Monday, September 28, 2020
Photo Credit: Pixabay
With almost six weeks of hybrid Business Associations classes now under my belt (and many more to go), I wanted to share a bit more about my experience teaching in the hybrid classroom. This follows and builds on my post from the beginning of the semester offering initial impressions (based on my Professional MBA teaching experience). As I noted in that post, technology can differ from classroom to classroom. As a result, my observations here (which are based on a hybrid course with an in-class projection system featuring a camera and document camera and an online component hosted on Zoom), may not hold in other teaching environments. Hopefully, however, some of what I have to say here may be useful to some of you . . . .
Teaching a hybrid course is a bit like managing a three-ring circus. Ring #1 is your in-class student population, #2 is your online students population, and #3 is your technology. It is a lot to pay attention to. I find it more than a bit exhausting.
I have 63 students in total in Business Associations this fall. That is a bit low but within a normal range for that course in the fall semester. Six of the students are "synchronous online only"; the remaining 57 rotate into and out of class--roughly half attending in person Mondays and every other Friday and the remainder attending in person on Wednesday and alternate Fridays. I have a "producer" teaching assistant who participates online to (1) monitor the chat for me, (2) encourage student camera usage and microphone muting, and (3) help handle breakout room monitoring. She also has helped to identify issues with sound--in particular when online folks are having trouble hearing their me or in-person colleagues.
My biggest gaffs so far include the following:
- Clicking on "Leave Meeting" instead of closing the chat box as I was about to begin class and, as a result, kicking all of my online students out of class;
- "Pinning" (highlighting) the video footage of the wrong student named Morgan for projection on the in-class screen (thinking I had called on her--but there are two women named Morgan in the class) and not realizing the mistake because the video of the other Morgan was so dark; and
- Calling for tech help when the in-room camera was not capturing/showing video (my Zoom square was black--showing no video), when, in fact, the issue was that my Zoom video had defaulted to the document camera (which was not then deployed).
Notwithstanding these issues, based on the first writing assignment in the course and questions during my office hours, students in the course are learning! Business Associations is hard to learn (and teach) in a traditional classroom environment. The hybrid classroom is not ideal for many reasons--including without limitation the fractured attention span created by the three-ring-circus. I truly feared that the combined experience of teaching Business Associations in a hybrid environment would be overwhelming for students. But by speaking loudly, repeating student questions and comments, reaching out visually to students in both environments as directly as possible, and keeping technology usage simple and targeted, I seem to be communicating relevant information effectively, and as a group, we seem to be staying engaged with each other. Fingers crossed all of that continues . . . .
I would be missing an important aspect of all of this if I did not mention my biggest pandemic teaching silver lining so far: feeling the love of my students--seeing them come to class in person, complying with numerous restrictions on their lives. and hearing from them in a positive way. The number of students who have reached out in genuine ways to thank me for working hard on their behalf to produce class has been so gratifying. This past week, I even had a student from last year reach out to check in on me. The patience, flexibility, and compassion of my students has been remarkable.
So, I am surviving, and even striving to thrive. It is like learning how to teach all over again some days. But the students make it all worthwhile. 🧡
Monday, September 7, 2020
I have written here in the past about laboring on Labor Day. Most recently. I wrote about the relationship between work and mindfulness in this space last year. But it seems I also have picked up this theme here (in 2018) and here (at the end of my Labor Day post in 2017). Being the routine "Monday blogger" for the BLPB does give me the opportunity to focus on our Monday holidays!
This year, however, Labor Day--like so many other days in 2020--is markedly different in one aspect: I am required to teach today. When I logged in to the campus app on my phone this morning to do my routine daily health screening, I was greeted by this (in clicking through from the main event schedule page):
This is the first day in my 20 years of teaching, and maybe in my 35 years of post-law school work, that I have been required to work on Labor Day. My daughter, a Starbucks night shift manager, is required to work every year on Labor Day. But this is new to me . . . .
Of course, the ongoing pandemic is the reason for this change. By compacting the semester, we are endeavoring to keep folks who are attending class in person here on campus in a more constrained environment until the holidays (at which time we will release everyone to their families and friends until the new semester begins in January). Our campus website offers the following by way of a top-level explanation of the adjustments to the ordinary, customary academic calendar:
Thank you, COVID-19, for yet one more "first" in this year of many unprecedented things (including the 2019 novel coronavirus itself).
I have tried to make the best of teaching on the holiday, especially given the great weather we are having here in East Tennessee right now. I taught both of my classes today in the outfit I would have worn if I had been at home (as shown above at the top of the post and below, in both cases in my Corporate Finance class this morning--photo credits to Kaleb Byars and Landon Foody and mask design and sewing credit to my sister, Susan) and encouraged my in-person Business Associations students (almost half of my hybrid class) to come to school in the clothes they would typically wear to a Labor Day BBQ. I also brought in a special treat for my Corporate Finance students (what could be better at 8:30 am than equity instruments and donuts?) and sent my online Business Associations students into breakout rooms to connect over one of our assigned cases with a smaller group of their classmates while the in-person students wrestled with a case of their own. There was sparse but constructive attendance at Zoom office hours after class. In the end, it all has worked out fine. Not a bad day.
Wishing a happy Labor Day 2020 to all. Whether you are working today (at home or at a workplace outside the home) or taking the day off, stay safe and well. Personally, I look forward to Labor Day hamburgers tonight!
Monday, July 6, 2020
The title of this post is the title of a panel discussion I organized for the 2019 Business Law Prof Blog symposium, held back in September of last year. (Readers may recall that I posted on this session back at the time, under the same title.) The panel experience was indescribably satisfying for me. It represented one of those moments in life where one just feels so lucky . . . .
Why? Because it fulfilled a dream, of sorts, that I have had for quite a while. Here's the story.
About ten years ago, I ended up in a conversation with two of my beloved Tennessee Law colleagues while we were grabbing afternoon beverages. One of these colleagues is a tax geek; the other is a property guy. Somehow, we got into a discussion about mergers and acquisitions. I was asked how I would define a merger as a matter of corporate law, and part of my answer (that mergers are magic) got these two folks all riled up (in a professional, academic, nerdy way). The conversation included some passionate exchanges. It was an exhilerating experience.
I have remembered that exchange for all of these years, vowing to myself that some day, I would work on publishing what was said. When the opportunity arose to hold a panel discussion to recreate our water-cooler chat at the symposium last fall, I jumped at the chance. I was tickled pink that my two colleagues consented to join me in the recreation exercise. They are good sports, wise lawyers, and excellent teachers.
My objective in convening the panel was two-fold.
First, I thought that students would find the conversation illuminating. "Aha," they might justifiably say. "Now I know why I am confused about what a merger is. It's because the term means different things to different lawyers, all of whom may have a role in advising on a business combination transaction. I have to understand the perspective from which the question is being asked, and the purpose of answering the question, before I can definitively say what a merger is." Overall, I was convinced that a recreation of the conversation through a panel discussion could be a solid teaching tool.
But that's not all. Faculty also can earn from our dialogue. It helped me in my teaching to know how my tax colleague (who teaches transactional tax planning and business taxation) and my property colleague (who teaches property and secured transactions) define the concept of a merger and what each had to say about his definition as it operates in practice. I like to think my two colleagues similarly benefitted from an understanding of my definition of a merger (even if neither believes in statutory magic) . . . .
Now, you and your students also can benefit from the panel. Although it is not quite as good as hearing us all talk about mergers and acquisitions in person (which one can do here), Transactions: The Tennessee Journal of Business Law, recently published an edited transcript of the panel discussion as part of the symposium proceedings. It also is titled "What is a Merger Anyway?" And you can find it here. (The entire volume of the journal that includes the symposium proceedings can be found here. Your friends from the BLPB are the featured authors!) I am sure that your joy in reading it cannot match my joy in contributing to the project, but I hope you find joy in reading it nonetheless.
Wednesday, June 24, 2020
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.
Monday, June 15, 2020
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.
Wednesday, June 10, 2020
Friend of the blog Bernard Sharfman has a new post up on the Oxford Business Law Blog, responding to Martin Lipton’s recent "On the Purpose of the Corporation" posts. Bernie's full post can be found here, and I've excerpted some portions (slightly out of order) below. I appreciate that the post highlights that a big part of the shareholder v. stakeholder debate is about whose rights are determined by contract v. fiduciary duties.
[T]he Lipton, Savitt, and Cain definition of corporate purpose is missing both an objective and a strategy on how it will create social value....
I am disappointed with this definition, a definition that ignores the social value created by for-profit businesses, namely the goods and services they produce; ignores that this social value is being produced for the financial benefit of its shareholders; and uses the pretense that uninformed institutional investors are partners in the management of a company....
[T]hey make no mention of the social value created by the corporation through the successful management of its stakeholder relationships, the goods and services it provides. How can a definition of corporate purpose not mention this? It’s as if a corporation should be ashamed of why it exists....
Pfizer, as a for-profit corporation, ... has the legal obligation of looking out for the interests of its shareholders. This is the only stakeholder group that the board owes fiduciary duties to, who can sue the board for a breach of those duties, who can approve major corporate decisions, and who can initiate and implement a proxy contest to remove board members. Thus, shareholder wealth maximization is the objective of Pfizer’s social value creation....
[A] collective action problem in shareholder voting leads to uninformed institutional investors, resource-constrained investor stewardship teams and proxy advisors that cannot solve this problem, and the current lack of enforcement of an investment adviser’s fiduciary duties does not solve the additional problem of institutional investor bias in shareholder voting.
Tuesday, May 26, 2020
Yesterday, I posted the AALS Section on Business Associations Call for Papers for the New Voices in Business Law program. Today, I am posting the section's general call for papers, which focuses on a very salient topic: Corporate Boards in the Age of COVID-19. There certainly is a lot that we can say about that from the advisory, compliance, and litigation (prevention and management) angles.
+ + +
Call for Papers for the
Section on Business Associations Program on
Corporate Boards in the Age of COVID-19
2021 AALS Annual Meeting
The AALS Section on Business Associations is pleased to announce a Call for Papers for its program at the 2021 AALS Annual Meeting in San Francisco, California. The topic is Corporate Boards in the Age of COVID-19. Up to three presenters will be selected for the section’s program.
The COVID-19 pandemic has put corporate boards under tremendous stress. In the midst of unprecedented financial and operational challenges, boards must comply with legal obligations that are often complex, uncertain, and contested. This panel will explore the impact of COVID-19 on the corporate board. How should boards exercise their oversight and disclosure responsibilities during these times? Should boards reevaluate the corporate purpose, especially considering the increased vulnerability of employees and other stakeholders? Should boards rethink their dividends and stock buyback policies? And, as market instability continues, how should boards approach planned transactions and use defensive mechanisms? We hope to facilitate a robust conversation that connects corporate law theory to the immediate challenges facing corporate boards.
Please submit an abstract or a draft of an unpublished paper to Jessica Ericsson, email@example.com, on or before August 3, 2020. Authors should include their name and contact information in their submission email but remove all identifying information from their submission.
Papers will be selected after review by members of the Executive Committee of the Section. Authors of selected papers will be notified by August 28, 2020. Presenters will be responsible for paying their registration fee, hotel, and travel expenses.
Please direct any questions to Jessica Erickson, University of Richmond School of Law, at firstname.lastname@example.org.
Tuesday, March 31, 2020
The Social Enterprise Alliance (SEA) previously defined "social enterprise" as businesses that (1) Directly address social need; (2) Commercial activity [not donations] drives revenue; and (3) Common good is the primary purpose. SEA's definition has evolved to be more inclusive, now recognizing three different models based on -- (1) opportunity employment, (2) transformative products/services, or (3) donations. While the first definition could be criticized for being too narrow (Ben & Jerry's would not qualify because their product does not directly address a "social need"), SEA's new definition is likely too broad because it seems to cover all donating businesses.
Personally, I am most fond of social enterprises that produce products/services that lead directly to human flourishing.
For Lent, I gave up Facebook/Twitter/Instagram. While these products have their uses, on the whole they tend distract me from what is truly important. Perhaps social media has improved since the advent of Covid-19, and I admit to feeling somewhat out of the loop. But I also feel much more at peace, and may not return to those forms of social media after Easter, or, if I do, I hope it will be on a much more limited basis.
In contrast, Strava is one form of social media that has been a constant positive in my life. Strava, for those who don't know, is a free app to log all kinds of physical exercise. I credit Strava (and my friends on Strava) with keeping me accountable to exercise 4+ times a week for the past 4+ years. The community on Strava is unlike any social media I have seen or heard of elsewhere. People are relentlessly encouraging, and the focus is on fitness not controversy. Also, as a Strava friend recently posted -- "love Strava because it’s the only social media platform with almost 100% factually accurate information and statistics. (Besides minor GPS errors and the occasional ‘wrong activity type’)." Strava has truly created a product that likely improves the lives of nearly all of its users.
Anyway, no sponsorship for me for this post, but I do hope to see more readers on Strava!
Friday, March 20, 2020
CNN recently ran a story entitled - the pandemic risks bringing out the worst in humanity.
Rather than focus on the negative, I decided to collect some of the positive business responses to COVID-19. This is probably just a small sampling of the positive responses. I may update this list from time to time; please feel free to add more in the comments or email me. [Updated with some suggestions from my business ethics students and to include some of the highlights from this excellent, more extensive list that a reader e-mailed.]
- Alibaba co-founder is donating masks and test kits to the US.
- AT&T provides free wireless to school districts and 60 days free service to new customers
- Bank of America allows borrowers to pause mortgage payments
- Comcast is offering free internet to low-income customers for two months and opening up WiFi hotspots and waiving disconnect/late fees.
- Dallas Mavericks are paying their hourly workers despite the NBA season being suspended.
- Delta waives change fees.
- Disney paying workers and donating food
- General Motors to support production of ventilators
- Goldman Sachs, Capital One, and American Express waived interest payments
- Google is offering free virtual tours of 1200+ museums & building a triage website (currently just for Bay area)NextDoor adds help maps and groups.
- Kellogg offering $4M in food relief
- Major League Baseball Pledges $30M to Ballpark Workers
- Publix offering special shopping hours for senior citizens. (Kroger, Giant, Target, Whole Foods and Dollar General are also doing this)
- Starbucks is offering free therapy sessions for its employees
- Taco Bell will continue to pay workers during the pandemic
- Tesla's CEO (Elon Musk) donating ventilators
- U-Haul is offering 30 days of free storage for college students
- Many distilleries and breweries make hand sanitizer (here, here, and here). (As is Louis Vuitton)
- Many online learning platforms are providing free materials.
- Many fitness studios are streaming free classes online (here, here, and here)
- Many musicians live streaming music for free.
- Many companies are offering more flexible working conditions and paid sick leave (beyond what is being required)
- And here is another list. 50 Ways Companies are Giving Back.
Also related to COVID-19, I just came across this article about David Lat (founder of "Above the Law"). David is an acquaintance of mine and many of our readers. According to the article, David has COVID-19 and has been dealt a particularly harsh case. David is an incredibly kind person, with a beautiful family, and his case has made me take the virus even more seriously.
Sunday, January 26, 2020
As a new dean in a new city, I have had the opportunity to meet hundreds of impressive lawyers in Omaha. I have been incredibly impressed by the sophisticated practices at the very law firms I have visited. For "midsized" firms, there are lawyers doing incredible work here that is the same work being done on the coasts, including some amazing M & A work.
But here in Omaha, just like every city around the country, law firms have "corporate" practices. But really, those are business law practices or transactional practices. Almost every corporation of significant size also owns some LLCs (limited liability companies) and perhaps other entities. And certainly these firms, especially those working with real estate companies, will work with LLCs and other pass through entities.
So, consistent with my prior posts on this subject, I urge lawyers and firms to acknowledge the full scope of what we do. It's not just corporate. It's so much more. And that's a good thing. I just ask that we embrace business practice or transactional practice to try to include all we do.
Monday, January 13, 2020
Each time I teach Advanced Business Associations, I try to engage students on the first day in an exercise that leverages their existing knowledge of business associations law but also introduces new angles and nomenclature. I assign a reading (this year, on shareholder wealth maximization) and ask each student to write up a brief definition of the concepts of “policy” and “theory” as they may apply to and operate in business associations law. I then ask them to relate their definitions to the reading.
So, the core question before the house in that course on the first day of classes last week effectively was the following: is shareholder wealth maximization legal doctrine, policy, theory, or something else? We had a wide-ranging discussion on the question, working off three propositions I put on the board. The class session enabled me to review some concepts from the foundational Business Associations course while also discussing the role of theory and policy in law and lawyering, getting some creative mental juices flowing, and teaching a bit of the new vocabulary they will need for the course.
I decided that it could be beneficial to share with my students the views of others on our effective core question from class last week. So, today, I ask you:
Shareholder wealth maximization: doctrine, theory, policy, or something else?
Offer your answers in the comments or send me a private message. You can pick more than one category, of course, in classifying shareholder wealth maximization. In other words, the categories are not intended to be mutually exclusive. A brief explanation for your response would be helpful. I will not attribute the answers I pass on, unless you want me to. I hope this post will stimulate some interesting responses, but I also know that law professors are busy with the start of the new semester. It may go without saying, but (especially in these circumstances) a short response is appreciated as much as a long one.
Monday, January 6, 2020
Business Associations is a tough course to teach, whether it is taught in a three-credit-hour or four-credit-hour format. I have written before (here, here, and here) about the challenges of teaching fiduciary duties in this course. And I recently posted here and here about the characterization of a classic oversight conundrum as a matter of corporate fiduciary duty law in Delaware.
I just recently finished grading my Business Associations exams from last semester. They were a good lot overall, but they evidenced several somewhat common errors that seemed to beg for broad dissemination to the class. So, I sent them all a message inviting them to come in and review their exams and highlighting certain things for their attention of a more general nature.
Today, I offer you that general counsel that I gave to my Business Associations students based on that review of their written final exams. It is set forth below, absent my introductory and closing remarks. As you'll see, some of it relates to substantive law, and some of it relates to exam or other skills. Perhaps this is of use to those of you who just taught or are about to teach the course. Maybe some students will read it and learn from it. Regardless, here it is.
- Agency rules and management rules in business associations law are often confused. Agency rules express the authority of a person to act on behalf of the firm in transactions with third parties--those who enter into transactions with the firm. For example, by default under the RUPA, each partner in a RUPA partnership is an agent of the partnership that can bind the partnership to contracts with others. Management rules, by contrast address the governance and control authority of a particular firm constituent within the governance structure of the firm. Thus, agency rules relate to authority that is outward-facing (pertaining to transactional parties) and management rules relate to authority that is inward-facing (pertaining to internal constituents of the firm). For example, by default under the RUPA, each partner has an equal right to manage the partnership.
- Similarly, the concept of "limited liability" is commonly understood to refer to the limited liability of a firm owner for the firm's obligations. For example, under the RUPA, each partner is jointly and severally liable for the obligations of the partnership, whereas under corporate law, shareholders are not personally liable for the corporation's obligations to third parties. Exculpation, which eliminates the monetary liability of directors in the corporate context, relates to corporate governance claims--legal actions for breach of the fiduciary duty of care. This is internal governance litigation that does not relate to corporate obligations to third parties. So, while exculpation does limit (eliminate) a director's personal liability for a breach of the duty of care, it is not part of what people generally refer to as "limited liability" in a corporate context.
- Fiduciary duties are typically understood to instill or increase trust in relationships. Accordingly, they are commonly employed to provide a benefit in circumstances involving untrustworthy business associates. Yet a number of you seemed to think they were an undue burden to business venturers in circumstances where trust may be lacking (i.e., where fiduciary duties should be useful). You will need to make a solid argument to most folks to justify that the detriments outweigh the benefits.
- If an exam or assignment question asks for you to talk about why one set of rules is better than another in addressing a specific scenario, make sure you contrast examples from the two sets of rules, applying each to the relevant facts.
- Read questions carefully and closely. When a question asks for you to reference or rely on statutory default rules,ensure that your response references or relies on statutory default rules--not on ways on which those rules can be or have been agreed around through private ordering. When a question asks for information or an evaluation or rules relating to member-managed LLCs, ensure you directly address member-managed LLCs in lieu of (or at least before) commenting on manager-managed LLCs or the flexibility of moving back and forth between member-managed and manager-managed LLCs.
- Don't forget to cite to an appropriate source for rules on which you rely in your legal analysis.
- Keeping track of and managing time is important to the bar exam and other in-class timed exercises. If you ran out of time in responding to the prompts on this exam, evaluate why. I can help, if need be. But understanding how and why your time management skills may have failed you can be important.
Feel free to add your observations or advice of a similar (or different) nature in the comments. I am teaching Advanced Business Associations this semester, so I can work on some of these things during that course. In any event, I wish you all a happy and healthy semester and year, whatever you may be teaching or doing.
Monday, December 2, 2019
In running circles, Nike has been in the news quite a lot this year.
In May, Nike was criticized for its maternity policy (of lack thereof) for sponsored runners (See “Nike Told Me to Dream Big, Until I Wanted a Baby”).
In September, Nike’s running coach, Alberto Salazar, was suspended for 4 years for facilitating doping. (See “Nike’s Elite Running Group Folded After Suspension of Coach Alberto Salazar”)
In October, Nike's sponsored runner, Eliud Kipchoge, ran the first sub-2 hour marathon, wearing the much-hyped Nike Vaporfly shoes. (See “Eliud Kipchoge runs first ever sub-two hour marathon in INEOS 1:59 challenge”) (See also, “Achieving the Seemingly Impossible: A Tribute to Eliud Kipchoge” by our own Colleen Baker)
In November, former Nike-sponsored runner Mary Cain’s allegations of verbal abuse and weight shaming went viral. (See “I Was the Fastest Girl in America, Until I Joined Nike: Mary Cain’s male coaches were convinced she had to get “thinner, and thinner, and thinner.” Then her body started breaking down.”) (See also, “Mary Cain Speaks Out Against Nike and Coach Alberto Salazar Over Emotional, Physical Abuse”)
I think Robert Johnson of Let’s Run gets it right - Don’t Believe The Spin, Nike’s Treatment Of Mary Cain Is Very Much In Line With Its #1 Core Value: Win At All Costs. And, at least based on what I see among my serious running friends, the negative press is not hurting Nike’s sales. The Nike Vaporfly shoes are the best running shoes on the market, and the negative press appears to be rationalized or ignored by consumers. Even the author of the Mary Cain story for Sports Illustrated (which was extremely critical of Nike) donned a Nike kit and the Nike Vaporflies in his recent marathon.
So here is the perennial business law question: is Nike's "ruthless winning" strategy proper, or even required? As we all know, the business judgment rule allows Nike’s board of directors a great deal of flexibility in their decision-making. But the pull of the shareholder maximization norm---and the fact that shareholders hold many more accountability tools than other stakeholders---makes the results above pretty unsurprising.
Former Chief Justice of the Delaware Supreme Court has posted a paper with some ideas for encouraging more prosocial behavior by U.S. corporations, but there are no easy solutions and still much academic work to be done in this area.
Monday, November 25, 2019
Many of us teach Francis v. United Jersey Bank, 432 A. 2d 814 (N.J. 1981), in Business Associations courses as an example of a substantive duty of care case. The case involves a deceased woman, Lillian Pritchard, who, in her lifetime, did nothing as a corporate director to curb her sons' conversions of corporate funds. The court finds she has breached her duty of care to the corporation, stating that:
Mrs. Pritchard was charged with the obligation of basic knowledge and supervision of the business of Pritchard & Baird. Under the circumstances, this obligation included reading and understanding financial statements, and making reasonable attempts at detection and prevention of the illegal conduct of other officers and directors. She had a duty to protect the clients of Pritchard & Baird against policies and practices that would result in the misappropriation of money they had entrusted to the corporation. She breached that duty.
Id. at 826. In sum:
by virtue of her office, Mrs. Pritchard had the power to prevent the losses sustained by the clients of Pritchard & Baird. With power comes responsibility. She had a duty to deter the depredation of the other insiders, her sons. She breached that duty and caused plaintiffs to sustain damages.
Id. at 829.
Francis is followed in our text by a number of additional fiduciary duty law cases, including Delaware's now infamous Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985), Stone v. Ritter, 911 A.2d 362 (Del. 2006), and In re Walt Disney Derivative Litigation, 907 A 2d 693 (Del. 2005). In covering these cases and discussing them with students during office hours, I became focused on the following passage from the Disney case:
The business judgment rule . . . is a presumption that "in making a business decision the directors of a corporation acted on an informed basis, . . . and in the honest belief that the action taken was in the best interests of the company [and its shareholders]." . . . .
This presumption can be rebutted by a showing that the board violated one of its fiduciary duties in connection with the challenged transaction. In that event, the burden shifts to the director defendants to demonstrate that the challenged transaction was "entirely fair" to the corporation and its shareholders.
In re Walt Disney Co. Derivative Litigation, 907 A.2d 693, 746-47 (Del. Ch. 2005). I have some significant questions about the application of the "entire fairness" standard of review in certain types of cases. In thinking those through with some of my colleagues (including a few of my co-bloggers), I realized I was curious about the answer to a related question: How would the Francis case be pleaded, proven, and decided as a breach of duty action under Delaware law?
I have my own ideas. But before I share them, I want yours. How would you categorize/label the breach(es) of duty as a matter of Delaware law? What standard of conduct and liability would you expect a Delaware court to apply as a matter of Delaware law? And what standard of review would you expect that court to use? Leave your ideas on any or all of the foregoing in the comments, please!
Last Friday, a new opinion from the United States Court of Appeals for the First Circuit tackled a complex application of the Employee Retirement Income Security Act of 1974 (ERISA) law that required an analysis of “federal partnership law,” which assessed whether two entities had created a “partnership-in-fact, as a matter of federal common law.” Sun Capital Partners III, LP v. New England Teamsters & Trucking Indus. Pension Fund, No. 16-1376, 2019 WL 6243370, at *5 (1st Cir. Nov. 22, 2019). I hate the idea of “federal partnership law,” but I concede it is a thing for determining certain responsibilities under the tax code and ERISA. I still maintain that rather than discussing federal entity law and entity type in these cases, we should instead be discussing liability under certain code sections as they apply to the relevant persons and/or entities. Nonetheless, that’s not the state of the law.
Even though I don’t like the concept of federal partnership law, I can work with it. As such, I think it is fair to ask courts to respect entity types if they are going to insist on using entity types to determine liability. Alas, this is too much to ask. Friday’s opinion explains:
The issue on appeal is whether two private equity funds, Sun Capital Partners III, LP (“Sun Fund III”) and Sun Capital Partners IV, LP (“Sun Fund IV”), are liable for $4,516,539 in pension fund withdrawal liability owed by a brass manufacturing company which was owned by the two Sun Funds when that company went bankrupt. The liability issue is governed by the Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”). Under that statute, the issue of liability depends on whether the two Funds had created, despite their express corporate structure, an implied partnership-in-fact which constituted a control group. That question, in the absence of any further formal guidance from the Pension Benefit Guaranty Corporation (“PBGC”), turns on an application of the multifactored partnership test in Luna v. Commissioner, 42 T.C. 1067 (1964).
Id. at *1 (emphasis added). The court continued: “To the extent the Funds argue we cannot apply the Luna factors because they have organized an LLC through which to operate SBI, we reject the argument. Merely using the corporate form of a limited liability corporation cannot alone preclude courts recognizing the existence of a partnership-in-fact.” Id. at *6. (emphasis added).
LLCs are not corporations, and they do not have a corporate form or structure! They are limited liability companies, which are totally different entities from corporations.
It seems I am often saying this, but the court does seem to get to the right conclusion despite the entity errors:
The fact that the entities formally organized themselves as limited liability business organizations under state law at virtually all levels distinguishes this case from Connors and other cases in which courts have found parties to have formed partnerships-in-fact, been under common control, and held both parties responsible for withdrawal liability.
Id. at *8.
That courts tend to get it right, even when using improper entity language, does not mean it’s not a big deal. It simply means that judges (and their clerks) understand the distinctions between entities and entity types, even if their language is not perfect. That seems to be generally okay as applied in the individual cases before each court. However, these cases communicate beyond just the parties involved and could influence poor drafting decisions that could have impacts as between individual members/partners/shareholders down the road. It sure would be great if more courts would take the chance when there is an opportunity to be clear and precise.
Sunday, November 10, 2019
I have a new(ish) essay that focuses on the concept of eliminating the fiduciary duty in an LLC, as permitted by Delaware law, and what that could mean for future parties. The paper can be found here (new link). When parties A and B get together to create an LLC, if they negotiate to eliminate their fiduciary agreements as to one another, I’m completely comfortable with that. They are negotiating for what they want; they are entering into that entity and operating agreement together of their own free will. So there may be differences in bargaining power—one may be wealthier than the other or have different kinds of power dynamics—but they are entering into this agreement fully aware of what the obligations are and what the options are for somebody in creating this entity.
My concern with eliminating fiduciary obligations comes down the road. That is, how do we make sure that if people are going to disclaim the fiduciary duty of loyalty, particularly, what happens if this change is made after formation? In such a case, I like to look at our traditional partnership law, which says there are certain kinds of decisions, at least absent an agreement to the contrary, that have to go to the entire group of entity participants. That is, a majority vote is not sufficient; there is essentially a minority veto.
I like the freedom of contract elimination of fiduciary duties provides, but I also am sensitive to the risks such eliminations can provide. Thus, I argue that Delaware (and other states allowing reduction or elimination of the duty of loyalty) should require an express statement about the fiduciary duties (when modified from the default) and an express statement of how those duties can be modified, whether expanding, restricting, or eliminating the duties. To protect against the predatory modification of fiduciary duties, I believe that states should include a statutory requirement that changes to fiduciary duties must be express. Here’s my proposal:
Any limited liability company agreement that provides for a modification of the default rules for what constitutes a breach of duties (including fiduciary duties) of a member, manager or other person to a limited liability company, whether to expand, restrict, or eliminate those duties, must expressly state if the modifications are intended to expand, restrict, or eliminate the duties. Any limited liability company agreement that allows the modification of fiduciary duties must state expressly how those modifications can be made and by whom. Absent such any such statement, fiduciary duties may only be modified by agreement of all the members.
Supporting freedom of contract has value, but I also think we need to account for the fact that we did not traditionally allow for the elimination of fiduciary duties. As such, we should make sure that those participating in LLCs should know both what they signed up for initially, and also if the entity has provided the opportunity for a majority to make a fundamental change to traditional duties. This balance, I think, is essential to protecting investor expectations while still allowing for entities to develop the model that best serves the members’ goals.
Monday, October 21, 2019
Given the number of corporate governance functions that can be conducted using blockchains, it seems appropriate to consider how business lawyers should respond to related challenges. Babson College's Adam Sulkowski and I undertook to begin to address this concern in an article we wrote for the Wayne Law Review's recent symposium, "The Emerging Blockchain and the Law." That article, Blockchains, Corporate Governance, and the Lawyer's Role, was recently released. An abstract follows.
Significant aspects of firm governance can (and, in coming years, likely will) be conducted on blockchains. This transition has already begun in some respects. The actions of early adopters illustrate that moving governance to blockchains will require legal adaptations. These adaptations are likely to be legislative, regulatory, and judicial. Firm management, policy-makers, and judges will turn to legal counsel for education and guidance.
This article describes blockchains and their potentially expansive use in several aspects of the governance of publicly traded corporations and outlines ways in which blockchain technology affects what business lawyers should know and do—now and in the future. Specifically, this article describes the nature of blockchain technology and ways in which the adoption of that technology may impact shareholder record keeping and voting, insider trading, and disclosure-related considerations. The article then reflects on implications for business lawyers and the practice of law in the context of corporate governance.
In the article, Adam and I do a fair amount of visioning. Based on the development of blockchain corporate governance we imagine, we conclude that business lawyers must both focus on understanding technology in the context of their clients' business operations and be proactive in providing legal advice relating to potential uses of the technology. We conclude that,
[i]n representing business clients, counsel have a critical role in thinking through all the implications of moving any governance function or process to a blockchain-based platform. It is especially important to help clients see, consider, and appreciate certain irrevocable consequences and legal risks, as well as potential opportunities. . . .
There is much for us all to learn in this area. A number of legal scholars are engaging in work that may be useful in better informing us. I, for one, try to attend as many of their presentations as possible as a means of better informing myself of what I need to know to teach corporate governance in the blockchain era. (We note in the article that blockchain corporate governance "impacts the job of legal educators and law schools.") I will continue to be on the lookout for additional work on blockchain corporate governance (and lawyering in an increasingly blockchain-driven world) and endeavor to highlight key things I find by posting about them here.
Monday, October 14, 2019
Congrats to MIT professors Abhijit Banerjee, Esther Duflo and Michael Kremer on their recent Nobel Prize in Economics.
A few years ago, I completed Professors Banerjee and Duflo's free online EdX course on "The Challenges of Global Poverty."
Evidently, they are doing a rerun of that course, starting February 4, 2020. You can sign up here.
Tuesday, August 27, 2019
Back in April, I posted on a leadership conference focusing on lawyers and legal education, sponsored by and held at UT Law. I also posted earlier this summer on the second annual Women's Leadership in Legal Academia conference. I admit that I have developed a passion for leadership literature and practices through my prior leadership training and experiences in law practice and in the legal academy.
Because lawyers often become leaders in and through their practice (both at work and their other communities) and because leadership principles interact with firm governance, I want to make a pitch that we all, but especially all of us teaching business associations (or a similar course), focus some attention on leadership in our teaching. It is a nice adjunct to governance. For example, management and control issues, especially director/officer processes in corporations, are a logical place to discuss leadership. Who are the managers and the rank-and-file employees inspired by in managing and sustaining the firm? Who is able to persuade the board to take action? Is it because of that person's authority, or does that person hold a trust relationship with others that motivates them to follow? And speaking of trust, it is an element of both leadership and fiduciary duty . . . .
As you consider my teaching suggestion, I offer you my latest blog post on our Leading as Lawyers blog. It involves the importance of process to effective leadership. The bottom line?
One can have a promising vision and strategy that emanate from the best of all intentions and ideas. But without engaging a process that includes effectual communication and input from, candid interchanges with, expressions of appreciation for, and buy-in from the relevant affected populations, those worthy intentions may be misinterpreted and those good ideas may die on the vine or not be implemented effectively.
We have all seen this happen in business governance. Let's let our students in on the role that leadership plays in the practical application of business law. It is bound to inform both their law practice and their lives.
Tuesday, August 20, 2019
The City University of New York (CUNY) School of Law seeks highly-qualified candidates for a tenured or tenure-track faculty appointment to begin in Fall 2020. The principal responsibility of this faculty member will be to teach business law related courses, including Business Associations, U.C.C. Survey, and Contracts. All faculty are also expected to teach our first-year Lawyering course on a rotating basis, and all faculty are expected to teach in both the day and evening programs on a rotating basis.
CUNY SCHOOL OF LAW: "LAW IN THE SERVICE OF HUMAN NEEDS"
CUNY School of Law is a national leader in progressive legal education: we are ranked first in the country for public interest law and third in the county for clinical programs, and we are one of the most diverse law schools in the nation.
Our mission at CUNY School of Law is two-fold: training public interest attorneys to practice law in the service of human needs; and providing access to the profession for members of historically underrepresented communities. The Law School advances that mission though an innovative curriculum that brings together the highest caliber of clinical training with traditional doctrinal legal education to train lawyers prepared to serve the public interest. The basic premise of the law school's program is that theory and abstract knowledge cannot be separated from practice, practical skill, professional experience and the social, cultural, and economic context of law. The curriculum therefore integrates practical experience, professional responsibility, and lawyering skills with doctrinal study at every level.
Successful candidates will have:
a) J.D., L.LB., or Ph.D in a law-related discipline;
b) admission to law practice;
c) social justice lawyering experience;
d) a demonstrated commitment to the mission of CUNY School of Law;
e) availability and willingness to teach in the day and evening programs on a rotating basis;
f) availability and willingness to teach the first-year Lawyering course on a rotating basis (experience teaching legal writing preferred);
g) commitment to scholarly engagement (established scholarly record preferred);
(a) a demonstrated commitment to excellent teaching (ability to teach in both a classroom and clinical setting preferred); and
(b) demonstrated success as a faculty member, including the ability to collaborate with others and share responsibility for committee and department assignments.
CUNY offers faculty a competitive compensation and benefits package covering health insurance, pension and retirement benefits, paid parental leave, and savings programs. We also provide mentoring and support for research, scholarship, and publication as part of our commitment to ongoing faculty professional development.
HOW TO APPLY
Interested candidates should apply at www.cuny.edu by accessing the employment page, logging in or creating a new user account, and searching for this vacancy using the Job ID (20886) or Title (Assistant, Associate, or Full Professor of Law) then selecting "Apply Now" and providing the requested information. (Link at :
The application requires a CV/resume and a cover letter, indicating the position to which you are applying.