Business Law Prof Blog

Leadership for Lawyers at The University of Tennessee College of Law

As many of you may know, I enjoy reading and writing about leadership.  I am proud of the work that our law school has been doing for a number of years in highlighting the value of lawyers as leaders--through teaching, scholarship, and service--under the auspices of our Institute for Professional Leadership.  I am privileged to have the opportunity to serve as Interim Director of that program effective as of August 1.  I am grateful for the support of our incoming Interim Dean, Doug Blaze, and so many of my colleagues as I assume this new responsibility.

Among the service elements of the Institute is its weblog, Leading as Lawyers. Last year, I began writing occasional posts for the blog--first on Leading Without a Title and next on The Role of Process in Leadership.  (I mentioned and linked to the latter in this BLPB post last summer.)  I have continued my leadership blog post writing this spring, and the first of my spring posts, There is No Place for Schadenfreude in Leadership, was published late last week.  Although my Leading as Lawyers posts may well have value for business lawyers and business law instructors, they are not specifically written with our BLPB audience in mind.  Nevertheless, I will endeavor to bring them to your attention from time to time.

Given that my interest in leadership will happily soon become a more formal part of my job, I hope that many of you will bring to my attention things that you read or see or hear that relate to, e.g., teaching leadership to law students, lawyers and law professors leading through their work and in their communities, and law students assuming leadership roles.  The Institute focuses on all of these things.  I look forward to continuing this work in my new role.  

I will end by offering two lines from my recent schadenfreude post as food for thought:

Leadership is, of course, about looking out for and lifting up those on your team—not just yourself, and especially not yourself at the expense of others. While individualism, diversity, independence, and self-pride are important aspects of a functional team, each team member must use these attributes for the collective good of the whole—not selfishly or with ego or malice.

Especially in the challenging environment in which we business lawyers now practice and teach, maintaining a positive, inclusive, collaborative, empowering workplace would seem to be critically important.  It not only can help mitigate schadenfreude, but also can help lay a foundation of trust that enables projects, programs, organizations, and institutions to survive and progress in a dynamic social, economic, and political setting.

The 5 Strands of Coercion Under Delaware Law

From In re Dell Techs. Inc. Class V Stockholders Litig., No. CV 2018-0816-JTL, 2020 WL 3096748, at *20–30 (Del. Ch. June 11, 2020) [Hat tip to Steve Bainbridge, who comments here.]:

Coercion is a multi-faceted concept in Delaware law. At least five strands of case law use the term ….

The first strand of coercion jurisprudence does not involve the conduct of fiduciaries. It rather addresses the ability of a non-fiduciary to offer a reward or impose a penalty as a means of inducing action in an arm’s-length setting. The seminal case is Katz v. Oak Industries, Inc., 508 A.2d 873 (Del. Ch. 1986)….

A second strand of jurisprudence involves a third party taking action that a fiduciary (typically the board of directors) believes could have a coercive effect on the fiduciary’s beneficiaries (typically stockholders). In that setting, the fiduciary has both the power and an affirmative duty to defend its beneficiaries from the coercive threat. See Unocal, 493 A.2d at 954….

A third strand of coercion jurisprudence examines whether a fiduciary has taken action to coerce its own beneficiaries. By doing so, the fiduciary acts disloyally and violates the standard of conduct expected of fiduciaries. The fiduciary may only avoid a finding of breach by proving that the transaction was nevertheless entirely fair, notwithstanding the fiduciary’s use of coercion. The seminal case in this line of authority is AC Acquisitions Corp. v. Anderson, Clayton & Co., 519 A.2d 103 (Del. Ch. 1986)….

A fourth strand of coercion jurisprudence has developed in response to the powerful cleansing effect of stockholder votes under Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015). Two decisions—Saba Software and Liberty Broadband—have held that forms of coercion that would not have supported claims for breach of duty were nevertheless sufficient to prevent stockholder votes from having a cleansing effect and changing the standard of review to the irrebuttable business judgment rule….

A final strand of coercion jurisprudence shifts the focus from the stockholder vote to the special committee. As with the stockholder vote, a controller’s explicit or implicit threats can prevent a committee from fulfilling its function and having a concomitant effect on the standard of review. The leading case … is Lynch I, where Lynch’s controller (Alcatel) offered to acquire Lynch at $14 per share. Lynch I, 638 A.2d at 1113….

Process v. Substance

Back in March, Richard Epstein published a new book, "The Dubious Morality of Administrative Law."  Today, a review of that book by Michael S. Greve was published in Law & Liberty (here).  The following excerpt from the review may be of interests to BLPB readers:

The book title, of course, invokes Lon L. Fuller’s famous account of The Morality of Law—in here-relevant part, an explication of the minimum conditions a legal system must satisfy, at least most of the time, to be called “legal” in a moral or rule-of-law sense.... Lon Fuller, Professor Epstein argues, omitted crucial rule-of-law conditions, especially the need for an impartial judge. At variance with Fuller, moreover, and on a Hayekian note, Professor Epstein argues that formal rule of law constraints work best in the context of a classical-liberal regime that rests on property rights, freedom of contract, and protection against uncompensated takings. Once those substantive commitments go by the boards, procedural rule-of-law requirements are bound to give way as well and, for that matter, may not be worth very much.... The APA says that the “administrative process” is an adequate substitute for regular legal procedures in an independent court and that it will have to do no matter what or how much is at stake for regulated parties. It so enshrines the very premises that Professor Epstein resists and contests.

Private Equity In, ESG Out

The Department of Labor has been a busy bee.

First, it approved the use of private equity investments in 401(k) plans.  The idea would be that workers would be able to invest in funds that invest in private equity funds; apparently, some funds are already on offer, and they also hold a small amount of publicly traded stock to satisfy liquidity concerns. Jay Clayton at the SEC endorsed the move, saying it would “provide our long-term Main Street investors with a choice of professionally managed funds that more closely match the diversified public and private market asset allocation strategies pursued by many well-managed pension funds as well as the benefit of selection and monitoring by ERISA fiduciaries.”

Second, the DOL proposed new rules to discourage the use of ESG investing with respect to ERISA-regulated retirement plans (and because many state pension funds are not covered by ERISA but follow its lead, the rules could extend much further).  The proposed rules are not exactly a surprise; they follow guidance that the Trump Administration put out in 2018, and which I blogged about at the time.  And – as I also blogged– in 2019, the Administration warned the DOL was continuing to examine the issue with a view to more action on this front.

So what are the implications?

First, though the private equity rules are championed by those who argue they will allow retail investors access to higher profits, it’s ironic that they come just when a new study shows that private equity investments are no more profitable than public markets, and almost concurrently with a new SEC warning of pervasive conflicts in the private equity industry that lead to hidden fees and unequal allocation of investment opportunities.  Institutional investors in private equity funds have long complained to the SEC of the lack disclosure of these matters, and rather than respond to that, we’re apparently … going to open the 401(k) spigot.  That, I think, will make private equity managers less accountable to investors and the public (why bargain with a union pension fund when you’re getting billions from a bunch of different funds layered through so many intermediaries that no one’s able to monitor things?) and more opaque. 

Second, as I’ve talked about before, ESG can have a bunch of different meanings.  Some use it as a stockpicking technique like any other, on the theory that socially responsible companies are valuable companies.  Others use it for moral/impact reasons; they are willing to sacrifice at least some returns in order to adhere to their ethical commitments.  When it comes to ERISA plans, the past several presidential administrations have all agreed that fiduciaries must only use ESG to advance the economic interests of plan beneficiaries; they are not permitted to use beneficiaries’ money to advance unrelated social goals.  What’s been different over the years, however, is the standard of proof that fiduciaries must meet in order to incorporate ESG factors into their decisionmaking.  The new rule imposes a very high standard, by explicitly directing that fiduciaries using ESG analysis “examine the level of diversification, degree of liquidity, and the potential risk-return in comparison with other available alternative investments that would play a similar role in their plans’ portfolios.”   That requirement, unique to ESG, betrays a deep distrust of ESG investing, and will very likely dissuade at least some fiduciaries from engaging in ESG activity at all for fear of being unable to adequately justify their decisionmaking.  And, critically, the rule does not merely apply to buying and selling securities; it also applies to other types of plan administration, including voting and engagement decisions.  Which means, among other things, it targets union involvement with shareholder proposals.

It’s worth pointing out that the US’s approach here is precisely the opposite of the European approach, where the default assumption is that ESG factors should be considered as a part of prudent asset management.  Recently, the SEC Investor as Owner Subcommittee recommended that the SEC “begin in earnest an effort to update the reporting requirements of Issuers to include material, decision-useful, ESG factors,” and part of the rationale was that the US risks letting other jurisdictions set the pace on these issues.  The DOL’s proposed rule, I believe, will only accelerate the process of ceding leadership to the European Union.

Notably, in recent years, several commenters have pushed institutional investors to look beyond simple financial returns and consider to the overall welfare of their human beneficiaries when making investment decisions.  David Webber has argued that pension funds should be able to allocate dollars in a way that benefits labor and unionization, Nathan Atkinson has argued that institutional investors should be mindful of the overall interests of their clients (as consumers, employees, etc), and former Chief Justice Strine has argued that institutional investors should concern themselves with the health and welfare of their human beneficiaries when casting proxy votes (the latter piece with Antonio Weiss).  The proposed DOL rule would put the kibosh on that, at least for ERISA plans, explicitly mandating that plan fiduciaries evaluate “investments and investment courses of action based solely on pecuniary factors that have a material effect on the return and risk of an investment based on appropriate investment horizons and the plan’s articulated funding and investment objectives…”

The new rule also discourages including ESG funds in 401(k) plan menus.  If the rule takes effect, ERISA fiduciaries would only be permitted to include such funds if they are chosen for their financial returns, with a special requirement that they document their reasoning.  Those special recordkeeping requirements, of course, will make it difficult to include ESG funds in 401(k) plans at all. According to the DOL release, there aren’t many 401(k) plans that offer ESG investments now – maybe 9% of them do – but ESG funds are a growing segment of the market and there has been a lot of advocacy to expand 401(k) ESG offerings.  This rule, if enacted, will likely dampen that effort.  More broadly, it could discourage the development of any ESG funds, because these funds would be functionally unavailable both to 401(k) plans and to ERISA-covered pension plans.  Notably, the rule has a capacious definition of ESG – it encompasses any fund that includes “one or more environmental, social, and corporate governance-oriented assessments or judgments in their investment mandates … or that include these parameters in the fund name” – so the rule’s knock-on effect may be to dissuade mutual funds from considering these factors at all (or at least mentioning them in their prospectuses).  Which is significant, given that Larry Fink has said that he plans to “mak[e] sustainability integral to portfolio construction” in BlackRock funds.

The DOL rules, then, are of a piece with new SEC proposals to limit shareholder use of 14a-8 and expand retail access to private offerings. The rules, collectively, favor minimizing corporate accountability to investors and the general public in favor of opacity and unfettered management discretion.  And the Administration seems to be encouraging short-term business models – private equity – over the long-term risk mitigation strategy of ESG, which is odd, because as I previously blogged, the Administration, like a lot of Delaware caselaw, has explicitly stated that the purpose of the corporation is to maximize long-term shareholder welfare. 

(That said, it appears the Chamber of Commerce objects to the ESG proposal, on the ground that the recordkeeping requirements may prove a tempting target for plaintiffs raising fiduciary duty claims, and with that kind of opposition, we may see some changes before a formal enactment.)

Stepping back, it should be obvious none of this has anything to do with investor choice. The true tell is the rule regarding ESG fund inclusion in 401(k) plans.  As I said the first time I blogged about this issue:

It’s all well and good to require that ERISA fiduciaries act solely in the economic interests of beneficiaries, on the assumption that this is what beneficiaries would likely want, and on the assumption that wealth maximization functions as “least common denominator” for beneficiaries’ otherwise conflicting interests.

But this reductionistic approach to defining beneficiary interests, adopted for the purpose of making them more manageable, should not stifle opportunities to accommodate the actual preferences of beneficiaries, especially when it is feasible to allow beneficiaries to sort themselves – like, say, when ESG-focused funds can be made available to those beneficiaries who are willing to sacrifice some degree of financial return to advance social goals.  Providing these opportunities to beneficiaries who choose them inflicts no damage on the interests of beneficiaries solely interested in financial return, and, in fact, the principle that investors should be able to control their own retirement planning is (supposedly) the reason these types of ERISA platforms are offered in the first place.

The new guidance, then, seems less about protecting beneficiaries from politically-motivated fiduciaries than it is about forcing beneficiaries to participate in the political goals of the Trump administration, namely, minimizing shareholder participation in corporate governance, particularly when those shareholders advance (what are usually) liberal policy priorities.

To be sure, we don’t have a whole lot of funds that openly advertise their plan to sacrifice returns in favor of social goals; it’s a real issue that funds billing themselves as “ESG-focused” are not clear about their strategies, and that’s something the SEC is legit investigating. But assuming we can get full disclosure, and there is a demand for such funds, the DOL is dictating the choices of millions of investors, many of whom will have no other exposure to the market.

Which brings me to my main point, which is, all of these proposed changes simply highlight that it is inaccurate to the point of absurdity to describe the American corporate governance system as “private law.”  State choices dictate the build of the business form, its accessibility to the public, the structure of investors themselves, and their preferences when allocating capital.  That’s the thesis of my latest Essay, Beyond Internal and External, which argues that corporate governance is subject to pervasive regulation in a manner that directly effectuates public policy.  If we’re going to have the state make these kinds of choices, we should at least own them, rather than cloak them in the language of “private ordering.”

Tips For Teaching Online- Part II

Last week, I wrote the first in a series of posts with tips for teaching online. I expect many more law schools to join Harvard and now UC Berkeley by doing all Fall classes online. I’m already teaching online this summer and will teach online in the fall. Our students deserve the best, so I’m spending my summer on webinars from my home institution and others learning best practices in course design.

Here are some tips that I learned this week from our distance learning experts. First, I need to adopt backward design. I have to  identify the learning objectives for my courses, then decide how I will assess whether or not students successfully met the learning objective. Effective learning objectives are active, measurable, and focus on different levels of learning (e.g., remembering, understanding, applying, analyzing, evaluating, creating). Some people find Bloom's Taxonomy of Educational Objectives helpful.

Once I figure out my learning objectives, I will work backwards to determine what kinds of activities the students will work on either online or face to face (which for me will be Zoom). For more on this topic, see this guide to backward design from Vanderbilt University Center for Teaching. By the way, if you’re wondering why I’m not just saying click here, it’s because descriptive text is better for accessibility.

Then I will figure out the technology, which is important, but shouldn’t drive how or what I teach. Although we think our students are tech savvy, we still need to keep it simple and intuitive. We have to think about how to engage the students and facilitate learning without taking up too much bandwidth.

Finally, I need to ask myself some hard questions.[1]

What do you want students to know when they have finished taking your blended course? What are the intended learning outcomes of the course?

• This actually takes some thought. We all have our mandated ABA learning objectives but what do they really mean, especially in today’s environment? How do I make sure that the learning objectives are pedagogically sound? What do students need to learn to be practical, strategic lawyers? What kinds of people, process, and tech skills do they need for the “new normal” when it comes to delivery of legal services? Yes, I want my students to know how to communicate more effectively to clients, counsel, and judges in my legal writing course. I want my students to know how to draft, edit, and negotiate contracts in my upper level skills courses. I want my compliance students to understand the law and the soft skills. But what other skills matter now? How will I communicate those over Zoom?

As you think about these outcomes, which would be better achieved in the online environment and which would be best achieved face-to-face in class?

• How much harder will it be to teach people skills and impart complex concepts online? I don’t have the option for face-to-face classes in the Fall and many of you won’t either, sorry to say. In the Fall, I will have one online asynchronous course and another hybrid. It will be all online but I will record some lectures and use the synchronous time for simulations, peer review, and discussions. I’m trying to determine how to make the synchronous time as engaging as possible – even more engaging than I would if I was standing in front of the room. I will have to compete with barking dogs, the comforts of a couch, and other electronic distractions that I would not have in an in-person environment. I’ll post more about keeping students engaged online in a subsequent post.

Blended teaching is not just a matter of transferring a portion of your existing course to the online environment. What types of learning activities do you think you will be using for the online portion of your course? For the face-to-face part of the course?

• Each week, I plan to use discussion boards and no-stakes short quizzes to ensure understanding for the asynchronous portions of my courses. My pre-recorded videos will be no longer than fifteen minutes, and ideally seven minutes or less. As stated above, for the synchronous Zoom sessions, I will use polls, breakout rooms, and panels of students. Because I will have a flipped classroom, the students will have learned the concepts so that we can apply them in class. As for class discussions, I have found that I sometimes have a more intimate connection with students in a class of fewer than 25 on Zoom than I did in the classroom, but large classes are much tougher. Professors appear to have mixed views on using the Socratic method on Zoom. Since my face-to-face classes are on Zoom, I require cameras on so that I can see their faces, unless they have permission in advance from me or temporary bandwidth issues.

Blended courses provide new opportunities for asynchronous online discussions. How will you use asynchronous discussions as part of the course learning activities? What challenges do you anticipate in using online discussions? How would you address these?

• I have used pre-class discussion boards and have required students to reply on two other submissions. These count for class participation so students can’t just write “great comment.” I have also experimented with post-class discussion board submissions. They key is to follow up and comment myself so that students don’t feel like they’re in a black hole. I also plan to have one or two students per week post a current event to the discussion board that relates to what we are doing in class. During class time, I will ask another student to discuss or summarize the current event.

How will the face-to-face, online and other “out of class” learning activities be integrated into a single course? In other words, how will all the course activities feed back into and support the other? How will you make the connections between the activities explicit to students?

• This will be tough and this is why I will spend weeks this summer planning. I need to make it clear what the students need to read, watch, and do pre-class, in-class, and post-class. Teaching online takes much more pre-work than most people realize. But this planning is critical to ensuring that the students have a seamless course experience.

When working online, students frequently have problems scheduling their work and managing their time. What do you plan to do to help your students address these issues and understand their own role and responsibility for learning in the course?

• Students really need structure, and even though they don’t like to admit it, they prefer it. Online learning means that students must have more discipline than they are used to. I plan to recommend a workload course estimator so that students can plan appropriately. I will also have to cut back on the work I give because economic and health issues will continue to plague my students during the pandemic. Our university and others have rolled out tools for students to manage their time, and more important, manage their stress. I also plan to do frequent check-ins and increase office hours.

Students can have challenges with using new instructional technologies to support their learning. What specific technologies will you use for the online and face-to-face portions of your course? What proactive steps can you take to assist students to become familiar with your course website and those instructional technologies? If students need help with technology later in the course, how will you provide support?

• As I mentioned in the last post, it’s best for all professors to use the same platforms for the learning management system. You can add bells and whistles for team communication or polling later. As for helping students get familiar with the website, our university has instructional designers and lots of webinars, but I plan to test drive my eventual set up with my research assistants over the summer and ask them to be brutally honest. Fortunately, we have several online resources for students as well.

There is a tendency for faculty to require students to do more work in a blended course than they normally would complete in a traditional face-to-face course. What are you going to do to ensure that you have not created a course and one-half? How will you evaluate the student workload (and your own) as compared to a traditional class?

• This is my biggest concern. I spend many more hours prepping my online courses than my traditional courses, and I haven’t even been doing anything particularly sophisticated. Now that I’m learning more tools and techniques, I anticipate that I will be spending more time prepping. In my zeal to make sure the students have a great experience and learn as much or more than in the traditional classroom, I will likely give them more work as well, if I’m not careful. The key is to use the findings from learning science to find a balance. 

In my next post, I’ll talk about what I’m learning about how students learn. In case you can’t wait to see what I write, check out Learning How to Learn, Small Teaching Online, and Online Learning and the Future of Legal Education. If you have suggestions or comments, please leave them below so we can all learn from each other.

[1] Our instructional designers attributed these questions to the University of Wisconsin, Milwaukee.

Whistleblower Bounties at the CFPB?

The CFPB recently proposed a whistleblower bounty program to enhance its enforcement efforts. Last week, Senator Cortez Masto introduced legislation to make it a reality.  Although the Bill's text is not yet available, the press release explains its scope:

Specifically, the Financial Compensation for CFPB Whistleblowers Act would allow the Consumer Financial Protection Bureau to reward whistleblowers from the Civil Penalty Fund for between 10 – 30% of settlement awards. In cases involving monetary penalties of less than $1 million, the CFPB would be able to award any single whistleblower 10% of the amount collected or $50,000, whichever is greater. The proposal allows for a whistleblower to retain independent counsel, does not require the whistleblower to enter a contract with the Consumer Bureau and protects a whistleblower’s identity.

Interestingly, CFPB's proposed text does not include any reference to an anti-retaliation cause of action.  If we really want whistleblowers to come forward, it may make sense to offer more than just a carrot.  Employees may also need real protection from an employer's stick.  Other existing and proposed whistleblower bounty statutes also include anti-retaliation provisions and causes of action for whistleblowers.  Enhancing a cause of action here might cause trim away some risk and help employees find the courage to make a report to the CFPB.

Update:  Thanks to Jason Zuckerman for pointing out that unlike the Dodd-Frank provision for the SEC which created a bounty and and anti-retaliation provision at the same time, the CFPB already has an anti-retaliation provision.  It seems to resemble the Sarbanes-Oxley cause of action and require an initial report through the department of labor.  My view is that it would probably be best to just allow whistleblowers alleging retaliation to go directly to court.

 

Stakeholder v. Shareholder Capitalism: Bebchuk and Mayer Debate

Tomorrow (6/25/20) at 9am EST, Colin Mayer (Oxford) will debate Lucian Bebchuk (Harvard) on the topic of stakeholder v. shareholder capitalism. 

Oxford is streaming the debate for free here.  

ECGAR Call for Submissions (2020-21)

BLPB Readers,

The Emory Corporate Governance and Accountability Review (ECGAR) is currently accepting submissions to be considered for publication in our next volume (8). Submissions are accepted and reviewed on a rolling basis until the end of September. ECGAR is a publication that welcomes articles and submissions that touch on corporate governance.

The full details of this call for submissions can be found here:  Download ECGAR Call for Submissions .

Teaching Through the Pandemic - Part IV

Thanks to all of our readers who were able to come to the National Business Law Scholars Conference (NBLSC) last Thursday and Friday.  It was lovely to see so many of you there, even though it was somewhat sad that we could not be with each other in person.  The conference enjoyed record participation, and we have received a lot of useful informal feedback about our virtual format from folks who attended.

I was the beneficiary of many "teaching moments" in hosting and participating in the NBLSC this year.  I later will post on some of the outtakes from the NBLSC teaching panel (to which co-blogger Marcia Narine Weldon--who blogged about teaching on Friday--contributed meaningfully).  Today, however, I am focusing my post on a few new things my fellow UT Law conference hosts and I learned about Zoom in the process of hosting the conference.  A list follows.  

• Although meeting participants should mute themselves on entering a meeting, it is best for a meeting host to set up the meeting so that all participants will be muted on entry, especially for large meetings.  It can be challenging to track down and mute participants who join a meeting and bring background noise or conversations into a meeting that is already in progress.
• If you have set up a Zoom meeting with yourself as the host and you hand off the hosting to another meeting participant during the meeting, you may leave the meeting without ending the meeting for all.  However, you cannot then initiate a second meeting as host until the first meeting has concluded.  You cannot, in other words, host two concurrent meetings, even if you handed off hosting in the first meeting to someone else.  See here.  (Fix?  Set up someone else as an alternative host of the first meeting.  Also have that alternative host start the first meeting as host.  Join the first meeting as a participant.  Sign off any time and initiate the second meeting.)
• If you are hosting a meeting, consider assigning someone as a co-host so that, if your Internet connection fails, the meeting continues to proceed with the co-host as host until you can re-join.  This was particularly welcome to me, since my power went out three separate times on Friday afternoon during conference sessions I was hosting.
• Have a telephone or data-enabled smart pad handy as a back-up connection device if you are hosting or participating in a Zoom meeting on a computer using the Zoom client.  Although data rates may apply, you can easily reconnect using the Zoom app on your phone or smart pad if you lose your Internet connection.  (This is how I reconnected those three times on Friday.)
• If the meeting host allows all participants to share screens at the outset of the meeting, if a presenter who is sharing slides drops out of the meeting because of, e.g., Internet hiccups, the presenter can immediately re-share the slides after re-joining the meeting (without having to be named as a host or co-host). A meeting host would not want to allow all participants to share screens, however, unless the participants are trusted.
• A host can kick a participant out of a meeting, but that participant can re-enter the meeting room unless the "Allow removed participants to rejoin" feature is disabled.
• A meeting host can report an aberrant user to Zoom if that feature ("Report participants to Zoom") is enabled in the host's settings.
• Some meeting participants like to communicate with other meeting participants privately through the chat feature of Zoom.  See here.  It approximates sitting next to (or close to) others in a physical room.  If you want to allow this kind of background chatter, enable "Allow meeting participants to send a private 1:1 message to another participant" in your profile settings on Zoom.
• Although I did not use them for the NBLSC, meeting hosts should consider the desirability of using waiting rooms, password requirements, meeting locks and other security features, and breakout rooms to manage participants. 

I am sure there is more I could say, but these were the main things I learned that were not necessarily things I had picked up in establishing and engaging Zoom meetings for classroom activities.  While some of the above-listed items may be of limited utility in using Zoom to teach online (as opposed to using Zoom to host a two-day, 31-meeting conference), if you substitute "class" for "meeting" in the listed items, you can get a sense of how some of them may apply to class activities in general or in specific circumstances, too.  In any event, i have come to the understanding that we all can benefit from knowing as much as possible about the technologies were are using as we continue to navigate the virtual conference and online teaching waters as business law professors.

Tarbert on Rules-based v. Principles-based Approaches to Regulation

On p. 17 of Rules for Principles and Principles for Rules: Tools for Crafting Sound Financial Regulation (here), Heath P. Tarbert, the Chairman and Chief Executive of the Commodity Futures Trading Commission, provides a useful table that he notes “is intended to be a helpful reference point for regulators confronted with finding the appropriate balance between principles and rules.”  I found myself thinking of how helpful a table like this – and the article in general – would have been when I was teaching courses focused on the regulation of financial markets! 

I highly recommend this very readable work to BLPB readers, especially to those teaching in the area of regulation.  In fact, I’d likely make this article assigned reading if I were teaching a course on financial regulation this fall.  It does an excellent job of providing an overview of the strengths and weaknesses of principles-based versus rules-based approaches to regulation and discussing hybrid possibilities.  It also examines four categories of factors that suggest taking one approach over the other (summarized in the p.17 table), and applies these factors to several areas (automated trading, position limits, cross-border regulations, and digital assets).             

Stock Markets in the Age of Corona

I drafted this post before, well, the SEC got dragged into the middle of an SDNY meltdown and that’s obviously way more interesting than what I was going to say, but I have this whole post already here so... here goes.

One of the big business news stories of the past week has been Hertz and its failed stock offering. (N.B.: Well, it seemed like a big deal when this post was originally drafted)

During the pandemic, stock markets have gyrated wildly, apparently driven in part by retail traders who, left without the opportunity to bet on sports, have turned to trading as an alternative form of gambling.  They’re apparently encouraged by free trading apps and especially Robinhood, which – unlike other platforms which treat trading as srs bzns– gameifies the experience.  As one trader put it, “With sports, if I throw $1,000 at something, I lose the whole thing real quick, but here if things go south you can cut your losses.”

That particular theory was sort of tested when it came to Hertz, which is in bankruptcy.  Despite that fact, its stock started to climb, in what has been described as the equivalent of a Jackass sketch.  Everyone understood there was almost no chance of the company actually generating value for shareholders, but the coordinated attention acted as something of a combination dare, Ponzi scheme, market manipulation, and performance art.

Hertz tried to take advantage of it all by selling new stock, figuring hey, this might be an easy way to pay off its creditors, and that all by itself seems to have burst the bubble; traders weren’t expecting anyone to take them seriously.  But the plan was scotched when the SEC raised questions about the sufficiency of Hertz’s prospectus disclosures.

Really, though?

Here are the disclosures:

We are in the process of a reorganization under chapter 11 of title 11, or Chapter 11, of the United States Code, or Bankruptcy Code, which has caused and may continue to cause our common stock to decrease in value, or may render our common stock worthless.

And also here:

The price of our common stock has been volatile following the commencement of the Chapter 11 Cases and may decrease in value or become worthless. Accordingly, any trading in our common stock during the pendency of our Chapter 11 Cases is highly speculative and poses substantial risks to purchasers of our common stock. As discussed below, recoveries in the Chapter 11 Cases for holders of common stock, if any, will depend upon our ability to negotiate and confirm a plan, the terms of such plan, the recovery of our business from the COVID-19 pandemic, if any, and the value of our assets. Although we cannot predict how our common stock will be treated under a plan, we expect that common stock holders would not receive a recovery through any plan unless the holders of more senior claims and interests, such as secured and unsecured indebtedness (which is currently trading at a significant discount), are paid in full, which would require a significant and rapid and currently unanticipated improvement in business conditions to pre-COVID-19 or close to pre-COVID-19 levels. We also expect our stockholders’ equity to decrease as we use cash on hand to support our operations in bankruptcy. Consequently, there is a significant risk that the holders of our common stock will receive no recovery under the Chapter 11 Cases and that our common stock will be worthless.

 Note how these disclosures were reported in the media:

“Hertz says it expects stockholders to lose all their money in filing for selling more stock”

“Hertz’s filing to sell its shares came with more dire warnings than a bottle of bleach.”

“Hertz, to its credit, disclosed the risks to prospective stock shareholders quite openly. If it had been permitted to proceed with the sale, buyers could not have said they weren’t warned.”

This does not, in short, seem like a disclosure problem at all.  And that means there’s a lot to think about.

First, there have been a lot of comparisons to the dot com bubble, and I agree, but in a very specific way.  The internet bubble featured anonymous commenters who’d engage in pump-and-dumps – recommend a stock, watch everyone pile in, and sell out – but it wasn’t necessarily the case that anyone was fooled.  People used the comments as a coordinating mechanism – which stock they’d all buy now – and play musical chairs to see who could make money and cash out before the crash.  That’s how Donald Langevoort viewed the SEC’s case against Jonathan Lebed, anyway, and it definitely is an element of what’s happening here.  (See this article about a website devoted to tracking Robinhood trades).  So all that raises the question of how much transparency markets can really bear.  (Cf. Matt Levine, writing about a different kind of transparency, in Too Much Information Can Be Bad)

Beyond that, the SEC’s interference betrays a rather surprising lack of faith both in market efficiency and investor autonomy, and thereby illustrates the SEC’s Janus-faced (heh) approach to investor protection.  Recently, the SEC has been fairly aggressive in its insistence that disclosure is a cure-all, that markets are efficient and no one needs to be told anything twice, and that retail investors should have more access to private capital.  At the same time, the SEC has resisted and denigrated the demands of actual investors regarding the types of information they need to make intelligent decisions.  And now, apparently, the SEC is willing to step in to save Hertz investors from themselves – even when they act with full disclosure on a widely traded, exchange-listed (for now), stock.  It seems the SEC has complete faith in efficient markets and investor wisdom, except when it doesn’t.

Another aspect of this story has to do with market efficiency in – as William Fisher once put it – “a time of madness.” As I said, it wasn’t just Hertz; there have been reports of retail traders playing stocks like a roulette wheel and even manipulating prices for the lulz.  There have also been several securities fraud lawsuits filed since the lockdowns, particularly ones pertaining to the coronavirus.  These are fraud-on-the-market cases, and they depend at least on market informational efficiency, if not fundamental value efficiency, which implies some amount of rationality.  Will the evident irrationality of markets at this time affect the plaintiffs’ ability to certify a class? 

It’s not an entirely crazy question; there is some precedent for courts treating market irrationality as evidence of inefficiency.  See In re Initial Public Offering Securities Litigation, 260 F.R.D. 81 (S.D.N.Y. 2009) (“there is insufficient evidence of efficiency to permit the use of the Basic presumption with respect to trading during the quiet periods. To the contrary, the evidence indicates that the quiet periods were marked by chaotic pricing, irrational purchases, and market inefficiencies.  [Plaintiffs’] own evidence demonstrates that the markets for the focus case shares were inefficient during the first weeks of trading. A purchaser of these securities during the relevant quiet period could not reasonably rely on the market price to reflect the market’s judgment of the security’s value. Therefore, the Basic presumptions cannot apply to these periods.”)

That said, the Supreme Court’s Halliburton v. Erica P. John Fund, 573 US 258 (2014), may have established a more forgiving standard for evaluating market efficiency, so we shall see.

But my final observation is this: All of this is kind of hilarious until you read these kinds of stories, where some 20-year-old Robinhood trader may have killed himself because he – mistakenly – believed he’d lost $700K.  Additionally, the Twitterati is ablaze with anecdotal reports of teens and even pre-teens trading stocks in Robinhood, treating it as an alternative to Fortnite – and I can’t wait to see what happens if those kids are trading on margin.  Now, Robinhood purports to require that accountholders be at least 18, so we have a bunch of questions: (1) are there really a bunch of children trading, or are those isolated examples no matter what Twitter says?; (2) are parents are intentionally giving their kids access to brokerage accounts, or are children just lying their way in?; and (3) just how robust are Robinhood’s age and suitability checks?  Robinhood has now promised to improve its interface regarding options trading, to consider “additional criteria and education for customers seeking level 3 options,” and to, umm, make a “$250,000 donation to the American Foundation for Suicide Prevention.” So, yay?

Tips for Teaching Online- Part 1

If you're like me, you're wondering how you can improve your teaching after last Spring's foray into online learning. I wasn't nearly as traumatized as many of my colleagues because I had already taught Transactional Drafting online asynchronously for several semesters. This summer, I'm teaching two courses -- Transactional Drafting asynchronously and a hybrid course on Regulatory Compliance, Corporate Governance, and Sustainability. I'm making a list of tips based on my experience and will post about that in the future. In the meantime, I've started to think about how I can improve next semester when I will be teaching all of my courses online. Since I know that so many students had a mediocre to poor experience with emergency online teaching, I've spent a lot of time on webinars learning how to do better. This will be the first in a series of posts on what I'm learning on course design, learning styles, and best practices. But let's start with the basic questions to ask yourself as you're preparing for next semester.

First, think about whether you want to teach synchronously or not. If you're looking for maximum flexibility for both you and the students, then asynchronous teaching makes sense. If you're teaching solely asynchronously, then you need to consider how to make your videos and content as engaging as possible. You also have to do something to build community within the class and a rapport between you and the student. If you're thinking of doing a hybrid, perhaps using a flipped classroom,  recognize that it will take longer to prepare than you would think. For my summer compliance course, I record videos on substantive legal issues, monitor discussion on the class discussion board, prepare questions for students to answer prior to class using Echo 360, and then review those answers all prior to teaching the 2-credit course live on Zoom. This requires substantially more time than normal class prep, but it's well worth it because we can use class time to do simulations or interact with guest speakers from all over the world. More about these issues will come in a future post. 

Second, learn everything you can about the platforms you will use next semester so that you can master all of the features that will make your class more engaging. Even if your institution does not require you to use one platform, try to come to some consensus anyway. Students do not want to learn three different systems so do what you can to make sure that the platforms are uniform and intuitive for them. Then think of whether all of the tools you're already using can integrate with that platform. Our university is using Blackboard, Echo 360, and Zoom. The students will have one place for logon and access everything from there. Next, think about whether you want to have students use discussion boards to interact or maybe develop Slack or Microsoft Teams instead. Since many students are uncomfortable speaking in class on video, we will have to work harder to foster classroom discussion. Teams and Slack channels can help, and many students will already use them for internships or business purposes. The more intentional you are, the better an experience your students will have, even if it takes some time to determine what works for you. If you have a research assistant or student you can contact, find out which tools did and didn't work from their Spring experience. See if your university will survey students for feedback on online learning,

Third, think about whether you have the right equipment. Do you need a separate headset, webcam, or microphone? I actually don't use any of those even though I have a separate microphone. How stable is your internet? Think about whether you might need an upgraded modem or even your own mesh network. One thing I absolutely recommend is a ring light. There are hundreds of YouTube videos on how to light yourself properly using your household lamps. But, I've found that having a separate ring light makes my videos brighter and more professional looking. 

Finally, while you're designing your course, make sure you're thinking of the Americans with Disabilities Act. At UM, we've been told to do the following for presentations:

• provide wording for links and avoid using “click here” for the links;
• use sans serif fonts for easy readability;
• use dark font colors on light backgrounds;
• avoid extremely bright colors as a background color;
• use one font throughout the site;
• avoid overuse of all CAPS, bold or italics;
• avoid underlining words, as the screen reader can mistake it for a navigation link;
• make sure that images are clear and optimized for efficient loading;
• limit the use of animated and blinking images  text, or cursors because they  can cause seizures for some people;
• make sure that audio file lengths are adequate to meet the goals of the activity without being too large to restrict users’ ability to download the file on computers with lower bandwidths;
• provide a written transcript  with all audio files; and
• provide closed-captioning or has accompanying text-based scripts for all videos.

After you've thought through some of these baseline issues, you can then turn to making your content as interesting and accessible for your students as possible. Future posts will cover tips for effective presentations, tools to increase engagement, and other best practices. In the meantime, if you have any tips to share or areas you want covered, please comment below. 

Tomorrow: 2020 National Business Law Scholars Conference

Just a quick reminder that the 2020 National Business Law Scholars Conference--the 11th annual conference and our first virtual conference--begins tomorrow morning at 9:00 am EDT and extends through Friday afternoon at 4:30 pm EDT.  The conference schedule is available here.  Even if your workday is full, think about joining us (with or without a beverage) for some business law fellowship at 6:15 pm EDT tomorrow during our virtual happy hour.

Please make sure that you have upgraded your Zoom client to Zoom 5.0 before attempting to join in from your computer.  Effective as of June 1, Zoom is no longer supporting earlier versions.  If you have questions about upgrading, check out this page from the Zoom Support Center.

We hope to see many of you there!

Call for Papers | AALS Section on Transactional Law and Skills

The New Public Interest in Private Markets: Transactional Innovation for Promoting Inclusion

January 5-9, 2021, AALS Annual Meeting

The AALS Section on Transactional Law and Skills is pleased to announce a program titled The New Public Interest in Private Markets: Transactional Innovation for Promoting Inclusion during the 2021 AALS Annual Meeting in San Francisco, California. This session will explore how recent developments in corporate and transactional practice address issues of bias in corporate governance and the workplace, with examples ranging from Weinstein representations & warranties in M&A agreements to California’s Women on Boards statute to inclusion riders in the entertainment industry. These developments raise immediate questions of whether public policy goals of achieving greater inclusivity are being met, and they also shed light on perennial debates about the role public law and private ordering play in spurring social innovation.

In addition to paper presentations, the program will feature a panel focusing on how to incorporate concepts, issues, and discussions of equity and inclusivity across the transactional
curriculum, including in clinics and other experiential courses, as well as in doctrinal courses.

FORMAT: Scholars whose papers are selected will provide a presentation of their paper, followed by commentary and audience Q&A.

SUBMISSION PROCEDURE: Scholars who are interested in participating in the program should send a draft or summary of at least three pages to Professor Matt Jennejohn at
[email protected] on or before Friday, August 21, 2020. The subject line of the email should read: “Submission—AALS Transactional Law and Skills Section Program.”
Scholars whose papers are selected for the program will need to submit a draft by December 16, 2020.

Pursuant to AALS rules, faculty at fee-paid non-member law schools, foreign faculty, adjunct and visiting faculty (without a full-time position at an AALS member law school), graduate students, fellows, and non-law school faculty are not eligible to submit. Please note that all presenters at the program are responsible for paying their own annual meeting registration fees and travel expenses.

Corporate Responses to the Protests and Riots, Part 4

We have been having an on-going discussion about corporate responses to the protests and riots (see here, here, and here). A large chunk of that discussion has focused on my proposal (here) to add enhanced scrutiny to business decisions sufficiently raising a specter of political bias, and whether such enhanced scrutiny would be warranted for corporate decisions to strongly support “Black Lives Matter” while staying silent on the riots. The relevant posts have apparently been of interest to our readers, having been shared a combined 600+ times as of this writing. The discussion has many moving parts, and my views of the relevant issues have advanced as a result. Thus, I thought it worth updating and summarizing at least some of my current positions.

1.  The idea that “black lives matter” is unquestionably correct, and it is appropriate and important to strongly affirm that idea in light of current events.

2.  Perhaps the foregoing should end the discussion, but politically-charged controversy lurks just around the corner. Is “Black Lives Matter” an idea or a movement? If the latter, what are corporations endorsing when they emblazon their corporate banners with the phrase? Are they putting their weight behind the “defund the police” movement? What about blue lives? Google “police ambushed” and you’ll see that’s unfortunately a thing. Why aren’t we seeing corporations get behind “Blue Lives Matter”? Should those who connect the BLM movement with hatred of the police be simply dismissed as racists? Does endorsing “Black Lives Matter” mean corporations will now refuse to stand for the national anthem (metaphorically)? And while condemning the killing of George Floyd and inequality is obviously correct, where is the condemnation of the riots?

3. Having said all that, does allowing concerns like those expressed above to trigger enhanced scrutiny lead to too many false positives, even if one believes political bias in corporate decision-making is a problem and that enhanced scrutiny of at least some business decisions could be an appropriate response thereto? Co-blogger Ann Lipton did a great job in her prior comments of pointing out that political controversy can be found lurking around many business decisions these days. Uncertainty is costly, and perhaps the uncertainty regarding the identification of business decisions sufficiently suggestive of political bias to warrant enhanced scrutiny is simply too high.

4. Nonetheless, I continue to believe that political bias in corporate decision-making is a problem that warrants a response. Private ordering and market solutions certainly may be sufficient, but that doesn’t mean judicial or legislative responses shouldn’t be considered. Furthermore, it is important to not overstate what enhanced scrutiny, as proposed, implies. At the end of the day, it merely asks corporate decision-makers to confirm that they are doing what they are already supposed to be doing, which is to consider all material information reasonably available when making business decisions; it does not mandate any particular outcome, and generally leaves board discretion intact. Furthermore, protective devices such as heightened pleading standards and a safe harbor for viewpoint diverse boards at least promise the possibility of efficiently balancing the relevant costs and benefits. Finally, and as alluded to earlier, perhaps there is a way to distinguish decisions that have as obviously strong a starting foundation as set forth in item #1 above. Courts are good at using materiality determinations to dismiss what they deem to be frivolous litigation. Perhaps we just make room for a defense that amounts to saying that all the material information corporate decision-makers need here is that black lives matter.

ADDENDUM (11:15 AM): Another protection against frivolous claims we haven't mentioned is the need to plead damages.  In my paper, I discuss Nike's decision to make Colin Kaepernick a face of the brand, but frame that entire discussion in the understanding that a viable claim is limited under my proposal given the stock market's overall positive response. To the extent this constitutes a modification of Unocal's enhanced scrutiny, I consider it appropriate. Cf. Corwin v. KKR Fin. Holdings LLC, 125 A.3d 304, 312 (Del. 2015) ("Unocal and Revlon are primarily designed to give stockholders and the Court of Chancery the tool of injunctive relief to address important M & A decisions in real time, before closing. They were not tools designed with post-closing money damages claims in mind ....").

 

2020 National Business Law Scholars Conference Schedule!

The full schedule for the 2020 National Business Law Scholars Conference, which is being hosted on Zoom Thursday and Friday of this week, is now available.  You can find it here.  If and as additional changes are necessary, we will re-post.

As is always the case, the conference includes folks presenting work in a variety of areas of business law.  These traditional paper panels are the heart of the conference.  In addition, as I noted in my post last week, we are including three plenary sessions--one on "Business Law in the COVID-19 Era," one reflecting on teaching business law in the current environment, and one on current bankruptcy law and practice issues.  There is something for almost everyone in the business law space in the conference program.

I am pleased and proud to note that several of my fellow bloggers from the Business Law Prof Blog are participating in the conference this year.  They include (in addition to me): Colleen Baker, Ben Edwards, Ann Lipton, and Marcia Narine Weldon.  I hope many of you will join us for all or part of the program and offer comments to colleagues on and relating to their work.

"How Big is Our 'Us'?"

Recently, I listened to the NPR Hidden Brain’s podcast titled “Playing Favorites: When Kindness Toward Some Means Callousness Toward Others.”

This podcast hit on topics that I have been thinking about a good bit lately---namely selfishness, giving, poverty, family, favoritism, and a culture of “us against them.” This post only has the slightest connection to business, so I will include the rest of the post under the break.

Continue reading

Comment Letter on Draft Whistleblower Legislation

Thanks to Andrew Jennings, a draft comment letter on the draft model whistleblower statute is now open for signatures and comments.   If you're interested in joining, you can access the comment letter here.  I've signed on.  If you have other thoughts that the drafters should consider, the deadline for comments is June 30th.  Hopefully, the NASAA draft will incorporate the insights we gained from watching the federal whistleblower bounty program begin its operations.

More on Corporate Responses to the Protests and Riots

The following will likely not make much sense if you haven’t read the preceding relevant discussion, most of which can be found here. The core issue addressed is whether the decision of many corporations to strongly support Black Lives Matter while staying silent on the riots should be insulated from scrutiny by the business judgment rule. I have put my original comments in bold, responses by Idriss Z in italics, and my further responses in plain text. In addition to comments on the substance of this post, I hope readers will let me know if the formatting can be improved.

"Are the corporate executives making these decisions doing so in accordance with their fiduciary duty to become informed of all material information reasonably available (which requires consideration of the impact of these decisions on the bottom line)..."

IZ- Of course they are! Many cases have held that companies can acquire much goodwill and better pr from such community action (examples have included charitable donations and philanthropy to local schools, including HBCUs). Or a more "hip" take: African American culture might be the most profitable marketing material source in the world, people all over the global love the various arts that come from our (unfortunately) marginalized communities.

You provide good reasons for concluding the decision is rational, but that does not tell us whether it was properly informed. Those are two different inquiries. For example, if the type of polling data I set forth in my prior comments (from here) was available, then that likely should have been considered. Charitable contribution cases are best treated separately from cases involving ordinary business decisions.

"..., or are they simply acting on the basis of some echo-chamber supported confidence in the obvious rightness of their beliefs"

IZ- One of the best aspects of the American system compared to those of the English commonwealths in my estimation is the lack of mental probing done to business decision-makers. What a ridiculous assertion it would be that there was some pro-Black echo-chamber effect in board rooms that are under criticism for having virtually no Black board members, right? Moreover, where are you getting their ideas or confidences in their beliefs from? You wouldn't be just making it up?

How free from scrutiny corporate decision-makers should be in cases like this is the issue. Many people believe the heightened political divisions of our day don’t constitute a good reason for additional scrutiny. As I’ve written elsewhere, I believe they do. Under my proposal, if a corporate decision appears to be sufficiently politicized, then our lack of knowledge regarding the decision-making process becomes a reason for increased scrutiny, not a reason for continued insulation of the decision. Whether the decision in this case is objectively politicized enough to warrant additional scrutiny would be a question of fact. One might point to the fact that, according to at least one poll, 71% of Americans supported National Guard intervention in the riots (more on that poll here), while 62% do not strongly support BLM (assuming we can read failure to choose "strongly support" as “don’t strongly support”). Yet corporate decision-makers made strong statements in support of BLM while remaining silent on the riots. Finally, the echo-chamber I’m referring to is a progressive echo chamber -- and it can be all white.

"– completely ignoring, if not being downright disdainful of, the views of the half of the country that believes law and order, blue lives, and black lives all matter?"

IZ- Again, it is unclear where you're getting your facts from, I am unable any factual support for this. Also, I think you might want to check the poll numbers on people's preferences. Moreover, supporting BLM and Civil rights for marginalized communities does not put you in opposition to law, order, or any other life. In fact many have quite intelligently and correctly pointed out that suggesting that supporting BLM and Civil Rights does put you in opposition is flat-out racist. Moreover, many have also correctly pointed out that alleging that one who supports BLM and Civil Rights supports riots is also in completely disregard of the gulf separating factual and disingenuously racist. Or consider this: "half" the country believes the world is flat, must board members take factor that unscientific argument into their decisions?

I agree that the numbers matter.  And someone can agree with my proposal for heightened scrutiny of politicized decisions without agreeing that such scrutiny is appropriate here. Assuming we adopted heightened scrutiny for facially politicized decisions, the costs of heightened scrutiny argue in favor of keeping the scope of triggering facts narrow. Having said that, I think the polling I’ve identified so far provides at least some support for my position in that it concludes 71% of Americans supported some type of National Guard intervention in the riots, while 62% were reported to not strongly support BLM (including almost 30% of blacks, and almost 70% of whites). Of course, those numbers could be wrong and/or I could be wrong about the relevant weight/interpretation of those numbers. In all this, it’s important to keep in mind that the heightened scrutiny I’m advocating for merely seeks affirmation that corporate decision-makers are informing themselves of all material information reasonably available. It does not require a particular outcome. In this case, evidence that available relevant polling was considered would arguably be sufficient to carry that burden, even if the decisions remain the same.

Furthermore, I agree that there is no necessary conflict between “supporting BLM and Civil rights for marginalized communities” and supporting “law, order, or any other life.” In fact, we should expect them to support each other. I also agree that racists would want to draw connections between BLM and the riots. However, I don’t agree that corporate decision-makers can ignore relevant public opinion, including the relevant concerns of well-intentioned non-racists who may be having a hard time separating the protests from the riots, however misguided those concerns might be. Accordingly, if half the country believes the world is flat, then corporate decision-makers absolutely have a duty to consider that information when making a decision to roll out a “world is round” campaign. In fact, if the board is made up exclusively of round-earthers, and they refuse to even consider the contrary public opinion of half the nation (assuming those people would otherwise reasonably be deemed potential customers), then they would be acting in bad faith.  The centrality of this point to my proposal is difficult to overstate. Critically, however, nothing requires them to shelve the campaign based on that information. They just need to fully inform themselves of all information reasonably available, and have a rational business purpose for their ultimate decision– which typically shouldn’t be hard to do.

"Such a conscious disregard of reasonably available material information would constitute not only a breach of their duty of care, but also bad faith."

IZ- Well, as I've pointed out these "conscious disregards" would be impossible to prove and are only based on conjecture. Moreover, there is a duty of care to all members of the community, so supporting a group such as BLM and civil rights would be beneficial to all members, a rising tide raises all ships. Whereas disapproval of these groups might certainly fit your criterion as they are of benefit to exactly no one. Further, consider the ramifications of your approach-> would not every corporation face the exact same liability for putting their name on a College Football Bowl Game should a "riot" breakout?

An utter failure to properly inform oneself would suffice to support a finding of bad faith consistent with a conscious disregard of a known duty. If we shift the burden to corporate decision-makers to show that they properly informed themselves, and they are unable to carry that burden – that is sufficient. I certainly want the heightened scrutiny I propose to leave significant discretion to corporate decision-makers to appropriately consider the impact of decisions on stakeholders. Nothing I’m proposing should prevent corporate decision-makers from concluding that strong support for BLM is in the best interests of the corporation, while at the same time concluding silence on the riots is likewise best. The only way my proposal should interfere with those decisions is if the decision-makers failed to properly inform themselves.  Finally, the mere coincidence of a sponsorship decision and a riot would not trigger heightened scrutiny under my proposal.

Padfield on "the Omnipresent Specter of Political Bias" in Corporate Decision-Making (and 3 other papers)

I've finally gotten around to updating my SSRN page.  I would love to hear any comments you might have.

1.  Corporate Governance and the Omnipresent Specter of Political Bias: The Duty to Calculate ROI

2.  Totalitarian Nudges, Illusory Externalities, and Utopian Benefits: Reflections on the 34th Economics Institute for Law Professors

3.  Killing Corporations to Save Humans: How Corporate Personhood, Human Rights, and the Corporate Death Penalty Intersect

4.  The Helper Therapy Principle: Using the Power of Service to Save Addicts