re: Bullitt Utilities, Inc., No. 15-34000(1)(7), 2020 WL 547278, at *6 (Bankr. W.D. Ky. Jan. 24, 2020) (emphasis added). Other than being LLCs, and not corporations, this appears to be correct. The statute, 11 U.S.C.§ 101(31), provides:
(31)The term “insider” includes—
. . . .
(9) The term “corporation”— (A) includes— (i) association having a power or privilege that a private corporation, but not an individual or a partnership, possesses; (ii) partnership association organized under a law that makes only the capital subscribed responsible for the debts of such association; (iii) joint-stock company; (iv) unincorporated company or association; or (v) business trust; but (B) does not include limited partnership.
February 11, 2020 in Bankruptcy/Reorganizations, Corporations, Joshua P. Fershee, LLCs, Unincorporated Entities | Permalink | Comments (0)
Monday, February 10, 2020
Me, Too and #MeToo: Women in Congress and the Boardroom
My short essay, "Me, Too and #MeToo: Women in Congress and the Boardroom," was recently published in the George Washington Law Review. The abstract follows.
The “Year of the Woman” (1992) and the year of #MeToo (2018) were landmark years for women in federal congressional elections. Both years also represent significant milestones for women’s roles as U.S. public company directors. In each of these two years, social context was interconnected with these political and corporate gender changes. The relevant social context in 2018 is most clearly defined by public revelations of sexual misconduct involving a significant number of men in positions of political and business power. The relevant social context in 1992 similarly involved specific, highly public disclosures and allegations of sexual misconduct.
These parallels beg many questions. In particular, one may ponder whether the correlation between social context and congressional or public company board elections is coincidence or something more. Apropos of the current era, those of us who focus on corporate board diversity may wonder whether looking at the election of women to Congress and corporate boards in the #MeToo era provides any insights or lessons about female corporate board representation.
This brief Essay examines and comments on possible gender effects of the #MeToo movement on public company board composition in relation to the possible gender effects of the #MeToo movement on the composition of legislative bodies. Although #MeToo has clarified, and perhaps expanded, the salient connections between business issues and women’s issues, those who have the power to elect corporate directors may not fully recognize this connection or other factors as unique values of female corporate board participation. Until additional female membership on corporate boards is substantively valued, swift sustainable changes in the gender makeup of corporate boards may not be realizable without specific, enforceable legal mandates. Although California’s state legislature has taken a bold step in this direction in the #MeToo era, it seems unlikely that additional state legislatures will follow its lead. As a result, the pace of change in corporate board gender composition is likely to continue to be more evolutionary than revolutionary.
I appreciate the opportunity to publish these thoughts generated in connection with a conference held at GWU Law back in 2018. The conference, "Women and Corporate Governance: A Conference Exploring the Role and Impact of Women in the Governance of Public Corporations," featured a number of super panels. I had the opportunity to moderate one ("Women as Counsel and Gatekeepers") and publish this piece.
February 10, 2020 in Corporate Governance, Corporations, Current Affairs, Joan Heminway, Management | Permalink | Comments (0)
Sunday, February 9, 2020
2020 ALSB Annual and Regional Conferences
At this point, we’re a bit past the New Year, but you might still be thinking about the conferences you’ll attend in 2020, right? Here are some great ideas:
The Academy of Legal Studies in Business has a great annual conference in early August. This year it’s in Providence, Rhode Island, August 4-8, 2020. I’ve never been to Providence, but I hear it’s lovely. I can’t wait!
The Academy also has a number of regional conferences. Check out all the options (if I missed one, send me an email)!
Canadian ALSB Annual Conference April 30-May 2, 2020 (Toronto, Canada)
Great Lakes ALSB, Fall 2020 (Grand Rapids area, Michigan – check back for more info)
Mid-Atlantic Academy of Legal Studies in Business, April 23-25, 2020 (Atlantic City, NJ)
Mid-West Academy of Legal Studies in Business, March 26-27, 2020 (Chicago, Illinois)
North Atlantic Regional Business Law Association Annual Conference, April 4, 2020 (Easton, Massachusetts)
North East Academy of Legal Studies in Business, May 1-3, 2020 (Lakeville, Connecticut)
Pacific Northwest Academy of Legal Studies in Business, April 23-25, 2020 (Vancouver, Canada)
Pacific Southwest Academy of Legal Studies in Business, February 13-16, 2020 (Palm Springs, California)
Rocky Mountain Academy of Legal Studies in Business, September 25-26, 2020 (Vail, Colorado)
Southern Academy of Legal Studies in Business, March 5-7, 2020 (San Antonio, Texas)
Southeastern Academy of Legal Studies in Business [check back for 2020 updates]
Western Academy of Legal Studies in Business, March 27-29, 2020 (Lake Tahoe)
February 9, 2020 in Call for Papers, Colleen Baker, Conferences | Permalink | Comments (0)
Saturday, February 8, 2020
Guest Post: Prof. Ilya Beylin responds to "The Eroding Public/Private Distinction"
The following post comes to us from Prof. Ilya Beylin of Seton Hall:
On Monday, I read Ann Lipton's thoughtful and informative post, on "The Eroding Public/Private Distinction". One of the luxuries being a business law professor offers is the space, and perhaps even community encouragement, to feel strongly about and delve deeply into esoteric albeit perhaps consequential matters such as the boundary between public and private securities markets. Well, the feeling came, and I wrote Ann to see if I could riff on her piece in a response. So here we are, although the more I mull over the strands in the original piece, the more I recognize the completeness of Prof. Lipton's work and the keenness of the insights there.
A definitional question is predicate to evaluating the growth of exceptions to the traditional public/private divide. Public and private under the ’33 and ’34 Acts have two drastically different implications. Under the ’33 Act, private typically refers to being able to conduct a securities offering outside of the SEC mediated registration process under Section 5. Under the ’34 Act, however, private means not having to provide ongoing public disclosure on the state of the company (e.g., quarterly and annual filings, current reports). While the ’33 Act principally governs the manner in which a primary market transaction may be conducted, the ’34 Act principally governs how secondary trading may be conducted. Expansions of Regulation D to permit public offers to accredited investors under 506(c), relaxation of Rule 701 to enable greater distribution to employees and other service providers, Crowdfunding under Reg CF, expansion of Reg A into Reg A+, and some of the other incursions we’ve seen since 2005 into the protective sphere of Section 5 do not generally implicate the continued significance of the private/public distinction in secondary markets.
As background, the Exchange Act’s ongoing public disclosure requirements apply to three prototypical issuers: those that engaged in a public offering under the ’33 Act, those that have enough equity holders (raised, significantly, to up to 2,000 accredited investors from a prior cap of 500 as Prof. Lipton and others have keenly pointed out), and those listed on an exchange. The realities, however, of secondary market trading mean that substantial liquidity remains largely conditional on becoming exchange listed and thus public for purposes of ongoing disclosure under the ’34 Act.
[More under the cut]
February 8, 2020 in Ann Lipton | Permalink | Comments (0)
Who needs Rule 14a-8 anyway?
As most readers of this blog are likely aware, the SEC recently proposed some rather dramatic changes to the rules governing shareholder proposals under Rule 14a-8. Among other things, the revisions would raise ownership and holding period requirements, raise the thresholds for resubmission, and bar representatives from submitting proposals on behalf of more than one shareholder per meeting.
The changes have at least the potential to fundamentally reshape the corporate governance ecosystem, and part of the reason for that is highlighted in a new paper by Yaron Nili and Kobi Kastiel, The Giant Shadow of Corporate Gadflies. As they document, forty percent of all shareholder proposals are submitted by just five individuals, who have made the practice something of a combined life’s mission and personal hobby. The proposals submitted by these individuals tend to focus on corporate governance, and they also tend follow the stated governance preferences of large institutional investors. As a result, these proposals frequently win substantial, if not majority, support, and have a real impact on target companies – which means, over time, they dramatically alter the norms of what is considered good corporate governance.
Now, there’s no legal reason why we have to depend on a handful of quirky individuals to reshape corporate governance – institutional investors have far greater holdings and could submit proposals far more widely – but, for whatever reason, institutions mainly prefer instead to wait for someone else to propose something and then vote in favor of it. Some pension funds may be active in submitting proposals, but large mutual funds never submit any, even though they have far greater resources to do so. As a result, if the revisions to 14a-8 take effect, they could dramatically inhibit the activity of these “gadflies” and thus shareholder proposal activity across the board (of course, some of these gadflies have been at it for decades – Evelyn Davis, one prominent gadfly, died in 2018 – so the reality is, the passage of time might limit their activity anyway).
Nili and Kastiel offer a few policy proposals to relieve the system’s reliance on gadflies. They suggest we create a nonprofit organization whose job it is to submit proposals, or create a rotating system whereby popular governance reforms are automatically included on corporate ballots.
All of that, of course, assumes that institutional investors want these reforms. That may not be an unreasonable conclusion – they vote for them, after all – but that just begs the question why the largest institutions aren’t submitting proposals in the first place.
Nili and Kastiel have a couple of theories. One possibility is that large mutual funds believe that taking the lead on a proposal would anger managers at their portfolio companies. Funds may depend on these companies for other business, or simply depend on cordial relationships with managers in order to engage with them about various governance-related issues. Being the face of a proposal – rather than quietly voting in favor of one – could create frictions in these relationships. Alternatively, the big mutual fund companies may feel that obtrusive activism will make them political targets. There are already rumblings about the need for greater fund regulation, which is why BlackRock is now busy trying to pretend that it doesn’t have the influence it obviously has. Open agitation for governance changes might spur a more aggressive regulatory response.
But if that’s right, we might expect large asset managers to at least oppose any changes to Rule 14a-8, because the managers rely on their retail shareholder-avatars to advance the mutual funds’ own agendas. Yet that’s not what seems to be happening.
There are some asset managers – especially, though not exclusively, ones who focus on corporate social responsibility issues – who have objected to the SEC’s proposed revisions. But the largest have not. BlackRock submitted a letter that says – well, honestly, nothing at all; it takes no position. Meanwhile, Reuters reports that Vanguard submitted a letter that supports restricting the use of 14a-8, though the details are not clear, and nothing’s up at the SEC website as of this posting.*
So, what gives?
Well, an alternative explanation – championed by some commenters, including Sean Griffith and Dorothy Lund – is that large asset managers do not want to be stewards, and do not like voting on governance changes; they do it because the regulatory system requires or at least encourages them to do so. If that’s the case, these asset managers would be delighted by the prospect of fewer 14a-8 proposals for them to worry about.
But there’s another possibility. As it turns out, BlackRock may not have taken a position, but the Investment Company Institute, which is a trade association of mutual fund companies, did. In its letter, the ICI generally supports the 14a-8 changes, and even recommends further limits on proposals that are submitted by investors in mutual funds.
And that, it seems, may part of the issue here. Mutual fund companies are, well, companies. Even if they do appreciate the power that Rule 14a-8 gives them over their portfolio investments, they don’t like receiving 14a-8 proposals themselves, either from shareholders in their mutual funds, or at the corporate level. (BlackRock, for example, often receives proposals submitted under Rule 14a-8.)
So, BlackRock says nothing, and lets the ICI take a position on its behalf. Pretty sweet way to make its views clear to the SEC while publicly declaring a commitment to “stewardship.”
*It’s hard to draw any conclusions without seeing Vanguard’s letter, but I do note that Wellington Management’s sustainability arm signed on to a letter submitted by Principles for Responsible Investment, which generally urged the SEC to keep the current framework and avoid changes that would disrupt the proposal process. This is significant because Wellington is one of the managers Vanguard uses for its external/active funds, though Vanguard recently gave its external managers freedom to vote separately from Vanguard’s indexed funds. So, that’s an interesting dynamic.
February 8, 2020 in Ann Lipton | Permalink | Comments (3)
Friday, February 7, 2020
7th Biennial Conference on the Teaching of Transactional Law and Skills
CALL FOR PROPOSALS AND REGISTRATION INFORMATION
Emory’s Center for Transactional Law and Practice is delighted to announce its seventh biennial conference on the teaching of transactional law and skills. The conference, entitled “Hindsight, Insight, and Foresight: Transactional Law and Skills Education in the 2020s,” will be held at Emory Law, beginning at 1:00 p.m. on Friday, June 5, 2020, and ending at 3:45 p.m. on Saturday, June 6, 2020.
Come together with your colleagues and friends in Atlanta to reflect upon transactional law and skills education and ponder the answers to three vital questions:
- Where have we been?
- What have we learned?
- Where are we going?
Our keynote speaker – to be announced soon – will elaborate on our theme. In addition, conference attendees will participate in a workshop to create a vision for transactional law and skills education in the 2020s (the “Vision Workshop”). Finally, we will bestow the second Tina L. Stark Award for Excellence in the Teaching of Transactional Law and Skills. (For information about how to nominate yourself or someone else for this award, please click here.)
CALL FOR PROPOSALS
We are accepting proposals immediately, but in no event later than 5 p.m. on Friday, March 20, 2020.
We welcome you to present on any aspect of transactional law and skills education as long as you view it through the lens of our theme. For example, if you present about a course, curriculum, or program, tell us how it’s worked, what you’ve learned, and how you envision it evolving over time. Alternatively, you may want to focus on just one of the three questions. For example, if you present a “Try-This” session, you may want to examine what you have learned from teaching the exercise a number of times – and even from preparing to teach it to your colleagues.
We also welcome proposals that address the big picture. Maybe you have a scheme to address the legal education system’s tendency to value litigation skills training above transactional skills training. Perhaps you have experience moving a law school faculty and administration to give transactional law and skills education the attention it deserves. Or maybe you believe that riding the wave of the future means teaching students particular topics or skills – such as how to be a leader or how to use technology.
Try-This Sessions. Each Friday afternoon “Try-This Session” will be 45-minutes long and will feature one classroom activity and one individual presenter.
Panels. Each Saturday session, except for one hour devoted to the Vision Workshop, will be approximately 90 minutes long and feature a panel presenting two or more topics grouped together for synergy.
Please submit the proposal form electronically via the Emory Law website found here before 5 p.m. on March 20, 2020.
PUBLICATION OF SELECTED MATERIALS
As in prior years, some of the conference proceedings as well as the materials distributed by the speakers will be published in Transactions: The Tennessee Journal of Business Law, a publication of the Clayton Center for Entrepreneurial Law of The University of Tennessee, a co-sponsor of the conference.
CONFERENCE REGISTRATION
Both attendees and presenters must register for the Conference and pay the appropriate registration fee: $250 (general); $200 (adjunct professor and new professor). Note: A new professor is someone in their first three years of teaching.
The registration fee includes a pre-conference lunch beginning at 11:30 a.m., snacks, and a reception on June 5, and breakfast, lunch, and snacks on June 6. We are planning an optional Thursday evening reception (June 4) and Friday evening dinner (June 5) at an additional cost of $60 per person for the dinner.
Registration is now open for the Conference and the optional events here.
TRAVEL ARRANGEMENTS AND HOTEL ACCOMMODATIONS
Attendees and presenters are responsible for their own travel arrangements and hotel accommodations. Special hotel rates for conference participants are available at the Emory Conference Center Hotel, less than one mile from the conference site at Emory Law. Subject to availability, rates are $159 per night. Free shuttle transportation will be provided between the Emory Conference Center Hotel and Emory Law.
To make a reservation at the special conference rate, call the Emory Conference Center Hotel at 800.933.6679 and mention “The Emory Law Transactional Conference.” Note: The hotel’s special conference rate expires at the end of the day on Thursday, May 14, 2020. If you encounter any technical difficulties in submitting your proposal or in registering online, please contact Kelli Pittman, Program Coordinator, at [email protected] or 404.727.3382.
We look forward to seeing you in June!
Sue Payne Katherine Koops Kelli Pittman
Executive Director Assistant Director Program Coordinator
February 7, 2020 in Conferences, Joan Heminway | Permalink | Comments (0)
