Monday, July 18, 2022

Stakeholder Thread at the Global Meeting on Law and Society

Greetings from Cervera, Spain.  As you know from my post last week, I am traveling in the Catalonia region of Spain for a few days this week after the 2022 Law and Society Association Global Meeting on Law and Society, which was held in Lisbon, Portugal this year.  I have the blessing of staying with a friend (whom I met through Zoom mindful yoga practices during the pandemic) in her private home.

I want to offer a quick post this week to reflect on what turned out to be a mini-theme in the presentations I attended at the Global Meeting on Law and Society.  That mini-theme was, perhaps unsurprisingly, corporate stakeholderism.  (And I note with some interest that Stefan has recently written and blogged on an aspect of corporate stakeholderism as well.)  The following programs from the collaborative research network (CRN) to which I belong picked up on this theme, in one way or another:

  • an entire paper panel entitled: "Corporations, Shareholders, and Other Stakeholders," which featured academic work focusing on corporate governance and finance from a number of different stakeholder perspectives;
  • a roundtable discussion entitled "Corporations & Engendering Public Trust," billed as a session that "brings together corporate law experts to investigate how information and communications with stakeholders, investors, and the market can enhance trust in corporations and the corporate sector as a whole";
  • an Author Meets Reader session celebrating Reconstructing the Corporation: From Shareholder Primacy to Shared Governance (2021), co-authored by Grant Hayden and Matt Bodie (which, as many of you likely know, takes a hard look at the current state of corporate governance and offers a new model in which shareholders and employees play a stronger role);
  • a paper panel entitled, "Corporations and Society," which featured Grant and Matt's new paper, Democratic Participation as Corporate Purpose;
  • a roundtable session entitled "Present and Future of Corporations in Society," which addressed ways in which corporate law and securities regulation impact the relationship of corporations to environmental and social concerns; and
  • a roundtable entitled "Awakening Capitalism," catalyzed by Alan Palmiter's Capitalism, heal thyself essay (which I wrote about in an earlier post).

Of course, papers and commentary in other programs and papers also raised the stakeholderism theme and related issues.  And, of course, the prominence of this theme may not be news to any of you, given the central role that ESG has been playing in recent corporate finance and corporate governance discussions.  Finally, of course, I may be suffering from anchoring, an immediacy effect, or other cognitive biases in identifying this substantive thread that tied together so many programs and presentations.  Yet, I do not remember a dominant theme like this emerging from our CRN's programming in the past.  In any event, it seems we should be looking out for a bunch of business law research publications in the coming months that offer insights on stakeholder rights, opportunities, and concerns . . . .

July 18, 2022 in Conferences, Corporate Finance, Corporate Governance, Joan Heminway | Permalink | Comments (2)

Monday, July 4, 2022

Celebrating Independence without the Trappings: A Business Law Prof "Take"

Stefan's Independence Day post is far more erudite than mine.  Kudos and thanks to him for the substantive legal content.  This post covers more of a teaching point--one that I often think about in the background but want to being to the fore here.

I am focused in writing this on things like family reunions, local holiday festivities, grilling out, and fireworks.  It has been a rocky road to the Fourth in these and other aspects this year.  Overlapping causes can easily be identified.  As if the continuing COVID-19 nightmare were not enough . . . .

I will start with COVID-19, however.  I have heard of many who are missing family and other events this weekend because of positive COVID-19 diagnoses, test results, or exposures.  I was sad to learn, for example, that Martina Navratilova had to miss the historic Wimbledon centennial celebration, including the Parade of Champions, yesterday.  But there is more.

The air travel debacles have been well publicized.  Weather, labor shortages, and other issues contribute to the flight changes and cancellations airlines need to make on this very popular travel weekend--expected to set records.  And gas prices have stymied the trips of some by land (again, at a time during which travel was expected to be booming), although news of some price drops in advance of the weekend was certainly welcomed.  Even for those who are well and able to travel to spend holiday time with family, it has been a challenge.

The cost of your cookout this year also may be higher, should you choose to have one.  Supply chain turmoils and the effects of inflation and the war in Ukraine all are listed as contributing factors.  (The linked article does note that strawberries are a good buy, nevertheless, which is welcome news to me.)

And yes, fireworks displays also have been disrupted.  The causes include both concerns about weather (dry conditions and flammables do not mix well!) as well as the impact of labor shortages, inflation, and other factors influencing the supply of goods.  Of course, there also is a high demand for fireworks in the re-opened socio-economic environment.  All have been widely reported.  See here, here, here, and here.

These holiday weekend disappointments create personal strife.  But why should a business law prof care about all of this? 

I find that stepping back and looking at the state of business at given times can be instructive in reflecting on the ways in which business law policy, theory, and doctrine do and should operate in practice.  In an inflationary period with labor shortages, what profit-seeking business would not be looking at customers, clients, and employees as an important constituencies?  In an era of supply chain dislocations, what business managers would not be focused on strong, positive relationships with those who sell them goods and services significant to their business?  And, of course, with investment returns of direct and indirect import to the continued supply of funding to business ventures, firms need to pay heed to investor concerns.  Note how these observations allow for commentary on principles of/underlying contract law, contract drafting, securities regulation, fiduciary duty in (and other elements of) business associations law, insurance law, and more.

Looking at legal theory, policy, and doctrine in practical contexts can useful to a business law prof for teaching, scholarship, and service--depending on the nature of a person's appointment and the institution at which the prof teaches.  The current Fourth of July woes are but one example of how those connections can be made.  But I want to invite folks to make them, especially in their teaching--in current courses (if you are teaching over the summer) and in fall and spring course planning, which I know many folks are now doing.

In closing, I send sympathetic vibes to all who had plans foiled by (or who decided to have a "staycation" and avoid) some or all of the holiday weekend dislocations I highlight in this post.  I hope you found joy in your Independence Day weekend nonetheless.

July 4, 2022 in Business Associations, Contracts, Corporate Finance, Current Affairs, Financial Markets, Insurance, Joan Heminway, Law School, Lawyering, Research/Scholarhip, Service, Teaching | Permalink | Comments (0)

Tuesday, June 21, 2022

More Commentary on the SEC's ESG Proposal - Sharfman and Copland

Courtesy of friend-of-the-BLPB Bernie Sharfman, I am linking to his coauthored (with James Copland) comment letter to the Securities and Exchange Commission (SEC) on the climate change rule-making proposal.  The letter includes copious footnotes.  As with other comment letters that have been written on the substance of the SEC proposal, there are some interesting definitional questions on which intelligent folks disagree.  E.g., what is included under the umbrella of investor protection?  What regulation promotes "efficiency, competition, and capital formation"?  These all are among the big picture issues on which the SEC has the opportunity to speak.  I expect thoughtful responses.

June 21, 2022 in Corporate Finance, Corporate Governance, Corporations, Current Affairs, Joan Heminway, Securities Regulation | Permalink | Comments (0)

Monday, June 6, 2022

Colin Marks: Total Return Swaps ≡ Secured Transactions?!

I am excited to be promoting here an inventive and interesting paper, Total Return Meltdown: The Case for Treating Total Return Swaps as Disguised Secured Transactions, written by friend-of-the-BLPB Colin Marks (St. Mary's School of Law).   The SSRN abstract follows.

Archegos Capital Management, at its height, had $20 billion in assets. But in the spring of 2021, in part through its use of total return swaps, Archegos sparked a $30 billion dollar sell-off that left many of the world’s largest banks footing the bill. Mitsubishi UFJ Group estimated a loss of $300 million; UBS, Switzerland’s biggest bank, lost $861 million; Morgan Stanley lost $911 million; Japan’s Nomura, lost $2.85 billion; but the biggest hit came to Credit Suisse Group AG which lost $5.5 billion. Archegos, itself lost $20 billion over two days. These losses were made possible due to the unique characteristics of total return swaps and Archegos’ formation as a family office, both of which permitted Archegos to skirt trading regulations and reporting requirements. Archegos essentially purchased beneficial ownership in large amounts of stocks, particularly ViacomCBS Inc. and Discovery Inc., on credit. Under Regulation T of the Federal Reserve Board, up to 50 percent of the purchase price of securities can be borrowed on margin. However, to avoid these rules, Archegos instead entered into total return swaps with the banks whereby the bank is the actual owner of the stock, but Archegos would bear the risk of loss should the price of the stock fall and reap the benefits if the stock were to go up or were to make a distribution. Archegos would still pay the transaction fees, but the device permitted Archegos to buy massive amounts of stock without having the initial margin requirements, thus making Archegos heavily leveraged. This article argues that the total return swap contracts are analogous to and should be re-characterized as what they really are – disguised secured transactions. Essentially the banks are lending money to enable the Archegoses of the world to buy stocks, and are simply retaining a security interest in the stocks. Such a re-characterization should place such transactions back into Regulation T and the margin limits. But re-characterization also offers another contract law approach that is more draconian. If the structure of the contract violates a regulation, then total return swaps could be declared void as against public policy. This raises the specter that a court could apply the doctrine of in pari delicto and leave the parties where they found them in any subsequent suits to recover outstanding debts.

I do not teach, research, or write in the secured transactions space, but this work engages corporate finance and contract law as well.  (I am grateful that Colin, among others, has encouraged my forays into contract law research over the years.)  I was privileged to have the opportunity to preview Colin's arguments and offer some feedback during his research and writing of this paper, which is forthcoming in the Pepperdine Law Review.  I find his argument creative and intriguing.  I think you may, too.

June 6, 2022 in Contracts, Corporate Finance, Financial Markets, Joan Heminway, Securities Regulation | Permalink | Comments (1)

Monday, April 11, 2022

The Federalization of Corporate Governance - Heminway on Karmel

Last May, I posted on a wonderful two-day event--a symposium hosted over Zoom by Brooklyn Law School celebrating the career of Professor Roberta Karmel.  As I noted then, I was honored to be invited to speak at the event. It was so inspiring.

I have just posted the essay that I presented at the symposium, "Federalized Corporate Governance: The Dream of William O. Douglas as Sarbanes-Oxley Turns 20" (recently published by the Brooklyn Journal of Corporate, Financial & Commercial Law), on SSRN.  It can be found here

The roadmap paragraph from the essay's introduction offers a brief description of the essay's contents.

This essay focuses on the federalization of U.S. corporate governance since Sarbanes-Oxley—and, more specifically, since Roberta’s article was published in 2005 [Realizing the Dream of William O. Douglas — The Securities and Exchange Commission Takes Charge of Corporate Governance, 30 DEL. J. CORP. L. 79 (2005)]—pulling forward key aspects of Roberta’s work in Realizing the Dream. To accomplish this purpose, the essay first briefly reviews the contours of Roberta’s article. It then offers observations on corporate governance in the wake of (among other things) the public offering reforms adopted by the U.S. Securities and Exchange Commission (SEC) in 2005, the SEC’s 2010 adoption of Rule 14a-11, the 2010 enactment of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the 2012 enactment of the Jumpstart Our Business Startups Act (JOBS Act), and recent adoptions of corporate charter and bylaw provisions that constrain aspects of shareholder-initiated federal securities and derivative litigation. Finally, before briefly concluding, the essay provides brief insights on the overall implications for future corporate governance regulation of these and other occurrences since the publication of Realizing the Dream.

I found it great fun to build on the architecture of Roberta's earlier work in writing this piece.  Work on the essay allowed me to appreciate in new ways the many linkages between corporate governance and corporate finance--an appreciation that will no doubt continue to infuse my teaching with new ideas over time.  I hope some of you will take time out to read the essay and that you gain some insight from it.   Comments are, of course, always welcomed.

April 11, 2022 in Corporate Finance, Corporate Governance, Joan Heminway, Legislation, Securities Regulation | Permalink | Comments (0)

Friday, March 4, 2022

Corporate & Securities Litigation Workshop: Call for Papers

The University of Illinois College of Law, in partnership with UCLA School of Law, University of Richmond School of Law, and Vanderbilt Law School, invites submissions for the Ninth Annual Workshop for Corporate & Securities Litigation. This workshop will be held on Friday, September 23 and Saturday, September 24, 2022 in Chicago, Illinois.

Overview

This annual workshop brings together scholars focused on corporate and securities litigation to present their scholarly works. Papers addressing any aspect of corporate and securities litigation or enforcement are eligible, including securities class actions, fiduciary duty litigation, and SEC enforcement actions. We welcome scholars working in a variety of methodologies, as well as both completed papers and works-in-progress.

Authors whose papers are selected will be invited to present their work at a workshop hosted by the University of Illinois College of Law. Participants will pay for their own travel, lodging, and other expenses.

Submissions

If you are interested in participating, please send the paper you would like to present or an abstract of the paper to corpandsecworkshop@gmail.com by Friday, May 13, 2022. Please include your name, current position, and contact information in the e-mail accompanying the submission. Authors of accepted papers will be notified in June.

Questions

Any questions concerning the workshop should be directed to the organizers: Verity Winship (vwinship@illinois.edu), Jessica Erickson (jerickso@richmond.edu), Jim Park (James.park@law.ucla.edu), and Amanda Rose (amanda.rose@vanderbilt.edu).

March 4, 2022 in Conferences, Corporate Finance, Corporate Governance, Joan Heminway, Litigation, Research/Scholarhip, Securities Regulation | Permalink | Comments (0)

Monday, November 29, 2021

The U.S. Government as a Controlling Shareholder - A Class Discussion

In my Corporate Finance class this morning, as a capstone experience, I asked my students to read and be prepared to comment on an article I wrote a bit over a decade ago.  The article, Federal Interventions in Private Enterprise in the United States: Their Genesis in and Effects on Corporate Finance Instruments and Transactions, 40 Seton Hall L. Rev 1487 (2010), offers information and observations about the U.S. government's engagements as an investor, bankruptcy transformer, and M&A gadfly/matchmaker in responding to the global financial crisis.  A discussion of the article typically leads to a nice review of several things we have covered over the course of the semester.  I have a number of topics I want to ensure we engage with, but I allow some free rein.

Today, one of our interesting bits of discussion centered around the possibility that the U.S. government became a controlling shareholder for a time due to the nature of its high percentage ownership interest in, for example, AIG.  This was not directly addressed in my article.  Nevertheless, we set into a discussion of the substance, citing to Sinclair Oil Corp. v. Levien, one of Josh Fershee's favorite cases.  We also reflected on possible associated lawyering and professional responsibility issues.

I wondered after the in-class discussion whether anyone of us who had written articles on the government as an investor in private enterprise in the wake of the financial crisis had, in fact, commented on this aspect of the government's majority or other controlling preferred stock investments.  A little digging revealed the following passage from a student article:

Delaware corporate law protects minority shareholders from controlling shareholders who use the corporation to advance their own interests at the expense of other shareholders. It does so both by imposing fiduciary duties on the directors and officers of a corporation, including duties of care, loyalty, and good faith, and extending those duties to any shareholder who exercises control over a corporation.

Matthew R. Shahabian, The Government as Shareholder and Political Risk: Procedural Protections in the Bailout, 86 N.Y. L. Rev. 351, 369 (2011) (citing to Sinclair) (footnote omitted).  The article engages both Sinclair's substantive fiduciary duty rule and the applicable judicial review standard, citing to the case a total of six times.  J.W. Verret also cites to Sinclair for the same principles in his article Treasury Inc.: How the Bailout Reshapes
Corporate Theory and Practice, 27 Yale J. Reg. 283, 335 (2010), and Steven Davidoff Solomon and David Zaring give Sinclair three nods in their article, After the Deal: Fannie, Freddie, and the Financial Crises Aftermath, 95 B.U.L. Rev. 371 (2015).  Good to know.

I admit that I was pleased that, after 13-14 weeks of hard work on the part of me and my students, we could have a conversation about this type of practical, applied legal issue.  I was still guiding the way a bit, but the students really carried the discussion.  And they had useful ideas and observations--ones I know they could not have shared at the beginning of the semester.  I applaud them; I am proud of them!

#whyweteach

November 29, 2021 in Corporate Finance, Joan Heminway, Joshua P. Fershee, Shareholders, Teaching | Permalink | Comments (0)

Tuesday, April 20, 2021

The Corporate Transparency Act - A Useful Guide

Business Law Today, the American bar Association's business law magazine, has published a super guide to The Corporate Transparency Act, which became effective earlier this year.  The guide comes in the form of an article, "The Corporate Transparency Act – Preparing for the Federal Database of Beneficial Ownership Information," co-authored by Robert W. Downes, Scott E. Ludwig, Thomas E. Rutledge, and Laurie A. Smiley.  The article reviews the act and clarifies a number of its key provisions.  The following background is excerpted from the introduction of the article:

The Corporate Transparency Act requires certain business entities (each defined as a “reporting company”) to file, in the absence of an exemption, information on their “beneficial owners” with the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of Treasury (“Treasury”). The information will not be publicly available, but FinCEN is authorized to disclose the information:

- to U.S. federal law enforcement agencies,

- with court approval, to certain other enforcement agencies to non-U.S. law enforcement agencies, prosecutors or judges based upon a request of a U.S. federal law enforcement agency, and

- with consent of the reporting company, to financial institutions and their regulators.

The Corporate Transparency Act represents the culmination of more than a decade of congressional efforts to implement beneficial ownership reporting for business entities. When fully implemented in 2023, it will create a database of beneficial ownership information within FinCEN. The purpose of the database is to provide the resources to “crack down on anonymous shell companies, which have long been the vehicle of choice for money launderers, terrorists, and criminals.” Prior to the implementation of the Corporate Transparency Act, the burden of collecting beneficial ownership information fell on financial institutions, which are required to identify and verify beneficial owners through the Bank Secrecy Act’s customer due diligence requirements. The Corporate Transparency Act will shift the collection burden from financial institutions to the reporting companies and will impose stringent penalties for willful non-compliance and unauthorized disclosures.

The Secretary of the Treasury is required to prescribe regulations under the Corporate Transparency Act by January 1, 2022 (one year after the date of enactment).  It is expected that any implementing regulations will be promulgated by FinCEN pursuant to a delegation of authority from the Secretary of the Treasury. The effective date of those regulations will govern the timing for filing reports under the Corporate Transparency Act.

I am grateful to the co-authors (two of whom are friends and ABA colleagues) for providing this helpful resource.  Now that business firms, rather than financial institutions, are bearing the burdens of disclosure in this space, it will be important for business lawyers to become familiar with the law and begin to develop best practices for its effective implementation.  I intend to provide updates in this space.

April 20, 2021 in Corporate Finance, Corporate Governance, Joan Heminway | Permalink | Comments (0)

Monday, February 1, 2021

Prediction: GameStop Will Be 2021's Great Gift To Business Law Professors

Wow.  All I can say is . . . wow.  Last Monday, GameStop Corp. was, for me, just a dinosaur in the computer gaming space--a firm with a bricks-and-mortar retail store in our local mall that I have visited maybe once or twice.  What a difference a week makes . . . .

Now, GameStop is: frequent email messages in my in box; populist investor uprisings against establishment institutional investors; concern about students investing through day-trading accounts; news and opinion commentary on all of the foregoing (and more); compulsion to inform an under-informed (and, in some cases, bewildered) community of friends and family.  This change of circumstances, which is centered on, but not confined to, the volatile market for GameStop's common stock, raises many, many questions--legal questions and factual questions.  Some are definitively answerable, others are not.

The legal questions run the gamut from possibilities of securities fraud (including insider trading) and market manipulation, to the governance of trading platforms, the propriety of trading limitations and halts, and the authority and control of clearinghouses.  Co-blogger Ben Edwards published a post here last Thursday on the trading halts in GameStop stock, the role of clearinghouses, and the possibility of market manipulation.  Others also have written about these and other legal issues--including the role of the U.S. Securities and Exchange Commission as the cop on the beat (see, e.g., here and here).

But there are few answers to these legal queries given that many facts remain unknown.  Who are the short-sellers in these stocks?  Who are the community members on electronic bulletin boards (and elsewhere) urging active trading in the stock of GameStop and other firms that have been subject to significant short-selling that has led to perceived under-valuation by others in the market?  Who are the populist traders actively bidding up the price of these firms?  What knowledge do all of these people have about GameStop and the trading of its securities?  Assumptions are being made about all of these things and more.  However, our current knowledge is limited and, as time progresses, the composition of these groups undoubtedly has changed and will continue to change as traders rapidly enter and exit the market for these securities.  

As many of our law schools hold forums on the GameStop phenomenon (UT Law has a roundtable featuring some of your favorite BLPB editors on Wednesday), more legal and factual questions will be raised.  The situation will be dynamic, and regulators and policymakers will enter the fray in unknown (and perhaps unanticipated) ways.  As I teach Securities Regulation and Advanced Business Associations this semester, all of this will be happening.  Some of the topics of conversation would not normally be part of my course plans.  But, like others I know who teach business law courses, I am pivoting to meet the need to respond to these evolving circumstances in our securities markets.  Throughout, there are many roles that lawyers (and law professors) are playing and will continue to play.  I suspect GameStop will be an asset this semester in educating our students on securities law and much more.

February 1, 2021 in Corporate Finance, Joan Heminway, Securities Regulation, Teaching | Permalink | Comments (4)

Sunday, December 13, 2020

First Things First: Is Short-Termism the Problem?

This is my second post in a series of blog posts on the "Study on Directors' Duties and Sustainable Corporate Governance ("Study on Directors' Duties") prepared by Ernst & Young for the European Commission.

In 2015, the world gathered at the United Nations Sustainable Development Summit for the adoption of the Post-2015 development agenda. That Summit was convened as a high-level plenary meeting of the United Nations General Assembly. At this meeting, Resolution A/70/L.1, Transforming our World: The 2030 Agenda for Sustainable Development, was adopted by the General Assembly. In 2016, the Paris Agreement was signed. In my last post, I called both the United Nations 2030 Agenda and the Paris Agreement trendsetters because they kicked-off a global discussion on sustainable development at so many levels, including at the financial level.

During the 2015 United Nations Sustainable Development Summit, I recall that the Civil Society representatives called for a UN resolution on sustainable capital markets to tackle the absence of concrete actions regarding global financial sustainability following the 2008 Great Recession.

At the end of 2016, the European Commission (Commission) created the High-Level Expert Group on Sustainable Finance (HLEG). In early 2018, the HLEG published its report. Shortly after, in 2018, the European Union (EU) published the Action Plan: Financing Sustainable Growth (EU's Action Plan) based on the HLEG’s report. I want to focus for a bit on Action 10 of the EU's Action Plan: Fostering Sustainable Corporate Governance and Attenuating Short-Termism in Capital Markets. Action 10 sets forth the following:

1.To promote corporate governance that is more conducive to sustainable investments, by Q2 2019, the Commission will carry out analytical and consultative work with relevant stakeholders to assess: (i) the possible need to require corporate boards to develop and disclose a sustainability strategy, including appropriate due diligence throughout the supply chain, and measurable sustainability targets; and (ii) the possible need to clarify the rules according to which directors are expected to act in the company's long-term interest.

2.The Commission invites the ESAs to collect evidence of undue short-term pressure from capital markets on corporations and consider, if necessary, further steps based on such evidence by Q1 2019. More specifically, the Commission invites ESMA to collect information on undue short-termism in capital markets, including: (i) portfolio turnover and equity holding periods by asset managers; (ii) whether there are any practices in capital markets that generate undue short-term pressure in the real economy.

Under the EU's Action Plan, in 2019, the Commission called the three European Supervisory Authorities (ESAs) to collect evidence of undue short-term pressure from the financial sector on corporations. These supervisory authorities include the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), and the European Insurance and Occupational Pension Authority (EIOPA). The reports from EBA, ESMA, and EIOPA reviewed the relevant financial literature and identified potential short-term pressures on corporations.

In 2019, the European Commission Directorate-General Justice and Consumers organized a conference on "Sustainable Corporate Governance" that reunited policy-makers to discuss policy developments on corporate governance within Action 10 of the EU's Action Plan.

The Study on Directors' Duties builds on Action 10. As it reads in the Study:

[T]he need for urgent action to attenuate short-termism and promote sustainable corporate governance is clearly identified in the Action Plan on Financing Sustainable Growth, 137 put forward by the European Commission in 2018. The Action Plan recognises that, despite the efforts made by several European companies, pressures from capital markets lead company directors and executives to fail to consider long-term sustainability risks and opportunities and be overly focused on short-term financial performance. Action 10 of the Action Plan is therefore aimed at "fostering sustainable corporate governance and attenuating short-termism in capital markets." The present study implements Action 10, together with other studies aimed at investigating complementary aspects of short-termism,138 which shows European Commission's commitment to explore this complex problem from different angles and find an integrated response.

Before moving forward, it is pressing to define short-termism. In this context, obtaining empirical evidence to infer causation is important for policy advice. When it comes to defining short-termism, in a recent Policy Workshop on Directors' Duties and Sustainable Corporate Governance, Zach Sautner defined short-termism as a reflection of actions (e.g., investment, payouts) that focus on short-term gains at the expense of the long-term value of the corporation. The concept of short-termism encompasses a certain form of value destruction, an undue focus on short-term earnings or stock price, and a notion of market inefficiency. Suppose a CEO favors short-term earnings or makes decisions (e.g., buybacks) to the detriment of the corporation's long-term value. Then, if the market is efficient, it should signal that something is not right.

Still, I cannot avoid asking: is short-termism the right problem that needs fixing? The discussion around short-termism is puzzling because there is a vehement academic debate whether there even exists short-termism or whether it is as harmful as it sounds. For example, in their paper, Long-Term Bias, Michal Barzuza & Eric Talley explain how corporate managers can become hostages of long-term bias, which can be as damaging for investors as short-termism.

If short-termism and its effects are as negative as they sound, what kind of incentives do managers have to overcome it? Corporate managers act based on incentives such as executive compensation, financial reporting, and shareholders' ownership. Is this bad news for those who firmly stand behind stakeholders who can be undoubtedly impacted by the corporation's performance?

The bottom line is this. We need a clearer perspective on short-termism. Suppose one says that excessive payouts are not the problem. They are the symptom. However, even this bold statement needs to be taken with a grain of salt. It is difficult to assess if payouts (e.g., dividends, buybacks) are excessive if we do not know if there is a short-termism problem.

December 13, 2020 in Business Associations, Comparative Law, Corporate Finance, Corporate Governance, Corporations, CSR, Financial Markets, Law and Economics, Shareholders | Permalink | Comments (0)

Monday, September 7, 2020

Teaching Through the Pandemic - Part VI: Labor Day

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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):

LaborDayTeaching2020(5)

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:

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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.

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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!

September 7, 2020 in Business Associations, Corporate Finance, Joan Heminway, Teaching | Permalink | Comments (5)

Monday, July 13, 2020

U.S. Securities Crowdfunding: A Way to Economic Inclusion for Low-Income Entrepreneurs in the Wake of COVID-19?

Earlier today, I submitted a book chapter with the same title as this blog post.  The chapter, written for an international management resource on Digital Entrepreneurship and the Sharing Economy, represents part of a project on crowdfunding and poverty that I have been researching and thinking through for a bit over two years now.  My chapter abstract follows:

The COVID-19 pandemic has exacerbated and created economic hardship all over the world.  The United States is no exception.  Among other things, the economic effects of the COVID-19 crisis deepen pre-existing concerns about financing U.S. businesses formed and promoted by entrepreneurs of modest means.

In May 2016, a U.S. federal registration exemption for crowdfunded securities offerings came into existence (under the CROWDFUND Act) as a means of helping start-ups and small businesses obtain funding.  In theory, this regime was an attempt to fill gaps in U.S. securities law that handicapped entrepreneurs and their promoters from obtaining equity, debt, and other financing through the sale of financial investment instruments over the Internet.  The use of the Internet for business finance is particularly important to U.S. entrepreneurs who may not have access to funding because of their own limited financial and economic positions. 

As the pandemic continues and the fifth year of effectiveness of the CROWDFUND Act progresses, observations can be made about the role securities crowdfunding has played and may play in sustaining and improving prospects for those limited means entrepreneurs.  A preliminary examination indicates that, under current legal rules, securities crowdfunding is a promising, yet less-than-optimal, financing vehicle for these entrepreneurs.  Nevertheless, there are ways in which U.S. securities crowdfunding may be used or modified to play a more positive role in promoting economic inclusion through capital raising for the innovative ventures of financially disadvantaged entrepreneurs and promoters.

I value the opportunity to contribute to this book with scholars from a number of research disciplines and countries.  I have been looking for ways to concretize some of my ideas from this project in a series of shorter publications, and this project seems like a good fit.  Nevertheless, I admit that I have been finding it challenging to segment out and organize my ideas about how securities crowdfunding may better serve entrepreneurs and investors, especially in the current economic downturn.  As always, your ideas are welcomed.

July 13, 2020 in Books, Corporate Finance, Crowdfunding, Entrepreneurship, International Business, Research/Scholarhip, Securities Regulation | Permalink | Comments (0)

Monday, July 6, 2020

What is a Merger Anyway?

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.

July 6, 2020 in Business Associations, Conferences, Corporate Finance, Corporations, Joan Heminway, Teaching | Permalink | Comments (1)

Monday, March 9, 2020

Curiosity and Skepticism Make Me Want To Read This Article . . . .

Friend of the BLPB and fellow crowdfunding researcher Andrew Schwartz recently posted this article on SSRN: Mandatory Disclosure in Primary Markets, 2019 Utah L. Rev. 1069.  I was provoked by the abstract, which reads as follows:

Mandatory disclosure—the idea that companies must be legally required to disclose certain, specified information to public investors—is the first principle of modern securities law. Despite the high costs it imposes, mandatory disclosure has been well defended by legal scholars on two theoretical grounds: ‘Agency costs’ and ‘information underproduction.’ While these two concepts are a good fit for secondary markets (where investors trade securities with one another), this Article shows that they are largely irrelevant in the context of primary markets (where companies offer securities directly to investors). The surprising result is that primary offerings—such as an IPO—may not require mandatory disclosure at all. This profound insight calls into question the fundamental premises of the Securities Act of 1933 and similar laws governing primary offerings around the world. Reform of these rules could lead to a new age of simplified, low-cost primary offerings to the public, something that is already happening in New Zealand through its equity crowdfunding market.

As someone who believes that federal law should provide an exemption for small crowdfunded offerings (although current rule-making proposals instead look to ratchet up the aggregate offering prices for the federal crowdfunding exemption) with lighter mandatory disclosure obligations than those provided for under Title III of the Jumpstart Our Business Startups Act and Regulation Crowdfunding, I found myself very curious about Andrew's paper.  So, I skimmed it (since I do not have time to read it in full at the moment).  I am glad to see that the article raises a distinction worth more exploration in the mandatory disclosure space--that between primary and secondary offerings.  But I admit to some skepticism about the overall thesis as to the lack of value of mandatory disclosure in primary offerings.  I hope a thorough review of the paper will provide important information and analyses.  

As the abstract and a recent post on the article on The CLS Blue Sky Blog indicate, the paper highlights for attention two of the theoretical values of mandatory disclosure for examination: its positive effects on agency costs and on information underproduction.  Given those ostensible focuses, here are a few things I will be looking for as I read:

  • An articulation of the different types of agency costs associated with initial public offerings (IPOs) and other primary offerings (as evidenced in the literature) and their relationship to mandatory disclosure obligations, as well as observations on the effects of mandatory and voluntary disclosure on those agency costs;
  • A rationale for why other theories supporting mandatory disclosure regulation are seemingly marginalized or omitted in the paper, including (1) standardization to facilitate investor comparisons and contrasts (which it seems is mentioned in a few footnotes) and (2) efficient capital market theory applications in the IPO disclosure context (including, perhaps, those impacting observed underpricing/overpricing market effects); and
  • An explanation of the role, if any, of investor sophistication and information access (which, together with mandatory disclosure, have framed analyses of the value of mandatory disclosure since the Court's Ralston Purina decision more than 65 years ago) in the article's analyses and overall thesis.

By quick inspection, it appears that the agency costs addressed are restricted to those borne of a manager-shareholder relationship that relies on a somewhat legalistic, rather than economic, concept of agency that would arise only after investors in the market purchase shares of corporate stock in an offering and become shareholders.  I wonder about the role of managers and others as promoters of the offering . . . .  Standardization is at least mentioned in a few places.  And as to the third bullet point, it looks like the answer the paper proffers is that institutional investors will drive significant voluntary disclosure to be made to all in a manner that gets information to the market efficiently.  If that is the argument, I look forward to seeing the evidence.  

So, I am curious, but I remain skeptical.  I am reserving judgment until I read the article in its entirety!  Regardless, this work has my attention, for sure.  Let me know if you have read it and, if so, what your reactions are.  Andrew also may want to comment.

Independent of the mandatory disclosure arguments, I know that I will enjoy reading about New Zealand's crowdfunding experience.  I do find comparative regulatory work like this very enlightening.  I appreciate Andrew adding that to the mix, too.

March 9, 2020 in Corporate Finance, Crowdfunding, Joan Heminway, Securities Regulation | Permalink | Comments (2)

Monday, March 2, 2020

The Health Care Crisis Through A Business Law Frame

I recently had occasion to offer background to, and be interviewed by, a local television reporter about a publicly traded firm that owns several health care facilities in East Tennessee and has been financed significantly through loans from and corporate payments made by a member of its board of directors.  The resulting article and news clip can be found here.  Since the story was published, a Form 8-K was filed reporting that the director has resigned from the board and the firm is negotiating with him to cancel its indebtedness in exchange for preferred stock.

In reviewing published reports on the firm, Rennova Health, Inc., I learned that it had been delisted from NASDAQ back in 2018.  The reason?  The firm engaged in too many stock splits.

I also came across an article reporting that another health care firm, a middle Tennessee skilled nursing provider, Diversicare Healthcare Services, Inc., had been delisted in late 2019.  The same article noted two additional middle Tennessee health care firms also were in danger of being delisted from stock exchanges.  One was subsequently delisted. 

Health care mergers and acquisitions also have been in the news here in Tennessee.  A Tennessee/Virginia health care business combination finalized in 2018 is one of two under study by the Federal Trade Commission.  The combining firms, Mountain States Health Alliance and Wellmont Health System, avoided federal and state antitrust merger approvals and challenges through the receipt of a certificate of public advantage (COPA) under Tennessee law and a coordinated process in Virginia.  The resulting firm, Ballad Health, is an effective health care monopoly in the region and has had well publicized challenges in meeting its commitment to provide cost-effective, quality patient care.

I can only assume that these health care corporate finance issues in Tennessee are a microcosm of what exists nationally.

All of this has made me interested in the U.S. healthcare industry as an engaging and useful lens through which one could teach and write about the legal aspects of corporate finance . . . .  Many of the current business law issues in U.S. health care firms stem from well-known financial challenges in the industry and the related governmental responses (or lack thereof).  With public debates--including in connection with this year's presidential caucuses, primaries, and election--over the extent to which the federal government should provide financial support to the health care industry under existing conditions and whether the health care industry has become too big to fail, health care examples and hypotheticals seem very salient now, in the same way that banking or telecomm examples and hypotheticals may have had pedagogical and scholarly traction in corporate finance in the past.  

Some of the business law issues facing U.S. health care firms may be quite the same as they are for firms in any other industry.  Yet, some also may be unique to the health care industry and worth further, individualized exploration in the classroom or in the research realm.  For example, innovation and entrepreneurship--intricately tied to corporate finance--may be different in the health care space, as currently configured in the United States.  This article makes arguments in that regard.

In all, it seems there is a synergy worth examining in the connections between the U.S. health care crisis and business law teaching and research.  Unless and until something fundamental changes in the U.S. health care delivery system, corporate finance lawyers and professionals are likely to have important (if somewhat hidden) roles in ensuring that health care firms survive while providing cost-effective care to those who need it.  Business law analyses and innovations are sure to play strong roles in this environment, making business law professors key potential contributors. Time for us to step up and take the challenge!

March 2, 2020 in Corporate Finance, Current Affairs, Entrepreneurship, Joan Heminway, M&A, Research/Scholarhip, Teaching | Permalink | Comments (0)

Monday, July 8, 2019

Family Business: Churchill's

Churchill'sPort

Avid BLPB readers may have noticed that I failed to post on Monday of last week.  I was traveling from Portugal to Spain that day.  I did plan to make this post then, but travel scrambles (thanks to the Porto metro) and delays (thanks to Ryanair) prevented me from getting to a computer with Internet access until late in the day.  By then, I was too exhausted to post.  So, you get last Monday's post this Monday!  No harm done; this post is not time-sensitive.

Ever heard of Graham's port?  The Graham's port lodge was founded by brothers William and John Graham back at the beginning of the 18th century.  Fast-forward 150 years, and the Graham family sells the then-very-successful Graham's port business to another family.  That second family still runs the Graham's business today.

But a Graham descendant still wanted to be in the port business.  He thought he had a "better way."  So, 11 years after the Graham family sold Graham's, John Graham (not the same one, obviously!) established the Churchill port lodge.  Here's what the Churchill's website says about its formation as a business:

Churchill’s was founded in 1981 by John Graham, making it the first Port Wine Company to be established in 50 years. The Founder wanted to continue his family’s long Port tradition but at the same time create his own individual style of Port. He named the Company after his wife, Caroline Churchill.

I went to a port wine tasting at the Churchill's lodge in Vila Nova de Gaia, Portugal last Monday with my husband and daughter.  We tasted the uniqueness of the Churchill's product.  (My daughter, who is not a port wine fan, actually enjoyed what she tasted at Churchill's.)  The wine is less sweet than one would expect from a port wine.  John Graham himself explains why:

My Ports are made with as much natural fermentation, and with as little fortification brandy, as possible. I like to make wines in the most natural way. Above all I look for balance. I believe I brought this balance to Churchill’s Ports. There is a consensus around the characteristics that define our house style which are easily identified.

While we were at the tasting, we took a tour and learned the basic facts I relate here.

I was enchanted by the business story!  Headline: A Graham founds Churchill's after the Graham family sells Graham's.  A bit confusing, but a great narrative involving family business, M&A (and corporate finance more generally), intellectual property, business formation, and more.  We learned, for example, that the grapes are foot-treaded (stomped on by human feet).  Imagine the interesting employment questions.  (The shifts are twelve hours and there are stems and seeds in with the grapes . . . .)  And the tasting is still done by John Graham himself, raising questions about key man insurance and business succession planning.   (We were told that John Graham has chosen a successor taster--not a member of the family.  But we did not ask about management.)  Finally, a major real estate acquisition--buying a vineyard (Quinta da Gricha) with a special terroir--is part of the tale.

I am scheming to find ways to integrate what I learned into my teaching this year.  I know I will find places to work aspects of the story in--particularly in Advanced Business Associations and Corporate Finance.  Because I teach on a dry campus, no wine tasting will take place during the lessons.  But maybe an optional out-of-class session could be planned.  Hmmm . . . .

July 8, 2019 in Corporate Finance, Employment Law, Family Business, Joan Heminway, M&A | Permalink | Comments (0)

Friday, July 5, 2019

Call for Papers - The Dark Side of Entrepreneurial Finance

Screenshot 2019-07-05 15.51.43

The dark side of entrepreneurial finance

Editors: Arvind Ashta, Olivier Toutain

Theme of the special issue

Whether we are talking about start-ups, more recently "grow up" or more broadly about company creation-takeover, entrepreneurial finance attracts a lot of attention, from the entrepreneurs' side and from the side of private and public financing organisations and the media. Entrepreneurial finance includes Founder's equity, Love Money, Business Angel, Venture Capital, LBO Funds, banks, IPOs and various alternative financing treated as shadow banking: micro-credit, loan sharking, leasing, crowdfunding, Initial Coin Offerings, among others (Block, Colombo, Cumming, & Vismara, 2018; Wright, Lumpkin, Zott, & Agarwal, 2016).

Financing is considered as an inherent dimension of the entrepreneurial development process (Panda, 2016; Yunus, 2003). Without financing, there is no investment and, therefore, little chance of starting a business with adequate production tools and an organization capable of absorbing the trials and tribulations of starting and developing entrepreneurial activities. Without funding, the risk of lack of legitimacy is also high: what does it mean in the entrepreneurial ecosystem not to have the support of one or more funding agencies? More so in the start-up world! Is that conceivable? Finally, can the entrepreneur now free himself from financial support, even if he does not really need it to start his business? If the reasoning is pursued further, does the entrepreneur have a choice? In other words, is it possible to create and develop your company without mobilizing the financial resources of the territory? Without entering into a financial system and ecosystem that regulates the creation and takeover of companies in a territory? Or a system that pushes the entrepreneur to finance so much that the system itself collapses by bringing forth a financial crisis (Boddy, 2011; Diamond & Rajan, 2009; Donaldson, 2012; Guérin, Labie, & Servet, 2015; Mishkin, 2011).

Applying for funding today is often considered as a difficult adventure: is it really a fighter's path given the particularly numerous mechanisms in France? But are they also numerous in Europe? In the world? Is the cost of financing transparent or hidden (Attuel-Mendes & Ashta, 2013)? In any case, to adventure is to walk and remove obstacles while following a guide... often at the funder's request... which is often called coaching or mentoring. Or following the guide, sometimes - or often, depending on the reader's appreciation – results in respecting rules, imposed steps, in short, to adopt a good conduct... to such an extent that the entrepreneur can lose track of his North Star, or at least part of his project, modified by "pitching" and integrating the comments, suggestions, strong suggestions of potential funders... In other words, if we push the reflection further, the accompanying logic proposed in the form of good intentions by the funders of an ecosystem, are they not likely, by force, to respond to external constraints, to generate effects opposite to expectations: inhibited entrepreneurs, whose project has lost its originality, vitality and excellence through the coaching or mentoring of initially imagined value creation (Collewaert, 2009)? Isn't the finance injected into the support systems finally a Dr Jekyll and Mr Hyde of entrepreneurship? In other words, if it constitutes an unprecedented measure of support for entrepreneurial growth in the world, does it not at the same time generate "antipreneurial" effects? Normative and highly biased, do financial actors deserve such a place in the creative process? What is it that basically legitimizes their central place? (Bateman, 2010; Sinclair, 2012) What is the hidden face of entrepreneurial finance (Henderson & Pearson, 2011; Krohmer, Lauterbach, & Calanog, 2009; Toe, Hollandts, & Valiorgue, 2017)?

The purpose of this issue is to extract itself from the normative fields and discourses that highlight, in the vast majority of cases, the important role of finance in the development of entrepreneurship, whether purely economic, social or environmental. In other words, we are asking ourselves here about the secondary, even hidden, effects of finance on the emergence and development of new companies in France and around the world.

The proposals will address, among other things, the following topics:

  • What place does finance occupy today in the feeling of success and accomplishment of an entrepreneurial activity?
  • How do entrepreneurs interact with potential funders?
  • How do funders dialogue with each other?
  • How do funders make their investment decisions? Rationality, Short termism, information asymmetry....
  • How do entrepreneurs and funders negotiate? On which elements of the project or company? Are there any losers? What is lost in the process?
  • How does the relationship between entrepreneurs and funders change over time?
  • Can finance harm the value creation produced by entrepreneurial activity? Can it affect entrepreneurial freedom?
  • Is it possible to free oneself from financing circuits? How?

Finally, what is the dark side of entrepreneurial finance?

Timeline:

Submission of texts: By April 30, 2020 at the latest

Publication: March 2021

[I have omitted here the list of references supporting the text citations.  Please contact me by email if you would like a .pdf copy of the call for papers that includes the list.  There is more information after the jump.]

Continue reading

July 5, 2019 in Call for Papers, Corporate Finance, Entrepreneurship, Joan Heminway, Research/Scholarhip | Permalink | Comments (0)

Monday, June 3, 2019

Delaware's Standards of Review in Fiduciary Duty Actions - A Philosophical Moment?

At the 2019 Law and Society Association Annual Meeting last week, Geeyoung Min presented her paper Governance by Dividends.  In the paper, she focuses attention on stock dividends.  Near the end of her presentation, Geeyoung trod over ground on which so many of us also have trod--relating to judicial standards of review in fiduciary duty actions.  As familiar as the story was, she helped me to see something I had not seen before.  Perhaps many of you already have identified this.  If so, I am sorry to bore you with my new insight.

Essentially, what I came to realize during her talk--and develop with her and members of the audience in the ensuing discussion--was that Delaware's judiciary may have (and I may be quoting Geeyoung or someone else who was there, since I wrote this down long-form in my contemporaneous notes) muddied the waters by seeking clarity.  What do I mean by that?  Well, by addressing relatively clearly the circumstances in which the business judgment rule, on the one hand, or entire fairness, on the other, govern the judicial review of corporate fiduciary duty allegations, the Delaware judiciary has effectively made the interstitial space between the two--intermediate tier scrutiny--less clear.

As I reflected a bit more, I realized that an analogy could be made to the development of the substantive law of corporate fiduciary duties in Delaware.  The overall story?  Judicial refinement of the fiduciary duties of care and loyalty has left the duty of good faith somewhat more indeterminate.  

I am not sure where all this goes from here, but there may be lessons in these musings for both judicial and legislative rule-makers, among others. As always, your thoughts are welcomed.

June 3, 2019 in Conferences, Corporate Finance, Corporate Governance, Joan Heminway | Permalink | Comments (0)

Wednesday, April 3, 2019

Leveraging Capitalism to Address Inequality

I recently received a copy of Citizen Capitalism: How a Universal Fund Can Provide Influence and Income to All from Sergio Gramitto. While I have not yet read the book, I didn’t want to let another blog post go by without passing along at least some of its highlights, as well as why I am particularly interested in its proposals.

In addition to Sergio, the authors of Citizen Capitalism include Tamara Belinfanti and the late Lynn Stout. Suffice it to say that Lynn was one of our true superstars, and I would hate to miss any presentation by either Sergio or Tamara. I’ve had the pleasure of engaging professionally with all of them in some capacity, and I hold them each in the highest regard.

Sergio and Lynn first discussed the idea of a Universal Fund in their article Corporate Governance as Privately-Ordered Public Policy: A Proposal, and then expanded on that idea with Tamara in Citizen Capitalism. The book has been reviewed in numerous places (see, for example, here and here). What follows is a descriptive excerpt from Cornell’s Clarke Program on Corporations & Society.

We offer a utopian-but feasible-proposal to better align the operations of business corporations with the interests of a broader range of humanity. The heart of the proposal is the creation of a Universal Fund into which individuals, corporations, and state entities could donate shares of public and private corporations. The Universal Fund would then distribute a proportionate interest in the Fund-a Universal Share-to all members of a class of eligible individuals (for example, all citizens over the age of 18), who would then become Universal Shareholders. Like a typical mutual fund, the Universal Fund would "pass through" to its Shareholders all income on its equity portfolio, including dividends and payments for involuntary share repurchases. Unlike a typical mutual fund, however, the Universal Fund would follow an "acquire and hold" strategy and could not sell or otherwise voluntarily dispose of its portfolio interests. Similarly, Universal Shareholders could not sell, bequeath, or hypothecate their Shares. Upon the death of a Universal Shareholder, that individual's Share would revert to the Fund.

Robert Ashford has been advocating for a similar proposal for years (see his SSRN page here) under the heading of binary economics (also known as “inclusive capitalism”). I’ve had the pleasure of working with Robert on a few related projects, and pass along the following excerpt from my article The Inclusive Capitalism Shareholder Proposal for whatever it may be worth.

When it comes to the long-term well being of our society, it is difficult to overstate the importance of addressing poverty and economic inequality. In Capital in the Twenty-First Century, Thomas Piketty famously argued that growing economic inequality is inherent in capitalist systems because the return to capital inevitably exceeds the national growth rate. Proponents of “Inclusive Capitalism” can be understood to respond to this issue by advocating for broadening the distribution of the acquisition of capital with the earnings of capital. Obviously, distributing capital more widely should, all else being equal, help alleviate at least some poverty and close at least some of the economic inequality gap by providing poor-to-middle-class consumers capital (paid for by the earnings of that capital) that they did not have before. But why should corporations distribute the ownership of their capital more broadly? The answer is because broadening the distribution of capital should promote greater growth because low-to-middle-income consumers are understood by many to spend more than wealthy consumers. This increased demand may then be expected to produce gains sufficient to offset the costs incurred in the process of instituting the Inclusive Capitalism proposal presented herein.

Based on my initial overview, I believe one meaningful difference between the Citizen Capitalism proposal and Ashford’s binary economics / inclusive capitalism proposal is the source of funding. The Citizen Capitalism proposal relies on donations while the binary economics proposal relies on the self-interest of corporations in increasing consumer demand.

Regardless, there are good arguments to be made for capitalism being the least worst system for advancing the well-being of individuals, and proposals like the foregoing provide important pro-market alternatives for addressing inequality.

April 3, 2019 in Books, Corporate Finance, Corporate Governance, CSR, Stefan J. Padfield | Permalink | Comments (0)

Monday, March 11, 2019

Call for Papers - Takeovers and Value Creation: Comparative Perspectives

This "just in" from BLPB friends Beate Sjåfjell and Afra Afsharipour:

We are thrilled to co-organise a workshop at UC Davis School of Law on 26 April 2019, with the aim of facilitating an in-depth comparative analysis of the relationship between takeovers and value creation.

We invite submissions on themes concerning takeovers and value creation from any jurisdiction around the world as well as comparative contributions. Themes include but are not limited to:

What are the implications of a takeover on sustainability efforts?

What is the scope for using sustainability arguments as a defense by the target board in a takeover?

What should be the role of the bidder board?

What are the implications of large M&A transactions for building/growing a culture of sustainability at a firm?

Is there a distinct difference between planned mergers and uninvited takeovers?

How could takeovers be regulated to promote sustainable value creation?

We especially encourage female scholars and scholars from diverse backgrounds to submit abstracts. Participation at the workshop will be limited to the presenters, to facilitate in-depth discussions. Deadline for submission of abstracts: 27 March 2019!

Please feel free to send this call for papers on to colleagues who may be interested, and don’t hesitate to get in touch if you have any questions!

This looks like a great opportunity for those of us who work in the M&A space.  But the deadline is fast upon us!  Another thing to consider as a Spring Break activity . . . . 

March 11, 2019 in Call for Papers, Conferences, Corporate Finance, Joan Heminway, M&A | Permalink | Comments (0)