Monday, December 3, 2018
On November 15, the Securities and Exchange Commission (SEC) convened a Roundtable on the Proxy Process. (See also here.) I have not been following this as closely as co-blogger Ann Lipton has (see recent posts here and here), but friend-of-the-BLPB, Bernie Sharfman (Chairman of the Main Street Investors Coalition Advisory Council) has been active as a comment source. Both contribute valuable ideas that I want to highlight here as the SEC continues to chew on the information it amassed in the roundtable process.
Ann, as you may recall, has been focusing attention on the uncertain status of proxy advisors when it comes to liability for securities fraud. In her most recent post, she observes that
There’s a real ambiguity about where, if it all, proxy advisors fit within the existing regulatory framework, and while I am not convinced there is a specific problem with how they operate or even necessarily a need for regulation, I think it can only be for the good if the SEC were to at least clarify the law, if for no other reason than that these entities play an important role in the securities ecosystem, and if we expect market pressure to discipline them, potential new entrants should have an idea of the regime to which they will be subject.
I remember having similar questions as to the possible fiduciary duties and securities fraud liability of funding portals under the Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012 (a/k/a the CROWDFUND Act)--Title III of the Jumpstart Our Business Startups Act (a/k/a/, the JOBS Act). I wrote about these ambiguities (and other concerns) in this paper, published before the SEC adopted Regulation CF. I know Ann's right that we have clean-up to do when it comes to the status of securities intermediaries in various liability contexts (a topic co-blogger Ben Edwards also is passionate about--see, e.g., here and here).
Bernie has honed in on voting process issues relating to both proxy advisors (the standard for making voting recommendations and the use/rejection of the same) and mutual fund investment advisers (the disclosure of mutual fund adviser voting procedures and SEC's enforcement of the Proxy Voting Rule). Specifically, in an October 12 letter to the SEC, Bernie sets forth three proposals on proxy advisor voting recommendations. His bottom line?
Institutional investors have a fiduciary duty to vote. However, the use of uninformed and imprecise voting recommendations as provided by proxy advisors should not be their only option. They should always be in a position of making an informed vote, whether or not a proxy advisor can help in making them informed.
Earlier, in an October 8 letter to the SEC (Revised as of October 23, 2018), Bernie recommends mutual adviser disclosure of "the procedures they will use to deal with the temptation to use their voting power to retain or acquire more assets under management and to appease activists in their own shareholder base" and "the procedures they will use to identify the link between support for a shareholder proposal at a particular company and the enhancement of that company’s shareholder value." He also recommends that the SEC "should clarify that voting inconsistent with these new policies and procedures or omission of such policies and procedures will be considered a breach of the Proxy Voting Rule" and engage in "diligent" enforcement of the Proxy Voting Rule. I commend both letters to you.
Ann's and Bernie's proxy disclosure and voting commentary also reminds me of the importance of co-blogger Anne Tucker's work on the citizen shareholder (e.g., here). It will be interesting to see what the SEC does with the information obtained through the proxy process roundtable and the related comment letters. There certainly is much here to be explored and digested.
[Postscript, 12/4/2018: Bernie Sharfman notified me this morning of a third comment letter he has filed--on proxy advisor fiduciary duties. It seems he may have a fourth letter in the works, too. Look out for that. - JMH]
Monday, June 18, 2018
June has been a busy month for me. I look forward to catching my breath after the National Business Law Scholars Conference this coming Thursday and Friday at the University of Georgia School of Law. Today, having already written about the biennial transactional law and skills conference at Emory Law a few weeks ago, I will briefly outline three of my more recent forays: (1) a conference on Legal Issues in Social Entrepreneurship and Impact Investing—in the US and Beyond organized by the Impact Investing Legal Working Group and NYU Law's Grunin Center for Law and Social Entrepreneurship; (2) the Law and Society Association Annual Meeting and Conference, Law at the Crossroads: Le Droit à la Croisée des Chemins; and (3) a town hall meeting of the U.S. Securities and Exchange Commission at the Georgia State University College of Law.
I had a super opportunity to speak at the Grunin Center conference this year, helping to construct and guide a discussion on whether definitions matter to the developing fields of impact investing and social entrepreneurship. Sadly, my travel got bolloxed up by a plane with mechanical difficulties, and I missed the first half of the panel discussion at the conference. But I was glad (and truly lucky under the circumstances) to get the chance to participate for the last half. My co-panelists and I are featured in the photo above. What a great group, featuring varied perspectives. The entire conference program was fabulous. A highlight for me was a panel on social enterprise acquisitions featuring an NYU Law alum who is retiring from the board of directors of Ben & Jerry's Homemade Holdings Inc this year having seen the firm through from independent private ownership to its acquisition by Unilever.
At the Law and Society Association conference, I used up almost every ounce of my remaining energy for the week participating in two author-meets-reader panels, delivering a talk on a paper panel, and serving as a moderator/discussant on a fourth panel (pictured here--note the jerry-rigged "podium" since we were stuck in a hotel room for this panel). But it was all great work! Our Collaborative Research Network (CRN) featured ten programs on corporate and securities law this year, spread over a three-day period. Kudos to our program coordinator, Darren Rosenblum, for getting and keeping us organized.
The SEC town hall meeting was a real treat. All five commissioners were in attendance and spoke, both as part of a public plenary session and as featured panelists on various subjects ranging from cryptocurrencies to small business finance. Several hundred members of the public were in attendance. I had the privilege and honor of visiting with four of the five commissioners after the town hall meeting at a private reception. I had met Commissioner Stein at UT Law two years ago and Commissioner Jackson a number of years ago, but I had not personally met the others--although I follow Commissioner Peirce on Twitter (@HesterPeirce). Each of them offered time and attention to so many people that day. Three of them have academic experience of one kind or another in law or economics and offered special time and attention to those of us in the academy that day as well. Hats off to them all. They are working hard to resolve some tough issues and deserve our support. Thanks to BLPB Contributing Editor Anne Tucker, her dean, and her colleagues for their hospitality at Georgia State Law that day.
That's it for my report for the past two weeks. Working as a business law professor is truly my calling and my privilege. I feel that when I have the opportunity to walk among the likes of our industrious colleagues in academia and government, as I did these past two weeks.
Monday, April 30, 2018
My essay on the use of traditional for-profit corporations as a choice of entity for sustainable social enterprise firms was recently published in volume 86 of the UMKC Law Review. I spoke on this topic at The Bryan Cave/Edward A. Smith Symposium: The Green Economy held at the UMKC School of Law back in October. The essay is entitled "Let's Not Give Up on Traditional For-Profit Corporations for Sustainable Social Enterprise," and the SSRN abstract is included below:
The past ten years have witnessed the birth of (among other legal business forms) the low-profit limited liability company (commonly known as the L3C), the social purpose corporation, and the benefit corporation. The benefit corporation has become a legal form of entity in over 30 states. The significant number of state legislative adoptions of new social enterprise forms of entity indicates that policy makers believe these alternative forms of entity serve a purpose (whether legal or extra legal).
The rise of specialty forms of entity for social enterprise, however, calls into question, for many, the continuing role of the traditional for-profit corporation (for the sake of brevity and convenience, denominated “TFPC” in this essay) in social enterprises, including green economy ventures. This essay argues that TFPCs continue to be a viable—and in many cases desirable or advisable choice of entity for sustainable social enterprise firms. The arguments presented are founded in legal doctrine, theory, and policy and include both legal and practical elements.
Somehow, I managed to cite to four BLPB co-bloggers in this single essay: Josh, Haskell, Stefan, and Anne. Evidence of a business law Vulcan mind meld? You decide . . . .
Regardless, comments, as always, are welcomed as I continue to think and write about this area of law and practice.
April 30, 2018 in Anne Tucker, Business Associations, Corporate Governance, Corporations, Haskell Murray, Joan Heminway, Joshua P. Fershee, Social Enterprise, Stefan J. Padfield | Permalink | Comments (2)
Call for Papers
AALS Section on Business Association
New Voices in Business Law
January 2-6, 2019, AALS Annual Meeting
The AALS Section on Business Associations is pleased to announce a “New Voices in Business Law” program during the 2019 AALS Annual Meeting in New Orleans, Louisiana. This works-in-progress program will bring together junior and senior scholars in the field of business law for the purpose of providing junior scholars with feedback and guidance on their draft articles.
FORMAT: Scholars whose papers are selected will provide a brief overview of their paper, and participants will then break into simultaneous round tables dedicated to the individual papers. Two senior scholars will provide commentary and lead the discussion about each paper.
SUBMISSION PROCEDURE: Junior scholars who are interested in participating in the program should send a draft or summary of at least five pages to Professor Jessica M. Erickson at email@example.com on or before August 10, 2018. The cover email should state the junior scholar’s institution, tenure status, number of years in his or her current position, whether the paper has been accepted for publication, and, if not, when the scholar anticipates submitting the article to law reviews. The subject line of the email should read: “Submission—Business Associations WIP Program.”
Junior scholars whose papers are selected for the program will need to submit a draft to the senior scholar commentators by December 14, 2018.
ELIGIBILITY: Junior scholars at AALS member law schools are eligible to submit papers. “Junior scholars” includes untenured faculty who have been teaching full-time at a law school for ten or fewer years. The Committee will give priority to papers that have not yet been accepted for publication or submitted to law reviews.
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.
Monday, April 23, 2018
Call for Papers for the
Section on Business Associations Program on
Contractual Governance: the Role of Private Ordering
at the 2019 Association of American Law Schools Annual Meeting
The AALS Section on Business Associations is pleased to announce a Call for Papers from which up to two additional presenters will be selected for the section’s program to be held during the AALS 2019 Annual Meeting in New Orleans on Contractual Governance: the Role of Private Ordering. The program will explore the use of contracts to define and modify the governance structure of business entities, whether through corporate charters and bylaws, LLC operating agreements, or other private equity agreements. From venture capital preferred stock provisions, to shareholder involvement in approval procedures, to forum selection and arbitration, is the contract king in establishing the corporate governance contours of firms? In addition to paper presenters, the program will feature prominent panelists, including SEC Commissioner Hester Peirce and Professor Jill E. Fisch of the University of Pennsylvania Law School.
Our Section is proud to partner with the following co-sponsoring sections: Agency, Partnership, LLC's and Unincorporated Associations; Contracts; Securities Regulation; and Transactional Law & Skills.
Please submit an abstract or draft of an unpublished paper to Anne Tucker, firstname.lastname@example.org on or before August 1, 2018. Please remove the author’s name and identifying information from the submission. Please include the author’s name and contact information in the submission email.
Papers will be selected after review by members of the Executive Committee of the Section. Authors of selected papers will be notified by August 25, 2018. The Call for Papers presenters will be responsible for paying their registration fee, hotel, and travel expenses.
Any inquiries about the Call for Papers should be submitted to: Anne Tucker, Georgia State University College of Law, email@example.com or (404) 413.9179.
[Editorial note: As some may recall, the BLPB hosted a micro-symposium on aspects of this issue in the limited liability company context in anticipation of a program held at the 2016 AALS annual meeting. The initial post for that micro-symposium is here, and the wrap-up post is here. This area--especially as writ broadly in this proposal--remains a fascinating topic for study and commentary.]
April 23, 2018 in Anne Tucker, Business Associations, Call for Papers, Conferences, Contracts, Corporate Finance, Corporate Governance, Corporations, Joan Heminway, LLCs, Nonprofits, Partnership | Permalink | Comments (0)
Monday, January 8, 2018
Last week, I had the privilege of attending and participating in the 2018 annual meeting of the Association of American Law Schools (#aals2018). I saw many of you there. It was a full four days for me. The conference concluded on Saturday with the program captured in the photo above--four of us BLPB co-bloggers (Stefan, me, Josh, and Ann) jawing about shareholder proposals--as among ourselves and with our engaged audience members (who provided excellent questions and insights). Thanks to Stefan for organizing the session and inspiring our work with his article, The Inclusive Capitalism Shareholder Proposal. I learned a lot in preparing for and participating in this part of the program.
Earlier that day, BLPB co-blogger Anne Tucker and I co-moderated (really, Anne did the lion's share of the work) a discussion group entitled "A New Era for Business Regulation?" on current and future regulatory and de-regulatory initiatives. In some part, this session stemmed from posts that Anne and I wrote for the BLPB here, here, and here. I earlier posted a call for participation in this session. The conversation was wide-ranging and fascinating. I took notes for two essays I am writing this year. A photo is included below. Regrettably, it does not capture everyone. But you get the idea . . . .
In between, I had the honor of introducing Tamar Frankel, this year's recipient of the Ruth Bader Ginsburg Lifetime Achievement Award, at the Section for Women in Legal Education luncheon. Unfortunately, the Boston storm activity conspired to keep Tamar at home. But she did deliver remarks by video. A photo (props to Hari Osofsky for getting this shot--I hope she doesn't mind me using it here) of Tamar's video remarks is included below.
Tamar has been a great mentor to me and so many others. She plans to continue writing after her retirement at the end of the semester. I plan to post more on her at a later time.
On Friday, I was recognized by the Section on Business Associations for my mentoring activities. On Thursday, I had the opportunity to comment (with Jeff Schwartz) on Summer Kim's draft paper on South Korean private equity fund regulation. And on Wednesday, I started the conference with a discussion group entitled "What is Fraud Anyway?," co-moderated by John Anderson and David Kwok. My short paper for that discussion group focused on the importance of remembering the requirement of manipulative or deceptive conduct if/as we continue to regulate securities fraud in major part under Section 10(b) of, and Rule 10b-5 under, the Securities Exchange Act of 1934, as amended.
That summary does not, of course, include the sessions at which I was merely in the audience. Many of the business law sessions were on Friday and Saturday. They were all quite good. But I already am likely overstaying my welcome for the day. Stay tuned here for any BLPB-reated sessions for next year's conference. And in between, there's Law and Society, National Business Law Scholars, and SEALS, all of which will have robust business law programs.
Good luck in starting the new semester. Some of you, I know, are already back in the classroom. I will be Wednesday morning. I know it will be a busy 14 weeks of teaching!
Wednesday, October 11, 2017
From our friend and BLPB colleague, Anne Tucker, following is nice workshop opportunity for your consideration:
We (Rob Weber & Anne Tucker) are submitting a funding proposal to host a works-in-progress workshop for 4-8 scholars at Georgia State University College of Law, in Atlanta, Georgia in spring 2018 [between April 16th and May 8th]. Workshop participants will submit a 10-15 page treatment and read all participant papers prior to attending the workshop. If our proposal is accepted, we will have funding to sponsor travel and provide meals for participants. Interested parties should email firstname.lastname@example.org on or before November 15th with a short abstract (no more than 500 words) of your proposed contribution that is responsive to the description below. Please include your name, school, and whether you will require airfare, miles reimbursement and/or hotel. We will notify interested parties in late December regarding the funding of the workshop and acceptance of proposals. Please direct all inquiries to Rob Weber (mailto:email@example.com) or Anne Tucker (firstname.lastname@example.org).
Call for Proposals: Organizing, Deploying & Regulating Capital in the U.S.
Our topic description is intentionally broad reflecting our different areas of focus, and hoping to draw a diverse group of participants. Possible topics include, but are not limited to:
- The idea of financial intermediation: regulation of market failures, the continued relevance of the idea of financial intermediation as a framework for thinking about the financial system, and the legitimating role that the intermediation theme-frame plays in the political economy of financial regulation.
- Examining institutional investors as a vehicle for individual investments, block shareholders in the economy, a source of efficiency or inefficiency, an evolving industry with the rise of index funds and ETFs, and targets of SEC liquidity regulations.
- The role and regulation of private equity and hedge funds in U.S. capital markets looking at regulatory efforts, shadow banking concerns, influences in M&A trends, and other sector trends.
This workshop targets works-in-progress and is intended to jump-start your thinking and writing for the 2018 summer. Our goal is to provide comments, direction, and connections early in the writing and research phase rather than polishing completed or nearly completed pieces. Bring your early ideas and your next phase projects. We ask for a 10-15 page treatment of your thesis (three weeks before the workshop) and initial ideas to facilitate feedback, collaboration, and direction from participating in the workshop. Interested parties should email email@example.com on or before November 15th with a short abstract (no more than 500 words) of your proposed contribution that is responsive to the description below. Please include your name, school, and whether you will require airfare, miles reimbursement and/or hotel. We will notify interested parties in late December regarding the funding of the workshop and acceptance of proposals. Please direct all inquiries to Rob Weber (firstname.lastname@example.org) or Anne Tucker (email@example.com).
Anne & Rob
October 11, 2017 in Anne Tucker, Call for Papers, Corporate Finance, Financial Markets, Joshua P. Fershee, Law School, M&A, Research/Scholarhip, Securities Regulation, Writing | Permalink | Comments (0)
Thursday, August 17, 2017
The Executive Committee of the AALS Section on Business Associations seeks to recognize Section members who demonstrate exemplary mentoring qualities. We seek nomination letters on behalf of a deserving colleague (please no self-nominations) on or before November 1, 2017, sent to Professor Anne Tucker at firstname.lastname@example.org.
Nominations should address personal experience with the mentor, and any additional information illustrative of the nominee’s dedication to mentoring including qualities such as:
- Is eager to discuss others’ early ideas and contributes to the development and improvement of others’ work;
- Promotes and encourages the success of junior scholars by reading and providing meaningful and useful feedback on drafts;
- Promotes a supportive and rigorous environment for conference presentations;
- Speaks frankly, provides useful professional and personal advice when asked;
- Actively participates in a network of scholars;
- Facilitates professional opportunities for junior scholars such as providing introductions to others in the field, and encouraging participation in the scholarly community through writing and speaking;
- Mentors those from underrepresented communities in academics and the study of law;
- Actively/willingly participates in the promotion process for others by advising on tenure process, writing review letters, and providing useful guidance on career advancement.
Who May Nominate: Any member of the Section on Business Associations.
Who is Eligible to Be Nominated: Members of the Section on Business Associations and others are eligible for nomination. Nominees should have 10 years or more of law teaching.
Recognition: The Executive Committee will recognize all nominees at the AALS 2018 Annual Meeting and distribute the list to Section members.
In 2015, the Section recognized the following outstanding mentors:
Egon Guttman, Lynne L. Dallas, Claire Moore Dickerson, Christopher Drahozal, William A ("Bill") Klein, Donald C. Langevoort, Juliet Moringiello, Marleen O'Connor, Charles (Chuck) O'Kelley, Terry O'Neill, Alysa Rollack, Roberta Romano & Gordon Smith
Monday, May 29, 2017
Memorial Day Reflections: Choosing the Non-Profit Corporate Form for Organizations Helping the Families of Fallen Warriors
Wikipedia tells us what most (if not all) of us already knew: "Memorial Day is a federal holiday in the United States for remembering the people who died while serving in the country's armed forces." As I have often noted in conversations and communications with friends, regardless of one's views on the appropriateness of war in general or in specific circumstances, most of us understand the importance of honoring those who have lost their lives in serving their country. My dad, father-in-law, secretarial/administrative assistant, and many friends and students have served in the U.S. armed forces and survived the experience. Others have not been so lucky. I dedicate this post to all of them.
Last week, I had the pleasure of presenting at and attending a conference on Legal Issues in Social Entrepreneurship and Impact Investing—In the US and Beyond (also featuring co-blogger Anne Tucker). My presentation was part of a panel on securities crowdfunding as impact investing. But I attended many other presentations and participated in a lunch table talk on choosing the right entity for social enterprise and a brainstorming session on how legal education can better support social entrepreneurship and impact investing. The conference was fabulous, and I learned a lot by listening to the great folks invited by the organizers--including others on my panel.
As I reflected on the holiday today in light of last week's conference, my thoughts turned to organizations serving the families of fallen warriors and what types of formal entity structures they had chosen. These organizations are mission-driven and socially conscious. They exist, at least in part, to serve society. All of the ones I could think of or easily find in a Web search (among them Children of Fallen Patriots Foundation, That Others May Live Foundation, and Travis Manion Foundation--although I do not intend to endorse any specific organization) are organized as non-profit corporations under various state laws and qualified as exempt from federal income taxes under Section 501(c)(3) of the U.S. Internal Revenue Code. One might ask why.
Monday, April 17, 2017
As Haskell earlier announced here at the BLPB, The first U.S. benefit corporation went public back in February--just before publication of my paper from last summer's 8th Annual Berle Symposium (about which I and other BLPB participants contemporaneously wrote here, here, and here). Although I was able to mark the closing of Laureate Education, Inc.'s public offering in last-minute footnotes, my paper for the symposium treats the publicly held benefit corporation as a future likelihood, rather than a reality. Now, the actual experiment has begun. It is time to test the "visioning" in this paper, which I recently posted to SSRN. Here is the abstract.
Benefit corporations have enjoyed legislative and, to a lesser extent, popular success over the past few years. This article anticipates what recently (at the eve of its publication) became a reality: the advent of a publicly held U.S. benefit corporation — a corporation with public equity holders that is organized under a specialized U.S. state statute requiring corporations to serve both shareholder wealth aims and social or environmental objectives. Specifically, the article undertakes to identify and comment on the structure and function of U.S. benefit corporations and the unique litigation risks to which a publicly held U.S. benefit corporation may be subject. In doing so, the article links the importance of a publicly held benefit corporation's public benefit purpose to litigation risk management from several perspectives. In sum, the distinctive features of the benefit corporation form, taken together with key attendant litigation risks for publicly held U.S. benefit corporations (in each case, as identified in this article), confirm and underscore the key role that corporate purpose plays in benefit corporation law.
Ultimately, this article brings together a number of things I wanted to think and write about, all in one paper. While many of the observations and conclusions may seem obvious, I found the exploration helpful to my thinking about benefit corporation law and litigation risk management. Perhaps you will, too . . . .
April 17, 2017 in Anne Tucker, Business Associations, Corporate Governance, Corporations, Current Affairs, Haskell Murray, Joan Heminway, Litigation, Management, Social Enterprise | Permalink | Comments (0)
Wednesday, March 29, 2017
The Section on Agency, Partnership, LLCs and Unincorporated Associations is pleased to announce a Call for Papers for the Section’s program on The Challenges and Opportunities of Exotic Hybrids—Series LLCs, Up-C’s and Master Limited Partnerships. In addition to featuring invited speakers, we seek speakers (and papers) that will be selected from this call. The AALS Sections on Taxation, Securities Regulation, and Business Associations are co-sponsoring this program.
Business entity structures continue to evolve as legal innovations mature into recognized business association forms. For example, variants on LLC and limited partnership forms can be used to maximize asset protection, leverage tax advantages, access capital markets, and achieve other business objectives. The program will introduce attendees to several “exotic” hybrid structures and discuss the challenges and opportunities associated with each. The program will be informative—inviting subject matter experts to educate audience members—and exploratory, critically examining the tax, governance, private ordering, securities, and policy implications of new entity structuring tools.
Any full-time faculty of an AALS member or fee-paid school who has written an unpublished paper, is working on a paper, or who is interested in writing a paper in this area is invited to submit a 1- or 2-page proposal by June 15, 2017. The Executive Committee of the Section on Agency, Partnership, LLCs and Unincorporated Associations, in consultation with co-sponsors, will review all submissions and select up to two papers by July 15, 2017.
All submissions and inquiries should be directed to Anne Tucker, Georgia State University College of Law, email@example.com .
Monday, March 27, 2017
Call for Participants
Proposed Discussion Group
A New Era for Business Regulation?
Joan MacLeod Heminway, The University of Tennessee College of Law
Anne Tucker, Georgia State University College of Law
2018 AALS Annual Meeting
San Diego, CA
January 3-6, 2018
This is a call for participants in a proposed discussion group on “A New Era for Business Regulation?” at the 2018 Association of American Law Schools (“AALS”) Annual Meeting.
In January 2017, the president signed an Executive Order on Reducing Regulation and Controlling Regulatory Costs. The order uses budgeting powers to constrict agencies and the regulatory process by requiring that two regulations must be eliminated for each new regulation adopted. The order also mandates that “the total incremental cost of all new regulations, including repealed regulations, to be finalized this year shall be no greater than zero.” While the executive order does not cover independent agencies like the Securities and Exchange Commission and the Commodity Futures Trading Commission, agencies that crafted many of the rules required by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, these agencies and their regulatory agendas will likely be the subject of future reform. The co-organizers of this proposal are looking for full-time faculty of AALS member or fee-paid schools to engage in a discussion at the AALS annual meeting about changes in the business regulatory environment and assess the consequences—good and bad—of regulatory reform affecting businesses. We invite participants from diverse legal backgrounds including, but not limited to, financial regulation, securities regulation, administrative law, business finance and governance, and related fields. If there is sufficient interest in this topic, the co-organizers will submit a proposal for this discussion group to the AALS before the April 13, 2017 deadline.
To indicate your interest in participating, please send an expression of interest by email to either Joan MacLeod Heminway, The University of Tennessee College of Law, at firstname.lastname@example.org or Anne Tucker, Georgia State University College of Law, email@example.com. In the subject line of your email, please include “AALS Business Regulation Discussion Group” and your last name. In the text of your email, please provide your name, contact information, and a one-paragraph summary of your interest in the topic, stating how it connects to your current or future research or teaching interests.
If the discussion group proposal is accepted by AALS, the co-organizers may conduct a call for additional proposals before notifying the final faculty members selected to participate. Participants will not be expected to have a formal paper, but will be asked to contribute a written treatment (5-10 pages) prior to the annual meeting.
Monday, February 27, 2017
Later this week, I will head to Indiana to present at and attend a social enterprise law conference at The Law School at the University of Notre Dame. The conference includes presentations by participating authors in the forthcoming Cambridge Handbook of Social Enterprise Law, edited by Ben Means and Joe Yockey. The range of presentations/chapters is impressive. Fellow BLPB editors Haskell Murray and Anne Tucker also are conference presenters and book contributors.
Interestingly (at least for me), my chapter relates to Haskell's post from last Friday. The title of my chapter is "Financing Social Enterprise: Is the Crowd the Answer?" Set forth below is the précis I submitted for distribution to the conference participants.
Crowdfunding is an open call for financial backing: the solicitation of funding from, and the provision of funding by, an undifferentiated, unrestricted mass of individuals (the “crowd”), commonly over the Internet. Crowdfunding in its various forms (e.g., donative, reward, presale, and securities crowdfunding) may implicate many different areas of law and intersects in the business setting with choice of entity as well as business finance (comprising funding, restructuring, and investment exit considerations, including mergers and acquisitions). In operation, crowdfunding uses technology to transform traditional fundraising processes by, among other things, increasing the base of potential funders for a business or project. The crowdfunding movement—if we can label it as such—has principally been a populist adventure in which the public at large has clamored for participation rights in markets from which they had been largely excluded.
Similarly, the current popularity of social enterprise, including the movement toward benefit corporations and the legislative adoption of other social enterprise business entities, also stems from populist roots. By focusing on a double or triple bottom line—serving social or environmental objectives as well as shareholder financial wealth—social enterprises represent a distinct approach to organizing and conducting business operations. Reacting to a perceived gap in the markets for business forms, charters, and tax benefits, social enterprise (and, in particular, benefit corporations) offer venturers business formation and operation alternatives not available in a market environment oriented narrowly around the maximization or absence of the private inurement of financial value to business owners, principals, or employees.
Perhaps it is unsurprising then, that social enterprise has been relatively quick to engage crowdfunding as a means of financing new and ongoing ventures. In addition, early data in the United States for offerings conducted under Regulation CF (promulgated under the CROWDFUND Act, Title III of the JOBS Act) indicates a relatively high incidence of securities crowdfunding by social enterprise firms. The common account of crowdfunding and social enterprise as grassroots movements striking out against structures deemed to be elitist or exclusive may underlie the use of crowdfunding by social enterprise firms in funding their operations.
Yet, social enterprise’s early-adopter status and general significance in the crowdfunding realm is understudied and undertheorized to date. This chapter offers information that aims to address in part that deficit in the literature by illuminating and commenting on the history, present experience, and future prospects of financing social enterprise through crowdfunding—especially securities crowdfunding. The chapter has a modest objective: to make salient observations about crowdfunding social enterprise initiatives the based on doctrine, policy, theory, and practice.
Specifically, to achieve this objective, the chapter begins by briefly tracing the populist-oriented foundations of the current manifestations of crowdfunding and social enterprise. Next, the chapter addresses the financing of social enterprise through crowdfunding, focusing on the relatively recent advent of securities crowdfunding (including specifically the May 2016 introduction of offerings under Regulation CF in the United States). The remainder of the chapter reflects on these foundational matters by contextualizing crowdfunded social enterprise as a part of the overall market for social enterprise finance and making related observations about litigation risk and possible impacts of securities crowdfunding on social enterprise (and vice versa).
Please let me know if you have thoughts on any of the matters I am covering in my chapter or resources to recommend in finishing writing the chapter that I may not have found. I seem to find new articles that touch on the subject of the chapter every week. I will have more to say on my chapter and the other chapters of the Handbook after the conference and as the book proceeds toward publication.
Wednesday, February 22, 2017
Here is a rundown of recent business news headlines:
The Snapchat parent company, SNAP, scheduled blockbuster IPO ($20-23B) is plagued with news that it lost $514.6 million in 2016, there are questions about the sustainability of its user base, and, for the governance folks out there, there is NO VOTING STOCK being offered.
In what is being called a "whopper" of a deal, Restaurant Brands, the owner of Burger King and Tim Hortons, announced earlier this week a deal to acquire Popeye's Louisiana Kitchen, the fried chicken restaurant chain, for $1.8 billion in cash.
Kraft withdrew its $143B takeover offer for Unilever less than 48 hours after the announcement amid political concerns over the merger. While Unilever evaluates its next steps, Kraft is perhaps feeling the effects of its controversial takeover of Britain's beloved Cadbury.
A final item to note, for me personally, is that today is my last regular contribution to the Business Law Professor Blog. I will remain as a contributing editor, but will miss the ritual of a weekly post--a habit now nearly 4 years in the making. Thanks to all of the readers and other editors who gave me great incentive to learn new information each week, think critically, connect with teaching, and generally feel a part of a vibrant and smart community of folks with similar interests.
Wednesday, February 8, 2017
Prominent corporate governance, corporate finance and economics professors face off in opposing amici briefs filed in DFC Global Corp. v. Muirfield Value Partners LP, appeal pending before the Delaware Supreme Court. The Chancery Daily newsletter, described it, in perhaps my favorite phrasing of legal language ever: "By WWE standards it may be a cage match of flyweight proportions, but by Delaware corporate law standards, a can of cerebral whoopass is now deemed open."
Point #1: Master Class in Persuasive Legal Writing: Framing the Issue
Reversal Framing: "This appeal raises the question whether, in appraisal litigation challenging the acquisition price of a company, the Court of Chancery should defer to the transaction price when it was reached as a result of an arm’s-length auction process."
Affirmance Framing: "This appeal raises the question whether, in a judicial appraisal determining the fair value of dissenting stock, the Court of Chancery must automatically award the merger price where the transaction appeared to involve an arm’s length buyer in a public sale."
Point #2: Summary of Brief Supporting Fair Market Valuation: Why the Court of Chancery should defer to the deal price in an arm's length auction
- It would reduce litigation and simply the process.
- The Chancery Court Judges are ill-equipped for the sophisticated cash-flow analysis (ouch, that's a rough point to make).
- Appraisal does not properly incentivize the use of arm's length auctions if they are not sufficiently protected/respected.
- Appraisal seeks the false promise of THE right price, when price in this kind of market (low competition, unique goods) can best be thought of as a range. The inquiry should be whether the transaction price is within the range of a fair price. A subset of this argument (and the point of the whole brief) is that the auction process is the best evidence of fair price.
- Appraisal process is flawed because the court discounted the market price in its final valuation. The argument is that if the transaction price is not THE right price, then it should not be a factor in coming up with THE right price.
- Appraisal process is flawed because the final valuation relies upon expert opinions that are created in a litigation vacuum, sealed-off from market pressure of "real" valuations.
- The volatility in the appraisal market—the outcome of the litigation and the final price—distorts the auction process. Evidence of this is the creation of appraisal closing conditions.
Point #3: Summary of Brief Supporting Appraisal Actions: Why the Court of Chancery should reject a rule that the transaction price—in an arm's length auction—is conclusive evidence of fair price in appraisal proceedings.
- Statutory interpretation requires the result. Delaware Section 262 states that judges will "take into account all factors" in determining appraisal action prices. To require the deal price to be the "fair" price, eviscerates the statutory language and renders it null.
- The Delaware Legislature had an opportunity to revise Section 262—and did so in 2015, narrowing the scope of eligible appraisal transactions and remedies—but left intact the "all factors" language.
- The statutory appraisal remedy is separate from the common law/fiduciary obligations of directors in transactions so a transaction without a conflict of interest and even cured by shareholder vote could still contain fact-specific conditions that would make an appraisal remedy appropriate.
- There are appropriate judicial resources to handle the appraisal actions because of the expertise of the Court of Chancery, which is buttressed by the ability to appoint a neutral economic expert to assist with valuations and to adopt procedures and standards for expert valuations in appraisal cases.
- The threat of the appraisal action creates a powerful ex ante benefit to transaction price because it helps bolster and ensure that the transaction price is fair and without challenge.
- Appraisal actions serve as a proxy for setting a credible reserve in the auction price, which buyers and sellers may be prohibited from doing as a result of their fiduciary duties.
- Any distortion of the THE market by appraisal actions is a feature, not a bug. All legal institutions operate along side markets and exert influences, situations that are acceptable with fraud and torts. Any affect that appraisal actions create have social benefits and are an intended benefit.
- Let corporations organized/formed in Delaware enjoy the benefits of being a Delaware corporation by giving them full access to the process and expertise of the Delaware judiciary.
My thinking in the area more closely aligns with the "keep appraisal action full review" camp on the theory--both policy and economic. Also the language in the supporting/affirmance brief is excellent (they describe the transaction price argument as a judicial straight jacket!). I must admit, however, that I am sympathetic to the resources and procedural criticisms raised by the reversal brief. That there is no way for some corporate transactions, ex ante, to prevent a full scale appraisal action litigation—a process that is costly and time consuming—is a hard pill to swallow. I can imagine the frustration of the lawyers explaining to a BOD that there may be no way to foreclose this outcome. Although I hesitate to put it in these terms, my ultimate conclusion would require more thinking about whether the benefits of appraisal actions outlined in the affirmance brief outweigh the costs to the judiciary and to the parties as outlined in the reversal brief. These are all points that I invite readers to weigh in on the comments--especially those with experience litigating these cases.
I also want to note the rather nuanced observation in the affirmance brief about the distinction between statutory standards and common law/fiduciary duty. This important intellectual distinction about the source of the power and its intent is helpful in appraisal actions, but also in conflict of interest/safe harbor under Delaware law evaluations.
For the professors out there, if anyone covers appraisal actions in an upper-level course or has students writing on the topic-- these two briefs distill the relevant case law and competing theories with considerable force.
Monday, February 6, 2017
This post comments on the method for managing regulation and regulatory costs in the POTUS's Executive Order on Reducing Regulation and Controlling Regulatory Costs.
I begin by acknowledging Anne's great post on the executive order. She explains well in that post the overall scope/content of the order and shares information relevant to its potential impact on business start-ups. She also makes some related observations, including one that prompts the title for her post: "Trumps 2 for 1 Special." In a comment to her post, I noted that I had another analogy in mind. Here it is: closet cleaning and maintenance.
You've no doubt heard that an oft-mentioned rule for thinning out an overly large clothing collection is "one in, one out." Under the rule, for every clothing item that comes in (some limit the rule's application to purchased items, depending on the objectives desired to be served beyond keeping clothing items to a particular number), a clothing item must go out (be donated, sold, or simply tossed). Some have expanded the rule to "one in, two out" or "one in, three out," as needed. The mechanics are the same. The rule requires maintaining a status quo as to the number of items in one's closet and, in doing so, may tend to discourage the acquisition of new items.
Articulated advantages/values of this kind of a rule for wardrobe maintenance include the following:
- simplicity (the rule is easy to understand);
- rigor (the rule instills discipline in the user);
- forced awareness/consciousness (the rule must be thoughtfully addressed in taking action); and
- experimentation encouragement (the rule invites the user to try something new rather than relying on something tried-and-true).
Disadvantages and questions about the rule include those set forth below.
- The rule assumes that it is the number of items that is the problem, not other attributes of them (i.e., age, condition, size, suitability for current lifestyle, etc.).
- Once new items are acquired, the rule assumes that existing ones are no longer needed or are less desirable.
- The rule operates ex post (it assumes the introduction of a new item) rather than ex ante (allowing the root problem to be addressed before the new item is introduced).
- The rule encourages an in/out cycle that incorporates the root of the problem (excess shopping) rather than addressing it.
- Definitional questions require resolution (e.g., what is an item of clothing).
Regulation is significantly more complex than clothing. But let's assume that we all agree that the list of advantages/values set forth above also applies to executive agency rule making. Let's also assume the validity and desirability of the core policy underlying the POTUS's executive order on executive agency rule making, as set forth below (and excerpted from Section 1 of the executive order).
It is the policy of the executive branch to be prudent and financially responsible in the expenditure of funds, from both public and private sources. In addition to the management of the direct expenditure of taxpayer dollars through the budgeting process, it is essential to manage the costs associated with the governmental imposition of private expenditures required to comply with Federal regulations.
How do the closet organization disadvantages or questions stack up when applied in the executive agency rule-making context? Here's my "take."
Wednesday, February 1, 2017
On Monday President Trump signed an Executive Order on Reducing Regulation and Controlling Regulatory Costs. The Order uses budgeting powers to constrict agencies and the regulatory process requiring that for each new regulation, two must be eliminated and that all future regulations must have a net zero budgeting effect (or less). The Order states:
"Unless prohibited by law, whenever an executive department or agency (agency) publicly proposes for notice and comment or otherwise promulgates a new regulation, it shall identify at least two existing regulations to be repealed."
Two points to note here. First, the Executive Order does not cover independent agencies like the Securities and Exchange Commission and the Commodity Futures Trading Commission, agencies that crafted many of the rules required by the 2010 Dodd-Frank Wall Street reform law--an act that President Trump describes as a "disaster" and promised to do "a big number on". The SEC, the CFTC and Dodd-Frank are not safe, they will just have to be dealt with through even more sweeping means. Stay tuned. The 2-for-1 regulatory special proposed on Monday is a part of President Trump's promise to cut regulation by 75%.
Second, the Order is intended to remove regulatory obstacles to Americans starting new businesses. President Trump asserted that it is "almost impossible now to start a small business and it's virtually impossible to expand your existing business because of regulations." Facts add nuance to this claim, if not paint an all-together different story. The U.S. Department of Labor Statistics documents a steady increase in the number of new American businesses formed since 2010. The U.S. small business economy grew while regulations were in place. President Trump asks us to believe that they will grow more without regulation. Some already do. The U.S. Chamber of Commerce "applauded" the approach decrying the "regulatory juggernaut that is limiting economic growth, choking small business, and putting people out of work."
Yet, as shocking as this feels (to me), the U.K. and Canada both have experience with a similar framework. The U.K.'s two for one regulation rule has been touted as saving businesses £885 million from May 5, 2015 to May 26, 2016 and there is now a variance requiring three regulations to be removed for each one. Canada takes a more modest one in- one out approach. No information is available yet on any externalities that may be caused by decreased regulations. For some, and I count myself in this camp, the concern is that the total cost of failed environmental protection, wage fairness, safety standards, etc. may outweigh individual gains by small business owners.
The 2-for-1 special evokes some odd memories for me (Midwestern, of modest means) of a K-Mart blue-light special. The Trump Administration is flashing a big, blue light with the promise to cut regulation by 75% without reference to the content of those regulations. The first tool, a "two for one approach" strikes me as a gimmick where the emphasis is on marketing the message of deregulation through quantity, not quality. Not to mention the arbitrariness of the numerical cut off (why not 1 or 13?). It is the type of solution, that if offered in answer to a law school hypo, would quickly be refuted by all of the unanswered questions. Can it be any two regulations? Can the new regulation just be longer and achieve the work of several? Should there be a nexus between the proposed regulation and the eliminated ones? What is the administrative process and burden of proof for identifying the ones to be removed? The Executive Order, targeted at business regulation, but in doing so has created the most "significant administrative action in the world of regulatory reform since President Reagan created the Office of Information and Regulatory Affairs (OIRA) in 1981." Hold on folks, this is going to be a bumpy ride.
Wednesday, January 25, 2017
Spoiler alert: wrongful refusal of demand and bad faith standards are the same in recent Delaware Court of Chancery case: Andersen v. Mattel, Inc., C.A. No. 11816-VCMR (Del. Ch. Jan. 19, 2017, Op by VC Montgomery-Reeves).
But sometimes a reminder that the law is the same and can be clearly stated is worth a blog post in its own right. Professors can use this as a hypo or case note and those in the trenches can update case citations to a 2017 (and 2016) case.
In Andersen v. Mattel, Inc., VC Montgomery-Reeves dismissed a derivative suit, holding that plaintiff did not prove wrongful refusal of pre-suit demand. The derivative action claimed that the Mattel board of directors refused to bring suit to recover up to $11.5 million paid in severance/consulting fees to the former chairman and chief executive officer who left in the wake of a falling stock price. Plaintiff challenged disclosure discrepancies over whether Stockton resigned or was terminated and the resulting entitlement to severance payments. Mattel's board of directors unanimously rejected the demand after consultation with outside counsel, 24 witness interviews and a review of approximately 12,400 documents.
The relied upon case law is unchanged, but the clear recitation of the law is worth noting:
Where, as here, a plaintiff makes demand on the board of directors, the plaintiff concedes that the board is disinterested and independent for purposes of responding to the demand. The effect of such concession is that the decision to refuse demand is treated as any other disinterested and independent decision of the board—it is subject to the business judgment rule. Accordingly, the only issues the Court must examine in analyzing whether the board’s demand refusal was proper are “the good faith and reasonableness of its investigation. (internal citations omitted)
To successfully challenge the good faith and reasonableness of the board's investigation, Plaintiff's complaint was required to state particularized facts raising a reasonable doubt that:
(1) the board’s decision to deny the demand was consistent with its duty of care to act on an informed basis, that is, was not grossly negligent; or (2) the board acted in good faith, consistent with its duty of loyalty. Otherwise, the decision of the board is entitled to deference as a valid exercise of its business judgment.
First, Plaintiff challenged the board's demand refusal on the grounds that they did not disclose the investigation report or the supporting documents in conjunction with the demand refusal. The Court was unpersuaded given that Plaintiff had the right to seek the report and records through a Section 220 demand, but chose not to do so.
Second, Plaintiff challenged the board's demand refusal on the grounds that it failed to form a special committee. Absent any facts that the Mattel board considering the demand was not independent, there was no requirement for the board to form a special committee.
Third, and final, Plaintiff challenged the board's good faith in rejecting the demand on the grounds that Stockton's employment was not voluntarily terminated. The court cautioned that:
[T]he question is not whether the [b]oard’s conclusion was wrong; the question is whether the [b]oard intentionally acted in disregard of [Mattel’s] best interests in deciding not to pursue the litigation the Plaintiff demanded. [T]he fact that the [b]oard’s justifications for refusing [the] demand fall within ‘the bounds of reasonable judgment’ is fatal to [the] claim that the refusal was made in bad faith. (citing to Friedman v. Maffei, (Del. Ch. Apr. 13, 2016))
Francis Pileggi at the excellent Delaware Corporate and Commercial Litigation Blog first brought this case to my attention. Practitioners and Professors alike should be certain to include his blog on your weekly round up. He is a sure source of concise and insightful summaries of the latest Delaware court developments.
Wednesday, January 18, 2017
"The corporate governance heads at seven of the 10 largest institutional investors in stocks are now women, according to data compiled by The New York Times. Those investors oversee $14 trillion in assets."
Mutual and pension funds are some of the largest stock block holders casting crucial votes in director elections and on shareholder resolutions that will span the gamut from environmental policy to political spending to supply chain transparency. While ISS and other proxy advisory firms have a firm hand shaping proxy votesFN1 (and have released new guidelines for the 2017 proxy season), that $14 trillion in assets are voted at the behest of women is new and noteworthy. As the spring proxy season approaches-- it's like New York fashion week, for corporate law nerds, but strewn out over months and with less interesting pictures--these asset managers are likely to vote with management. FN2 Still, there is growing consensus that institutional investors' corporate governance leaders are "working quietly behind the scenes to advocate for greater shareholder rights" fighting against dual class stock and fighting for gender equality on corporate boards, to name a few.
I now how a new ambition in life: get invited to the Women in Governance lunch.
FN1: See Choi et al, Voting Through Agents: How Mutual Funds Vote on Director Elections (2011)
FN2: Gregor Matvos & Michael Ostrovsky, Heterogeneity and Peer Effects in Mutual Fund Voting, 98 J. of Fin. Econ. 90 (2010).
Wednesday, January 11, 2017
The late December announcement of Carl Icahn as a special advisor overseeing regulation piqued my professional interest and raises interesting tension points for both sides of the aisle, as well as for corporate governance folks.
Icahn's deregulatory agenda has the SEC in his sights. Deregulation, especially of business, is a relatively safe space in conservative ideology. Several groups such as the Chamber of Commerce and the Business Roundtable may be pro-deregulation in most areas, but, and this is an important caveat-- be at odds with Icahn when it comes to certain corporate governance regulations. Consider the universal proxy access rules, which the SEC proposed in October, 2016. The proposed rules would require companies to provide one proxy card with both parties' nominees--here we don't mean donkeys and elephants but incumbent management and challengers' nominees. Including both nominees on a single proxy card would allow shareholders to "vote" a split ticket---picking and choosing between the two slates. The split ticket was previously an option only available to shareholders attending the in-person meeting, which means a very limited pool of shareholders. "Universal" proxy access-- a move applauded by Icahn--is opposed by House Republicans, who passed an appropriations bill – H.R. 5485 –that would eliminate SEC funding for implementing the universal proxy system. On January 9th, both the Business Roundtable and the Chamber of Commerce submitted comment letters in opposition to the rules. The Chamber of Commerce cautions that the proposed rules "[f]avor activist investors over rank-and-file shareholders and other corporate constituencies." The Business Roundtable echos the same concerns calling the move a "disenfranchisement" of regular shareholders due to likely confusion. This is a variation of the influence of big-business narrative. Here, we have pitted big business against big business. The question is who is the bigger Goliath--the companies or the investors?
President-elect Trump's cabinet and administrative choices have generated an Olympic-level sport of hand wringing, moral shock and catastrophizing. I personally feel gorged on the feast of terribles, but realize that many may not share my view. Icahn's informal role in cabinet selections (such as Scott Pruitt for EPA which favors Icahn's investments in oil and gas companies) and formal role in a deregulatory agenda foreshadows no end in sight to this royal feast. On this particular pick, both sides of the aisle may be invited to the feast. My only question is, who's hungry?