Friday, June 10, 2022

Why Transactional Lawyers Need to Educate Themselves on Compliance

Prior to joining academia, I served as a compliance officer for a Fortune 500 company and I continue to consult on compliance matters today. It's an ever changing field, which is why I'm glad so many students take my Compliance, Corporate Governance, and Sustainability course in the Fall. I tell them that if they do transactional or commercial litigation work, compliance issues will inevitably arise. Here are some examples: 

  • In M&A deals, someone must look at the target's  bribery, money laundering, privacy, employment law, environmental, and other risks
  • Companies have to complete several disclosures. How do you navigate the rules that conflict or overlap?
  • What do institutional investors really care about? What's material when it relates to ESG issues?
  • What training does the board need to ensure that they meet their fiduciary duties?
  • How do you deal with cyberattacks and what are the legal and ethical issues related to paying ransomware?
  • How do geopolitical factors affect the compliance program?
  • Who can be liable for a compliance failure?
  • What happens when people cut corners in a supply chain and how can that affect the company's legal risk?
  • What does a Biden DOJ/SEC mean compared to the same offices under Trump?
  • Who is your client when representing an organization with compliance failures?
  • and so much more

I'm thrilled to be closing out the PLI Compliance and Ethics Essentials conference in New York with my co-panelist Ben Gruenstein of Cravath, Swaine, & Moore. It's no fun being the last set of presenters, but we do have the ethics credits, so please join us either in person or online on June 28th. Our areas of focus include:

  • Risk assessment, program assessment, and attorney-client privilege
  • Ethical obligations for lawyers and compliance officers
  • Which compliance program communications can (and should) be privileged?

In addition to discussing the assigned issues, I also plan to arm the compliance officers with more information about the recent trend(?) of Caremark cases getting past the motion to dismiss stage and compliance lessons learned from the Elon Musk/Twitter/Tesla saga. 

Here's the description of the conference, but again, even if you're not in compliance, you'll be a better transactional lawyer from learning this area of the law. 

Compliance and ethics programs are critically important to the success of any organization. Effective programs allow organizations to identify and mitigate legal risks. With an increasingly tough enforcement environment, and greater demands for transparency and accountability, an effective compliance program is no longer just “nice-to-have.” It’s essential. 

Whether you are new to the area or a seasoned compliance professional, PLI’s program will give you the tools you need to improve your organization’s compliance program.  We will review the principal elements of compliance programs and discuss best practices and recent developments for each.  Our distinguished faculty, drawn from major corporations, academia, law firms and the government, can help you improve your program, increase employee awareness and decrease legal risk.  Compliance and Ethics Essentials 2022 is highly interactive and includes case studies, practical tools and real-time benchmarking.

What You Will Learn 

  • Designing and conducting effective compliance risk assessments that enhance your program
  • Structuring your program for appropriate independence and authority
  • The evolving role of the board
  • ESG and your compliance program
  • Using data analytics to improve your program
  • Encouraging reporting and investigating allegations of wrongdoing
  • Best practices in compliance codes, communications, training and tools
  • Ethics for compliance professionals

Who Should Attend

If you are involved in any aspect of corporate compliance and ethics as in-house counsel, a compliance and ethics officer, human resources executive, outside counsel, or risk management consultant, this event should be on your annual calendar.

Special Feature: Special luncheon presentation with guest speaker

If you do come to the conference, I would love to grab a cup of coffee with you, so reach out.

June 10, 2022 in Compliance, Conferences, Consulting, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Ethics, Financial Markets, Lawyering, Legislation, M&A, Marcia Narine Weldon | Permalink | Comments (0)

Friday, May 20, 2022

What Do FIFA, Nike, and PornHub Have In Common?

It's a lovely Friday night for grading papers for my Business and Human Rights course where we focused on ESG, the Sustainable Development Goals (SDGs), and the UN Guiding Principles on Business and Human Rights. My students met with in-house counsel, academics, and a consultant to institutional investors; held mock board meetings; heard directly from people who influenced the official drafts of EU's mandatory human rights and environmental due diligence directive  and the ABA's Model Contract Clauses for Human Rights; and conducted simulations (including acting as former Congolese rebels and staffers for Mitch McConnell during a conflict minerals exercise). Although I don't expect them all to specialize in this area of the law, I'm thrilled that they took the course so seriously, especially now with the Biden Administration rewriting its National Action Plan on Responsible Business Conduct with public comments due at the end of this month.

The papers at the top of my stack right now:

  1. Apple: The Latest Iphone's Camera Fails to Zoom Into the Company's Labor Exploitation
  2. TikTok Knows More About Your Child Than You Do: TikTok’s Violations of Children’s Human Right to Privacy in their Data and Personal Information
  3. Redraft of the Nestle v. Doe Supreme Court opinion
  4. Pornhub or Torthub? When “Commitment to Trust and Safety” Equals Safeguarding of Human Rights: A Case Study of Pornhub Through The Lens of Felites v. MindGeek 
  5. Principle Violations and Normative Breaches: the Dakota Access Pipeline - Human rights implications beyond the land and beyond the State
  6. FIFA’s Human Rights Commitments and Controversies: The Ugly Side of the Beautiful Game
  7. The Duty to Respect: An Analysis of Business, Climate Change, and Human Rights
  8. Just Wash It: How Nike uses woke-washing to cover up its workplace abuses
  9. Colombia’s armed conflict, business, and human rights
  10. Artificial Intelligence & Human Rights Implications: The Project Maven in the ‘Business of war.’
  11. A Human Rights Approach to “With Great Power Comes Great Responsibility”: Corporate Accountability and Regulation
  12. Don’t Talk to Strangers” and Other Antiquated Childhood Rules Because The Proverbial Stranger Now Lives in Your Phone
  13. Case studies on SnapChat, Nestle Bottling Company, Lush Cosmetics, YouTube Kidfluencers, and others 

Business and human rights touches more areas than most people expect including fast fashion, megasporting events, due diligence disclosures,  climate change and just transitions, AI and surveillance, infrastructure and project finance, the use of slave labor in supply chains, and socially responsible investing. If you're interested in learning more, check out the Business and Human Rights Resources Center, which tracks 10,000 companies around the world. 

May 20, 2022 in Compliance, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Ethics, Financial Markets, Human Rights, International Business, International Law, Marcia Narine Weldon, Securities Regulation, Teaching | Permalink | Comments (0)

Friday, March 25, 2022

Post-pandemic evolution, change management, and the role of in-house counsel

Join me in sunny Miami on April 26 for this in-person conference featuring outside counsel, inhouse practitioners, and academics. 

Panel topics include:

Change Management: The Legal Department of the Future -  More and more, in-house legal departments are employing new hybrid and remote work models, incorporating artificial intelligence and technology in their workflows, and restructuring and absorbing new teams after mergers, acquisitions, and divestitures. This panel discussion will focus on how the in-house legal department can be a champion in leading successful developmental and transformational change by implementing change management best practices to be effective and efficient, remaining client-focused, and being a trusted business advisor.

Remote Work:  Accelerated Adoption and Related Challenges - Which option would you choose: on-site, hybrid, or virtual? We will discuss the pros and cons of remote work arrangements, including the challenges of implementing a remote work policy in Latin America where the legal framework is a complex patchwork of requirements, as well as the strategies for creating culture and building a team in a remote work environment.

Counseling the Board of Directors (the panel I'm on)-  This panel will focus on issues that arise when counseling the board of directors and address important topics, including governance, ethics, fiduciary duties, director liability, best practices (diversity and environmental, social, and governance (ESG)), privileged insurance, and D&O insurance all in the context of private and public companies operating in the United States and Latin America.

Supply Chain: Challenges and Opportunities- Lessons learned from recent disruptions in global supply chains will shape crossborder business in the coming years. Our panel will discuss short- and long-term challenges and opportunities in supply chain management and logistics, as well as practical strategies for using technology, contractual protections, and risk-transfer solutions to overcome future supply-chain challenges.

What Is Your Company’s ESG Score? This panel will discuss the origins of climate change management, sustainability and how to operationalize it at your company, as well as how to transition to a low-carbon economy— including standards and disclosures. Panelists will also discuss the importance of implementing mechanisms to adopt a company’s ESG score as an ethical obligation to company commitments and as a governance imperative.

Click here to register.

If you make it down to Miami, I promise to buy you a mojito or cafecito. And don't worry, hurricane season doesn't start until June. 

 

March 25, 2022 in Compliance, Conferences, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Ethics, Financial Markets, International Business, Law Firms, Lawyering, Marcia Narine Weldon | Permalink | Comments (0)

Monday, February 28, 2022

2022 Online Symposium – Mainstreet vs. Wallstreet: The Democratization of Investing Friday, March 4 12:30-3:30

2022 Online Symposium – Mainstreet vs. Wallstreet: The Democratization of Investing

I'm thrilled to moderate two panels this Friday and one features our rock star BLPB editor, Ben Edwards. 

                                                                     REGISTER HERE

The University of Miami Business Law Review is hosting its 2022 online symposium on Friday, March 4, 2022. The symposium will run from 12:30 PM to 3:30 PM. The symposium will be conducted via Zoom. Attendees can apply to receive CLE credits for attending this event—3.5 CLE credits have been approved by the Florida Bar. 

The symposium will host two sessions with expert panelists discussing the gamification of trading platforms and the growing popularity of aligning investments with personal values.

The panels will be moderated by Professor Marcia Narine Weldon, who is the director of the Transactional Skills Program, Faculty Coordinator of the Business Compliance & Sustainability Concentration, and a Lecturer in Law at the University of Miami School of Law.

Panel 1: Gamification of Trading 

This panel will focus on the role of social media and “gamification” of trading apps/platforms in democratizing investing, and the risks that such technology may influence investor behavior (i.e., increase in trading, higher risk trading strategies like options and margin use, etc.).

Gerri Walsh:

Gerri Walsh is Senior Vice President of Investor Education at the Financial Industry Regulatory Authority (FINRA). In this capacity, she is responsible for the development and operations of FINRA’s investor education program. She is also President of the FINRA Investor Education Foundation, where she manages the Foundation’s strategic initiatives to educate and protect investors and to benchmark and foster financial capability for all Americans, especially underserved audiences. Ms. Walsh was the founding executive sponsor of FINRA’s Military Community Employee Resource Group. She serves on the Advisory Council to the Stanford Center on Longevity and represents FINRA on IOSCO’s standing policy committee on retail investor education, the Jump$tart Coalition for Personal Financial Literacy, NASAA’s Senior Investor Advisory Council and the Wharton Pension Research Council.

Prior to joining FINRA in May 2006, Ms. Walsh was Deputy Director of the Securities and Exchange Commission’s Office of Investor Education and Assistance (OIEA) and, before that, Special Counsel to the Director of OIEA. She also served as a senior attorney in the SEC’s Division of Enforcement, investigating and prosecuting violators of the federal securities laws. Before that, she practiced law as an associate with Hogan Lovells in Washington, D.C.

Ari Bargil:

Ari Bargil is an attorney with the Institute for Justice. He joined IJ’s Miami Office in September of 2012, and litigates constitutional cases protecting economic liberty, property rights, school choice, and free speech in both federal and state courts.

In 2019, Ari successfully defended two of Florida’s most popular school choice programs, the McKay Program for Students with Disabilities and the Florida Tax Credit Program, before the Florida Supreme Court. As a direct result of the victory, over 120,000 students in Florida have access to scholarships that empower them to attend the schools of their choice.

Ari also regularly defends property owners battling aggressive zoning regulations and excessive fines in state and federal court nationwide and litigates on behalf of entrepreneurs in cutting-edge First Amendment cases. He was co-counsel in a federal appellate court victory vindicating the right of a Florida dairy creamery to tell the truth on its labels, and he is currently litigating in federal appellate court to secure a holistic health coach’s right to share advice about nutrition with her clients. In 2017, Ari was honored by the Daily Business Review as one of South Florida’s “Most Effective Lawyers.”

In addition to litigation, Ari regularly testifies before state and local legislative bodies and committees on issues ranging from occupational licensing to property rights regulation. Ari has also spearheaded several successful legislative campaigns in Florida, including the effort to legalize the sale of 64-ounce “growlers” by craft breweries and the Florida Legislature’s passage of the Right to Garden Act—a reform which made it unlawful for local governments to ban residential vegetable gardens throughout the state.

Ari’s work has been featured by USA Today, NPR, Fox News, Washington Post, Miami Herald, Dallas Morning News and other national and local publications.

Christine Lazaro:

Christine Lazaro is Director of the Securities Arbitration Clinic at St. John’s University School of Law. She joined the faculty at St. John’s in 2007 as the Clinic’s Supervising Attorney. She is also a faculty advisor for the Corporate and Securities Law Society.

Prior to joining the Securities Arbitration Clinic, Professor Lazaro was an associate at the boutique law firm of Davidson & Grannum, LLP.  At the firm, she represented broker-dealers and individual brokers in disputes with clients in both arbitration and mediation.  She also handled employment law cases and debt collection cases.  Professor Lazaro was the primary attorney in the firm’s area of practice that dealt with advising broker-dealers regarding investment contracts they had with various municipalities and government entities.  Professor Lazaro is also of Counsel to the Law Offices of Brent A. Burns, LLC, where she consults on securities arbitration and regulatory matters.

Professor Lazaro is a member of the New York State and the American Bar Associations, and the Public Investors Arbitration Bar Association (PIABA). Professor Lazaro is a past President of PIABA and is a member of the Board of Directors.  She is also a co-chair of PIABA’S Fiduciary Standards Committee, and is a member of the Executive, Legislation, Securities Law Seminar, and SRO Committees. Additionally, Professor Lazaro is the co-chair of the Securities Disputes Committee in the Dispute Resolution Section of the New York State Bar Association and serves on the FINRA Investor Issues Advisory Committee. 

Panel 2: ESG Investing

The second panel will address the growing popularity of ESG funds among investors that want to align their investments with their personal values, and the questions/concerns that arise with ESG funds, including: 1) explaining what they are; 2) discussing the varying definitions and disclosure issues; 3) exploring if investors really give up better market performance if they invest in funds that align with their values; and 4) asking if the increased interest in ESG funds affect corporate change? 

Thomas Riesenberg:

Mr. Riesenberg is Senior Regulatory Advisor to Ceres, working on climate change issues. He previously worked as an advisor to EY Global’s Office of Public Policy on ESG regulatory issues. Before that he worked as the Director of Legal and Regulatory Policy at The Sustainability Accounting Standards Board pursuant to a secondment from EY. At SASB he worked on a range of US and non-US policy matters for nearly seven years. He served for more than 20 years as counsel to EY, including as the Deputy General Counsel responsible for regulatory matters, primarily involving the SEC and the PCAOB. Previously he served for seven years as an Assistant General Counsel at the U.S. Securities and Exchange Commission where he handled court of appeals and Supreme Court cases involving issues such as insider trading, broker-dealer regulation, and financial fraud. While at the SEC he received the Manuel Cohen Outstanding Younger Lawyer Award for his work on significant enforcement cases. He also worked as a law clerk for a federal district court judge in Washington, D.C., as a litigator on environmental matters at the U.S. Department of Justice, and as an associate at a major Washington, D.C. law firm.

Mr. Riesenberg graduated from the New York University School of Law, where he was a member of the Law Review and a Root-Tilden Scholar (full-tuition scholarship). He received a bachelor’s degree from Oberlin College, where he graduated with honors and was elected to Phi Beta Kappa. He is a former chair of the Law and Accounting Committee of the American Bar Association, former president of the Association of SEC Alumni, former treasurer of the SEC Historical Society, and a current member of the Advisory Board of the BNA Securities Regulation and Law Report. For seven years he was an adjunct professor of securities law at the Georgetown University Law Center. He is an elected member of the American Law Institute. He serves on the boards of several nonprofit organizations, including the D.C. Jewish Community Relations Council and the Washington Tennis & Education Foundation. He is the author of numerous articles on securities law and ESG disclosure issues.

Benjamin Edwards:

Benjamin Edwards joined the faculty of the William S. Boyd School of Law at the University of Nevada, Las Vegas in 2017. In addition to being the Director of the Public Policy Clinic, he researches and writes about business and securities law, corporate governance, arbitration, and consumer protection. Prior to teaching, Professor Edwards practiced as a securities litigator in the New York office of Skadden, Arps, Slate, Meagher & Flom LLP. At Skadden, he represented clients in complex civil litigation, including securities class actions arising out of the Madoff Ponzi scheme and litigation arising out of the 2008 financial crisis.

Max Schatzow:

Max Schatzow is a co-founder and partner of RIA Lawyers LLC—a boutique law firm that focuses almost exclusively on representing investment advisers with legal and regulatory issues. Prior to RIA Lawyers, Max worked at Morgan Lewis representing some of the largest financial institutions in the United States and at another law firm where he represented investment advisers and broker-dealers. Max is a business-minded regulatory lawyer that always tries to put himself in the client’s position. He assists clients in all aspects of forming, registering, owning, and operating an investment adviser. He prides himself in preparing clients and their compliance programs to avert regulatory issues, but also assists clients through examinations and enforcement issues. In addition, Max assists advisers that manage private investment funds. In his little spare time, Max enjoys the Peloton (both stationary and road), golf, craft beer, and spending time with his wife and two children.

February 28, 2022 in Compliance, Conferences, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Ethics, Financial Markets, Law Reviews, Law School, Lawyering, Legislation, Marcia Narine Weldon, Research/Scholarhip, Securities Regulation | Permalink | Comments (0)

Friday, February 11, 2022

Business and Sports

Between the Winter Olympics and the Superbowl, this weekend is a sports-lover's dream. But it can also be a nightmare for others. Next week in my Business and Human Rights class, we'll discuss the business of sports and the role of business in sports. For some very brief background, under the UN Guiding Principles on Business and Human Rights, the state has a duty to protect human rights but businesses have a responsibility (not a duty) to "respect" human rights, which means they can't make things worse. Businesses should also mitigate negative human rights impacts. I say "should" because the UNGPs aren't binding on businesses and there's a hodgepodge of due diligence and disclosure regimes that often conflict and overlap. But things are changing and with ESG discussions being all the rage and human rights and labor falling under the "S" factor, businesses need to do more. The EU is also finalizing mandatory human rights due diligence rules and interestingly, some powerful investors and companies are on board, likely so there's some level of certainty and harmonization of standards. 

I've blogged in the past about human rights issues in sports, particularly the Olympics and World Cup in Brazil, where hundreds of thousands of people were displaced, FIFA had its own courts, and human rights issues abounded. For more on human rights and megasporting events, see this post about the Russian Olympics. The current Olympics in China and the future World Cup in Qatar have been rife with controversy because of the long-standing human rights abuses in those countries. Some athletes have even called the Winter Olympics the Genocide Olympics.

So whose problem is it? If businesses know that there's almost always some human rights impact with megasporting events and they know sponsorship doesn't really add to the bottom line, should they get out of the sponsorship business all together? Are they complicit or merely (innocent) bystanders?

Here are the questions I've asked my students to consider for class this week. 

  1. My hometown of Miami is vying for a spot to host the 2026 World Cup. What are the obligations of the "state" when it's a city? As the US government begins revising its National Action Plan on Responsible Business Conduct in accordance with the UNGPs, should a city do more than the national government? Should FIFA look at issues such as the effect of the games on the cities beyond revenue that will enrich only a few?
  2. Cities have a human rights obligation to protect their citizens but what responsibility do companies have to make sure they don't exacerbate pre-existing homelessness issues?
  3. Does it matter if the company sponsoring is Nike (directly working with athletes), Coca Cola (providing beverages), or another company that's just an advertiser? Is there a difference in the degree of corporate responsibility (if any)?
  4. Commentators have accused Nike and other companies of using forced labor in China. Is there a conflict with their support of Colin Kaepernick and the Black Lives Matter movement while also participating in events where there are alleged human rights abuses?
  5. What about the issue of human trafficking and megasporting events? It's such a big problem that the NFL has partnered with US Customs and Border Patrol for a public service announcement about it in light of the Superbowl. Are public service announcements enough?
  6. Should athletes boycott events in countries with poor human rights records? How would that affect their sponsorships and their other contractual obligations? A Boston Celtic called for a boycott of the Beijing Olympics, but who's really listening?
  7. How do what athletes say about Black Lives Matter and taking a knee square with participating in events in China? Should athletes, who are businesses, just shut up and dribble? If an athlete/businessman like LeBron James takes on Black Lives Matter does he have an equal obligation to protest against the use of forced labor in China?
  8. FIFA and the International Olympic Committee are corporations that base their human rights policies in part on the UNGPs. They have spoken out against discrimination, human rights, and  racism in sport.  Is it too much or too little? How far should a company like FIFA or the NFL go before they alienate fans by talking about hot button issues?
  9. Should fans boycott events that are known for human rights abuses? How does that affect the livelihood of the workers who depend on that revenue? Would a boycott benefit or hurt those who need the support the most?

I look forward to a lively discussion in class on Wednesday about the respective roles and responsibilities of the state, the companies, and the fans. Will you look at sports any differently after reading this post?  If you have thoughts, please leave a comment or email me at mweldon@law.miami.edu.

 

 

 

February 11, 2022 in Corporations, CSR, Current Affairs, Ethics, Human Rights, International Business, Law School, Marcia Narine Weldon, Sports | Permalink | Comments (0)

Friday, September 24, 2021

Ten Ethical Traps for Business Lawyers

I'm so excited to present later this morning at the University of Tennessee College of Law Connecting the Threads Conference today at 10:45 EST. Here's the abstract from my presentation. In future posts, I will dive more deeply into some of these issues. These aren't the only ethical traps, of course, but there's only so many things you can talk about in a 45-minute slot. 

All lawyers strive to be ethical, but they don’t always know what they don’t know, and this ignorance can lead to ethical lapses or violations. This presentation will discuss ethical pitfalls related to conflicts of interest with individual and organizational clients; investing with clients; dealing with unsophisticated clients and opposing counsel; competence and new technologies; the ever-changing social media landscape; confidentiality; privilege issues for in-house counsel; and cross-border issues. Although any of the topics listed above could constitute an entire CLE session, this program will provide a high-level overview and review of the ethical issues that business lawyers face.

Specifically, this interactive session will discuss issues related to ABA Model Rules 1.5 (fees), 1.6 (confidentiality), 1.7 (conflicts of interest), 1.8 (prohibited transactions with a client), 1.10 (imputed conflicts of interest), 1.13 (organizational clients), 4.3 (dealing with an unrepresented person), 7.1 (communications about a lawyer’s services), 8.3 (reporting professional misconduct); and 8.4 (dishonesty, fraud, deceit).  

Discussion topics will include:

  1. Do lawyers have an ethical duty to take care of their wellbeing? Can a person with a substance use disorder or major mental health issue ethically represent their client? When can and should an impaired lawyer withdraw? When should a lawyer report a colleague?
  2. What ethical obligations arise when serving on a nonprofit board of directors? Can a board member draft organizational documents or advise the organization? What potential conflicts of interest can occur?
  3. What level of technology competence does an attorney need? What level of competence do attorneys need to advise on technology or emerging legal issues such as SPACs and cryptocurrencies? Is attending a CLE or law school course enough?
  4. What duties do lawyers have to educate themselves and advise clients on controversial issues such as business and human rights or ESG? Is every business lawyer now an ESG lawyer?
  5. What ethical rules apply when an in-house lawyer plays both a legal role and a business role in the same matter or organization? When can a lawyer representing a company provide legal advice to an employee?
  6. With remote investigations, due diligence, hearings, and mediations here to stay, how have professional duties changed in the virtual world? What guidance can we get from ABA Formal Opinion 498 issued in March 2021? How do you protect confidential information and also supervise others remotely?
  7. What social media practices run afoul of ethical rules and why? How have things changed with the explosion of lawyers on Instagram and TikTok?
  8. What can and should a lawyer do when dealing with a businessperson on the other side of the deal who is not represented by counsel or who is represented by unsophisticated counsel?
  9. When should lawyers barter with or take an equity stake in a client? How does a lawyer properly disclose potential conflicts?
  10. What are potential gaps in attorney-client privilege protection when dealing with cross-border issues? 

If you need some ethics CLE, please join in me and my co-bloggers, who will be discussing their scholarship. In case Joan Heminway's post from yesterday wasn't enough to entice you...

Professor Anderson’s topic is “Insider Trading in Response to Expressive Trading”, based upon his upcoming article for Transactions. He will also address the need for business lawyers to understand the rise in social-media-driven trading (SMD trading) and options available to issuers and their insiders when their stock is targeted by expressive traders.

Professor Baker’s topic is “Paying for Energy Peaks: Learning from Texas' February 2021 Power Crisis.” Professor Baker will provide an overview of the regulation of Texas’ electric power system and the severe outages in February 2021, explaining why Texas is on the forefront of challenges that will grow more prominent as the world transitions to cleaner energy. Next, it explains competing electric power business models and their regulation, including why many had long viewed Texas’ approach as commendable, and why the revealed problems will only grow more pressing. It concludes by suggesting benefits and challenges of these competing approaches and their accompanying regulation.

Professor Heminway’s topic is “Choice of Entity: The Fiscal Sponsorship Alternative to Nonprofit Incorporation.” Professor Heminway will discuss how for many small business projects that qualify for federal income tax treatment under Section 501(a) of the U.S. Internal Revenue Code of 1986, as amended, the time and expense of organizing, qualifying, and maintaining a tax-exempt nonprofit corporation may be daunting (or even prohibitive). Yet there would be advantages to entity formation and federal tax qualification that are not available (or not easily available) to unincorporated business projects. Professor Heminway addresses this conundrum by positing a third option—fiscal sponsorship—and articulating its contextual advantages.

Professor Moll’s topic is “An Empirical Analysis of Shareholder Oppression Disputes.” This panel will discuss how the doctrine of shareholder oppression protects minority shareholders in closely held corporations from the improper exercise of majority control, what factors motivate a court to find oppression liability, and what factors motivate a court to reject an oppression claim. Professor Moll will also examine how “oppression” has evolved from a statutory ground for involuntary dissolution to a statutory ground for a wide variety of relief.

Professor Murray’s topic is “Enforcing Benefit Corporation Reporting.” Professor Murray will begin his discussion by focusing on the increasing number of states that have included express punishments in their benefit corporation statutes for reporting failures. Part I summarizes and compares the statutory provisions adopted by various states regarding benefit reporting enforcement. Part II shares original compliance data for states with enforcement provisions and compares their rates to the states in the previous benefit reporting studies. Finally, Part III discusses the substance of the benefit reports and provides law and governance suggestions for improving social benefit.

All of this and more from the comfort of your own home. Hope to see you on Zoom today and next year in person at the beautiful UT campus.

September 24, 2021 in Colleen Baker, Compliance, Conferences, Contracts, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Delaware, Ethics, Financial Markets, Haskell Murray, Human Rights, International Business, Joan Heminway, John Anderson, Law Reviews, Law School, Lawyering, Legislation, Litigation, M&A, Management, Marcia Narine Weldon, Nonprofits, Research/Scholarhip, Securities Regulation, Shareholders, Social Enterprise, Teaching, Unincorporated Entities, White Collar Crime | Permalink | Comments (0)

Friday, July 16, 2021

My Thoughts on Cuba

I've posted on Cuba and business in the past. See here, here, and here, for example.

I have 3,000 pictures of Cuba from my four visits to research and speak on business and human rights. I’ve written three law review articles and met with farmers, judges, lawyers, families of people who have “disappeared,” restaurant owners and others. For the law review articles see, Ten Ethics-Based Questions for U.S. Companies Seeking to do Business in Cuba, The Cuba Conundrum: Corporate Governance and Compliance Challenges for U.S. Publicly-Traded Companies, and You Say Embargo, I Say Bloqueo—A Policy Recommendation for Promoting Foreign Direct Investment and Safeguarding Human Rights in Cuba.

This is a different kind of post. It's more personal. 

My first visit in 2016 was during the Bienal art festival, where some of the most talented artists in the region had their work featured by the New York Times. I visited some of them in their homes. Later in the trip, I spent time with members of the Florida bar to learn from local lawyers and economists. One lawyer who spoke with us had to move to the US after someone misreported what he had said to us in a closed door meeting. Our tour guide reminded me that while we had dozens of cheeses and fruits to choose from in our hotel, the average Cuban had to use a ration card. Afrocuban women who walked into nice hotels were stopped because they were assumed to be prostitutes.

I met with Black lawyers in bufetes in Santiago de Cuba during a visit with the National Bar Association and Ben Crump. I sat on a panel with Cuban judges and received a copy of their Constitution as a gift. I was careful to use “bloqueo” instead of “embargo” in my remarks and gently corrected the interpreter when she put a slant on my words about human rights. The Cuban government searched all of our luggage when we landed and unlike other colleagues, my materials weren't confiscated because I made sure not to have hard copies. I destroyed my online version of my presentation as soon as I concluded. This was not any different from my past visits to do business in China and prepared me for my trip to teach in Pakistan in 2019.

The 2018 trip to Cuba was different from my other three visits. I smoked my first and last cigar in Cuba on a tobacco farm in Vinales. I walked the malecón every morning at sunrise to talk to fishermen. I didn't have to use government tour guides who were always watching. One upside of the Trump rules related to Cuba limiting US hotels was that Cubans opened their own AirbnBs. I met with a former accountant who wasn't making any money in his chosen profession but could now afford to travel overseas to get more materials for his Airbnb. He also restored old family cars and made more in a month hiring drivers to take care of his guests than he had in a year.  I went to a baseball game with locals, met with Afrocuban millennial entrepreneurs to learn about ceremonies, ritual, and culture, and watched a 21-year old driver marvel at being able to use the internet on his phone to find a date. The government had just opened up widespread internet access to Cubans the week before. He worried about using up his minutes like we used to ten years ago. Things weren't great, but they were looking up. 

I fell in love with the people and the culture. With each visit, I saw changes and more cautious, skeptical optimism from people. I had planned to visit again after Covid to see the effects of reforms. That will have to wait. I’m so proud of the Cuban people for standing up for themselves with the protests. The rise of the internet gave rise to the government’s worst fear. Artists and their music helped to motivate the people to ignore their fear of repercussions. Cuba is about so much more than rum, salsa, and restored cars. #soscuba

Cuba collage

July 16, 2021 in Compliance, CSR, Current Affairs, Human Rights, Marcia Narine Weldon | Permalink | Comments (0)

Tuesday, July 6, 2021

Social Enterprise Centers

In 2008, my university (Belmont University) was supposedly the first to offer a social entrepreneurship major. Since then, not only have the schools offering majors in social entrepreneurships grown, but many schools have created centers, institutes, or programs dedicated to the area. Below I try to gather these social enterprise centers in universities. The vast majority are in business schools, some are collaborative across campus, and a few are located in other schools such as law, social work, or design. A few have a specifically religious take on business and social good. Happy to update this list with any centers I missed. 

Lewis Institute at Babson https://www.babson.edu/academics/centers-and-institutes/the-lewis-institute/about/# 

Christian Collective for Social Innovation at Baylor https://www.baylor.edu/externalaffairs/compassion/index.php?id=976437

Center for Social Innovation at Boston College https://www.bc.edu/content/bc-web/schools/ssw/sites/center-for-social-innovation/about.html

Watt Family Innovation Center at Clemson https://www.clemson.edu/centers-institutes/watt/

Center for the Integration of Faith and Work at Dayton https://udayton.edu/business/experiential_learning/centers/cifw/index.php

CASE i3 at Duke https://sites.duke.edu/casei3/

Social Innovation Collaboratory at Fordham https://www.fordham.edu/info/23746/social_innovation_collaboratory

Social Enterprise & Nonprofit Clinic at Georgetown  https://www.law.georgetown.edu/experiential-learning/clinics/social-enterprise-and-nonprofit-clinic/

and Beeck Center for Social Impact and Innovation at Georgetown https://beeckcenter.georgetown.edu

Global Social Entrepreneurship Institute at Indiana https://kelley.iu.edu/faculty-research/centers-institutes/international-business/programs-initiatives/global-social-entrepreneurship-institute.html

Business + Impact at Michigan https://businessimpact.umich.edu

Social Enterprise Institute at Northeastern https://www.northeastern.edu/sei/

Center for Ethics and Religious Values in Business at Notre Dame https://cerv-mendoza.nd.edu

Skoll Centre for Social Entrepreneurship at Oxford https://www.sbs.ox.ac.uk/research/centres-and-initiatives/skoll-centre-social-entrepreneurship

Wharton Social Impact Iniviative at Penn https://socialimpact.wharton.upenn.edu/

and Center for Social Impact Strategy at Penn https://csis.upenn.edu

Faith and Work Initiative at Princeton https://faithandwork.princeton.edu/about-us

Center for Faithful Business at Seattle Pacific https://cfb.spu.edu

Center for Social Innovation at Stanford https://www.gsb.stanford.edu/faculty-research/centers-initiatives/csi

Social Innovation Initiative at Texas https://www.mccombs.utexas.edu/Centers/Social-Innovation-Initiative

Taylor Center for Social Innovation and Design Thinking at Tulane https://taylor.tulane.edu/about/

Social Innovation Cube at UNC https://campusy.unc.edu/cube/

Social Innovation at the Wond’ry at Vanderbilt https://www.vanderbilt.edu/thewondry/programs/social-innovation/

Program for Leadership and Character at Wake Foresthttps://leadershipandcharacter.wfu.edu/#

Program on Social Enterprise at Yale https://som.yale.edu/faculty-research/our-centers/program-social-enterprise/programs

 

 

July 6, 2021 in Business School, CSR, Entrepreneurship, Ethics, Haskell Murray, Law School, Religion, Social Enterprise, Teaching | Permalink | Comments (0)

Tuesday, April 27, 2021

ESG and the Discipline of Secrecy

The ESG movement (or EESG, if you want to follow Leo Strine on this) has been in the business and legal news quite a lot recently.

In a Bloomberg article about the tax perks of trillions of dollars in Environmental, Social, and Governance investing by Wall Street banks, tax specialist Bryen Alperin is quoted as saying: “ESG investing isn’t some kind of hippie-dippy movement. It’s good for business.”

This utilitarian approach to ESG, and social enterprise in general, has made me uncomfortable for a while. The whole “Doing Well by Doing Good” saying always struck me as problematic.

ESG and social enterprise are only needed when the decisions made are not likely to lead to the most financially profitable outcomes. Otherwise, it is just self-interested business.

Over my spring sabbatical, I have been reading a fair bit about spiritual disciplines and the one that is most relevant here is “Secrecy.” The discipline of secrecy is defined as “Consciously refraining from having our good deeds and qualities generally known, which, in turn, rightly disciplines our longing for recognition.” In The Spirit of the Disciplines, Dallas Willard (USC Philosophy) writes, “Secrecy at its best teaches love and humility…. and that love and humility encourages us to see our associates in the best possible light, even to the point of our hoping they will do better and appear better than us.”

As a professor with active social media accounts, the discipline of secrecy is not an easy one for me. But I do think it is a good aspiration for all of us. Not every good deed has to be kept in secret. There can be good reasons for broadcasting good deeds (for example, to encourage others.) However, regularly performing good deeds in secret can help us build selfless character.

Similarly, socially conscious businesses and investors should be focused on the broader good being done, not on the personal benefits. Granted, I don’t think investors can blindly trust the ESG funds or benefit corporations --- the screens are simply unreliable. Also, it may be difficult to determine which companies are really doing social good if they are practicing much of it in secret. But the truth has a tendency of leaking out over time and investors can focus on companies they see doing the right thing without excessive marketing.

As for the companies themselves, I remain optimistic that there are at least a few businesspeople who truly want to benefit society for mostly selfless reasons. Combatting selfishness is not easy, but the discipline of secrecy is one way to fight it.  

April 27, 2021 in Books, Corporations, CSR, Ethics, Haskell Murray, Philosophy, Religion, Social Enterprise | Permalink | Comments (1)

Saturday, April 24, 2021

Paper from Prof. Haneman: Menstrual Capitalism, Period Poverty, and the Role of the B Corporation

My friend and colleague Prof. Victoria Haneman has shared her paperMenstrual Capitalism, Period Poverty, and the Role of the B Corporation.  Here is the abstract: 

A menstruation industrial complex has arisen to profit from the monthly clean-up of uterine waste, and it is interesting to consider the way in which period poverty and menstrual capitalism are opposite sides of the same coin. Given that the average woman will dispose of 200 to 300 pounds of “pads, plugs and applicators” in her lifetime and menstruate for an average of thirty-eight years, this is a marketplace with substantial profit to be reaped even from the marginalized poor. As consciousness of issues such as period poverty and structural gender inequality increases, menstrual marketing has evolved and gradually started to “go woke” through messaging that may or may not be genuine. Companies are profit-seeking and the woke-washing of advertising, or messaging designed to appeal to progressively-oriented sentimentality, is a legitimate concern. Authenticity matters to those consumers who would like to distinguish genuine brand activism from appropriating marketing, but few objective approaches are available to assess authentic commitment.

This Essay considers the profit to be made in virtue signaling solely for the purpose of attracting customers and driving sales: pro-female, woke menstruation messaging that may merely be an exploitative and empty co-optation. Feminists should be expecting more of menstrual capitalists, including a commitment that firms operating within this space address the diapositive issue of period poverty, one of the most easily solved but rarely discussed public health crisis of our time, and meaningfully assist those unable to meet basic hygiene needs who may never be direct consumers. This Essay serves as a thought piece to explore the idea of B Corporation certification as an implicit sorting device to distinguish hollow virtue signaling from those menstrual capitalists committed to socially responsible pro-womxn business practices.

It is well-known that I am not fond of benefit corporation statutes, but given that they are a thing (along with B Corp certification), we have to deal with them.  I still feel strongly that they benefit entity type, as it currently exists, is not helpful and potentially counterproductive.  And I really don't like that B Corp certification has moved to include mandating entity type.  But that's just facts, for now, anyway.  

My opposition to benefit entities, though, is not anti-signaling by an entity of their values, and there's little doubt in my mind that a benefit entity (if it must exist) certainly makes sense for nonprofits (thought I still think the nonprofit thing told us all we needed to know).  We're stuck with benefit entities, so Professor Haneman is probably correct that choosing the entity type could have value in marketing and signaling to consumers shared values.  I still think companies should signal through acts, not entity choice, and that all entity types should have the latitude to do such signaling. But in the world we live in, this just may be how it is.  Regardless, I recommend taking a look -- even when I disagree, Professor Haneman is always thoughtful, smart, and entertaining.  

April 24, 2021 in Corporations, CSR, Entrepreneurship, Joshua P. Fershee, Marketing, Nonprofits, Research/Scholarhip | Permalink | Comments (1)

Friday, April 23, 2021

Corporations and Cancel Culture

Cancel culture has been a hot topic for years, so when the University of Miami Law Explainer podcast asked me to talk about it, I had some reservations. I'm not shy, but I'm also not looking to be a headline in our campus newspaper, a meme, or a topic on Fox News. But I have strong feelings about this, and I agreed to speak.

I'm providing the link to the 20-minute interview here. I talked about my history as a radical protestor in college and law school (and my run in with Rush Limbaugh),  the effect of boycotts and buycotts, whether Teen Vogue missed a teachable moment after firing an editor for tweets she made as a teenager, whether corporations are doing the right thing when they bow to pressure from vocal consumers, the uproar over the 1619 project, and more. If you want a break from drafting contracts or writing exams, take a listen and let me know what you think. 

April 23, 2021 in Corporations, CSR, Current Affairs, Ethics, Marcia Narine Weldon | Permalink | Comments (0)

Friday, April 9, 2021

New ABA Model Contract Clauses

As regular readers of the blog know, my passion is business and human rights, particularly related to supply chain due diligence and disclosure. The ABA has just released thirty-three model clauses  based on the United Nations Guiding Principles on Business and Human Rights, and the OECD Due Diligence Guidance for Responsible Business Conduct. The ABA committee's reasoning for the model clauses is here:

The human rights performance of global supply chains is quickly becoming a hot button issue for anyone concerned with corporate governance and corporate accountability. Mandatory human rights due diligence legislation is on the near-term horizon in the E.U. Consumers and investors worldwide are increasingly concerned about buying from and investing in companies whose supply chains are tainted by forced or child labor or other human rights abuses. Government bodies such as U.S. Customs and Border Protection are increasingly taking measures to stop tainted goods from entering the U.S. market. And supply chain litigation, whether led by human rights victims or Western consumers, is on the rise. There can therefore be little doubt that the face of global corporate accountability for human rights abuses within supply chains is changing. The issue is “coming home,” in other words. ... Some of the key MCCs 2.0 obligations include: (1) Human Rights Due Diligence: buyer and supplier must each conduct human rights due diligence before and during the term of the contract. This requires both parties to take appropriate steps to identify and mitigate human rights risks and to address adverse human rights impacts in their supply chains. (2) Buyer Responsibilities: buyer and supplier must each engage in responsible sourcing and purchasing practices (including practices with respect to order changes and responsible exits). A fuller description of responsible purchasing practices is contained in the Responsible Buyer Code of Conduct (Buyer Code), also developed and published by the Working Group. (3) Remediation: buyer and supplier must each prioritize stakeholder-centered remediation for human rights harms before or in conjunction with conventional contract remedies and damage assessments. Buyer must also participate in remediation if it caused or contributed to the adverse impact.

Even if you're not obsessed with business and human rights like I am, you may find the work product provides an interesting context in which to discuss contract clauses such as representations, warranties, and damages either in a first-year contract course or a transactional drafting course. 

April 9, 2021 in Compliance, Contracts, Corporate Governance, Corporations, CSR, Current Affairs, Human Rights, International Business, Marcia Narine Weldon | Permalink | Comments (0)

Friday, January 29, 2021

The New Normal of ESG Across Borders

Please join me for this ABA Conference on February 10-11. I'm excited to serve as a mock board member on the 11th as well as on the plenary panel on “Leading Voices in ESG Initiatives” with representatives from United Airlines, Microsoft Asia, and others focusing on the many and sometimes conflicting imperatives of implementing ESG goals. I'll be particularly interested in the session by the General Motors GC, who will speak about the plan to go away from gasoline-powered vehicles, which GM just announced.

You can register by clicking here.

About the Virtual Conference:

The state of New York, on December 9, 2020, announced that its pension fund with over $226 billion in assets would divest its oil and gas stocks in companies that, in its view, contribute to global warming. The announcement emphatically highlights how ESG factors (Environmental, Social and Governance) across borders represent business risks but also opportunities for companies, their stockholders, and their other stakeholders. In-house legal departments are the first line of defense to re-orient business operations to address global ESG issues and to identify risks. These challenges, risks and opportunities are creating additional demands on legal departments with constrained resources as they navigate this “New Normal” in addition to their traditional responsibilities to stockholders.  This two-day conference will provide in-depth critical analysis through three tracks that efficiently canvas each of the ‘E’, ‘S’ and ‘G’ elements. Through these three tracks, the conference will identify, explore, and evaluate key areas of relevance to in-house counsel wanting to navigate the numerous complex legal and operational issues raised by ESG in jurisdictions around the globe.

Key Speakers:

  • Craig Glidden, Executive Vice President and General Counsel, General Motors
  • Tim O’Connor, Senior Director, Environmental Defense Fund
  • Olga V. Mack, CEO, Parley Pro
  • Ashley Scott, Senior Counsel, Lime
  • In-House Executives: Several current and former General Counsel, along with numerous senior in-house counsel across various industries, including Google, Nestle, Microsoft, General Motors, Accenture, LexisNexis, Chubb, United Airlines, Liberty Mutual, OPEC, Lazard, Iron Mountain, Willis Towers Watson, Norsk Hydro, and Equinor.
  • ESG leaders: Leading ESG voices from law firms, non-profit organizations, and universities

What to Expect

This two-day cutting-edge conference will provide opportunities for-in-depth analysis of these issues through three tracks of interactive panel discussions that canvas each of the ‘E’, ‘S’ and ‘G’ elements, including how COVID-19 is accelerating ESG trends. Key areas of relevance to in-house counsel wanting to navigate the numerous complex legal and operational issues raised by ESG in jurisdictions around the globe, including NGO and government stakeholder perspectives, will also be examined.

CLEs will be available. I hope to see you there!

January 29, 2021 in Compliance, Conferences, Corporate Governance, Corporations, CSR, Current Affairs, Marcia Narine Weldon | Permalink | Comments (2)

Sunday, December 27, 2020

Should We Call it Moral Money?: Ownership Matters and Commitment Too

In my previous post on the "Study on Directors' Duties and Sustainable Corporate Governance" ("Study on Directors' Duties") that Ernst & Young prepared for the European Commission (Commission), I focused on the transformative power of corporate governance. I said that stakeholder capitalism would have a practical value if supported by corporate governance rules based on appropriate standards such as the ones provided by the Sustainable Development Goals (SDGs).

Some of my pointers for the Commission were the creation of a regulatory framework that enables the representation and protection of stakeholders, the representation of “stakewatchers,” that is, non-governmental organizations and other pressure groups through the attribution of voting and veto rights and their members’ nomination to the management board (similar to German co-determination). I also suggested expanding directors' fiduciary duties to include the protection of stakeholders’ interests, accountability of corporate managers, consultation rights, and additional disclosure requirements.

In my last guest post in this series dedicated to the Study on Directors’ Duties, I ask the following questions. Do investors have a moral duty to internalize externalities such as climate change and income inequality, for example? Do firm ownership and investor commitment matter? Should investors’ money be “moral” money? 

In their study Corporate Purpose in Public and Private FirmsClaudine Gartenberg and George Serafeim utilize Rebecca Henderson’s and Eric Van den Steen’s definition of corporate purpose, that is, “a concrete goal or objective for the firm that reaches beyond profit maximization.” In their paper, Gartenberg and Serafeim analyzed data from approximately 1.5 million employees across 1,108 established public and private companies in the US. In their words:

[W]e find that employee beliefs about their firm’s purpose is weaker in public companies. This difference is most pronounced within the salaried middle and hourly ranks, rather than senior executives. Among private firms, purpose is lower in private equity owned firms. Among public companies, purpose is lower for firms with high hedge fund ownership and higher for firms with long-term investors. We interpret our findings as evidence that higher owner commitment is associated with a stronger sense of purpose among employees within the firm.

With institutional investors on the rise, these findings are important because they redirect our attention from the board of directors’ short-termism discussion to shareholders' nature, composition, ownership, and long-term commitment. When it comes to owner commitment, Gartenberg and Serafeim say:

Owner commitment could lead to a stronger sense of purpose for multiple reasons. First, to the extent that commitment translates to an ability to think about the long-term and avoid short-term pressures, this would enable a firm to focus on its purpose rather than on solely short-term performance metrics. Second, committed owners may invest to gain and evaluate more soft information about firms, which in turn may allow managers to invest in productive but hard to verify projects that otherwise would not be approved by less committed owners (e.g., Grossman and Hart, 1986). Third, committed owners might mitigate free rider problems inside the firm, allowing employees to make firm-specific investments with greater confidence that they will not be subject to holdup by firm principals (Alchian and Demsetz 1972; Williamson 1985), which in turn could enhance the sense of purpose inside the organization. A similar argument could hold for customers, suppliers, and other stakeholders, who could see a strong sense of corporate purpose from owner commitment as a credible signal that enables the development of trust or ‘relational contracts’ (Gibbons and Henderson 2012; Gartenberg et al. 2019).

Gertenberg’s and Serafeim’s paper also discloses other findings. They found that firms are more likely to hire outside CEOs when less committed investors control the firms. Additionally, those firms are more likely to pay higher executive compensation levels, particularly relative to what they pay employees. Those firms also engage more frequently in mergers and acquisitions and other corporate restructuring processes. A simple explanation for this would be that such firms have higher agency costs since their ownership is more dispersed.

If we understand the company’s ownership structure, we know the purpose of the company. Therefore, there must be an underlying mechanism to better understand the company’s ownership structure because it will help us understand the company's purpose better. 

Besides, Gertenberg’s and Serafeim’s findings spell out that financial performance and corporate ownership positively impact corporate culture, employees' satisfaction, and employee work meaningfulness. Putting it differently, the corporate culture, employees' satisfaction, and employee work meaningfulness can be standards for evaluating the impact of corporate ownership, governance, and leadership.

Now that the focus is on investors, what can they do to change corporate behavior and consequently impact stakeholders like employees? They can be actively engaged through proxy voting. In their paper Shareholder Value(s): Index Fund ESG Activism and the New Millennial Corporate Governance, Barzuza, Curtis, and Webber explain that index funds often are considered ineffective stewards. The authors also explain how index funds have claimed an active role by challenging management and voting against directors to promote board diversity and sustainability.

Still, institutional investors manage their companies’ portfolios depending on the market, which is heavily impacted by systemic shocks we know will eventually occur. The Covid-19 pandemic has shown us how volatile markets are and our current economic model is.

Corporate laws of most European Union (EU) countries determine that the board of directors must act in the company's interest (e.g., Unternehmensinteresse in Germany, l'intérêt social in France, interesse sociale in Italy, etc.). Defining what the interest of the company is has shown to be a rather tricky endeavor. Gelter explains that, in all cases, one side of the debate claims that the company's interest is different from the interest of shareholders. In the US, the purpose of the company is commingled with the idea of shareholder wealth maximization.

To overcome the tension between prioritizing shareholders' wealth maximization and corporate purpose that considers shareholders' and stakeholders' interests, the Commission should take into account the following dimensions in developing policies in corporate law and corporate governance. 

  1. Investors’ ownership and their impact on intangibles like employees’ satisfaction and employee work meaningfulness.
  2. Governance structure and how it relates to the company’s ownership structure.
  3. Governance structure and how it integrates stakeholders’ interests in the decision-making process.
  4. Board diversity and recruitment.
  5. Institutional investors’ financial resilience.

Finally, investors should demand CEOs and boards of directors show how they are changing the game and moving the needle toward a more sustainable and resilient conception of the corporation. Why? Because ownership matters and commitment too.

December 27, 2020 in Agency, Business Associations, Comparative Law, Corporate Governance, Corporations, CSR, Financial Markets, Law and Economics, M&A, Private Equity, Shareholders | Permalink | Comments (0)

Sunday, December 20, 2020

“T” is for Transformative (Corporate Governance)

In my first post on the "Study on Directors' Duties and Sustainable Corporate Governance" ("Study on Directors' Duties") prepared by Ernst & Young for the European Commission, I said that corporate boards are free to apply a purposive approach to profit generation. I added that:

[a]pplying such a purposive approach will depend on moral leadership, CEOs' and corporate boards' long-term vision, clear measurement of the companies' interests and communication of those interests to shareholders, and rethinking executive compensation to encourage board members to take on other priorities than shareholder value maximization. Corporate governance has a significant transformative role to play in this context. 

This week, I focus on corporate governance’s enabling power. Therefore, “T” is for transformative corporate governance. Market-led developments can and do precede and inspire legal rules. Corporate governance rules are not an exception in this regard. To illustrate these rules’ transformative potential, I dwell on the ongoing debate around stakeholder capitalism.

First question. What is stakeholder capitalism? In a recent debate with Lucian Bebchuk about the topic, Alex Edmans explained that “stakeholder capitalism seeks to create shareholder welfare only through creating stakeholder welfare.” The definition suggests that the way to create value for both shareholders and stakeholders alike is by increasing the size of the pie.

In his book, Strategic Management: A Stakeholder Approach, R. Edward Freeman defines “stakeholder” as “any group or individual who can affect or is affected by the achievement of the organisation’s objectives.” (1984: p. 46). The Study on Directors’ Duties is concerned with the negative impact of corporate short-termism on stakeholders such as the environment, the society, the economy, and the extent to which corporate short-termism may impair the protection of human rights and the attainment of the sustainable development goals (SDGs). I am not going to discuss whether there is a causal link between short-termism and sustainability. In my previous post, I say that we need to take a step back to determine short-termism and whether it is as harmful as it sounds. Instead, I am interested in finding an answer to the following question. Has stakeholder capitalism practical value?

Edmans points out that “in a world of uncertainty, stakeholder capitalism is practically more useful.” It is more challenging to put a tag on various things in a world of uncertainty, and the market misvalues intangibles. Therefore, in this context, stakeholder capitalism would be a better decisional tool that improves shareholder value and profitability and shareholders' welfare.

Still, how do we measure CEO’s and directors’ accountability toward shareholders and the corporation for the choices they make? Can CEOs and directors be blamed for not caring about social causes? Is stakeholder capitalism, or as Lucian Bebchuk calls it “stakeholderism,” the right way to force managers to make the right decisions for the shareholders and the corporation?

While Edmans stays firmly behind stakeholder capitalism because he considers it has practical value in increasing shareholder wealth while increasing shareholders’ welfare, Bebchuk maintains that “stakeholderism” is “illusory” and costly both for shareholders and stakeholders. Clearly, they disagree.

However, both Edmans and Bebchuk agree on this – we need a normative framework that goes beyond private ordering and prevents companies from subjecting stakeholders to externalities such as climate change, inequality, poverty, and other adverse economic effects.

Corporate managers respond to incentives such as executive compensation, financial reporting, and shareholders' ownership. The challenge is to understand what type of corporate governance rules are more likely to nudge CEOs and managers to value other interests than shareholder wealth maximization. Would a set of principles suffice, or do we need a regulatory framework?

Freeman's definition of a stakeholder is telling because it allows us to think of corporations and governments as stakeholders for sustainable development. I am also inspired by the distinction that Yves Fassin makes in his article The Stakeholder Model Refined, between stakeholders (e.g., consumers), stakewatchers (e.g., non-governmental organizations) and stakekeepers (e.g., regulators). I suggest that the way to ensure stakeholder capitalism’s practical value is to create corporate governance rules based on appropriate standards. The SDGs afford the propriety of those standards.

Within this regulatory setting, corporate governance will fulfill its transformative potential by enabling, for example, the representation and protection of stakeholders, the representation of “stakewatchers” through the attribution of voting and veto rights and nomination to the management board (similar to German co-determination by which stakeholders like employees are appointed to the supervisory board). Corporate governance will show its transformative potential by enabling the expansion of directors' fiduciary duties to include the protection of stakeholders’ interests, accountability of corporate managers, consultation rights, and additional disclosure requirements.  

The authors Onyeka K. Osuji and Ugochi C. Amajuoyi contributed an interesting piece, titled Sustainable Consumption, Consumer Protection and Sustainable Development: Unbundling Institutional Septet for Developing Economies to the book Corporate Social Responsibility in Developing and Emerging Markets: Institutions, Actors and Sustainable Development. The book was edited by Onyeka K. Osuji, Franklin N. Ngwu, and Dima Jamali. The piece addresses the stakeholder model from the emerging economies perspective. It goes to show how interconnected we are.

December 20, 2020 in Books, Business Associations, Comparative Law, Corporate Governance, Corporations, CSR, Financial Markets, Law and Economics, Management | Permalink | Comments (6)

Friday, December 18, 2020

Ten Business Questions for the Biden Administration

If you read the title, you’ll see that I’m only going to ask questions. I have no answers, insights, or predictions until the President-elect announces more cabinet picks. After President Trump won the election in 2016, I posed eleven questions and then gave some preliminary commentary based on his cabinet picks two months later. Here are my initial questions based on what I’m interested in -- compliance, corporate governance, human rights, and ESG. I recognize that everyone will have their own list:

  1. How will the Administration view disclosures? Will Dodd-Frank conflict minerals disclosures stay in place, regardless of the effectiveness on reducing violence in the Democratic Republic of Congo? Will the US add mandatory human rights due diligence and disclosures like the EU??
  2. Building on Question 1, will we see more stringent requirements for ESG disclosures? Will the US follow the EU model for financial services firms, which goes into effect in March 2021? With ESG accounting for 1 in 3 dollars of assets under management, will the Biden Administration look at ESG investing more favorably than the Trump DOL? How robust will climate and ESG disclosure get? We already know that disclosure of climate risks and greenhouse gases will be a priority. For more on some of the SEC commissioners’ views, see here.
  3. President-elect Biden has named what is shaping up to be the most diverse cabinet in history. What will this mean for the Trump administration’s Executive Order on diversity training and federal contractors? How will a Biden EEOC function and what will the priorities be?
  4. Building on Question 3, now that California and the NASDAQ have implemented rules and proposals on board diversity, will there be diversity mandates in other sectors of the federal government, perhaps for federal contractors? Is this the year that the Improving Corporate Governance Through Diversity Act passes? Will this embolden more states to put forth similar requirements?
  5. What will a Biden SEC look like? Will the SEC human capital disclosure requirements become more precise? Will we see more aggressive enforcement of large institutions and insider trading? Will there be more controls placed on proxy advisory firms? Is SEC Chair too small of a job for Preet Bharara?
  6. We had some of the highest Foreign Corrupt Practices Act fines on record under Trump’s Department of Justice. Will that ramp up under a new DOJ, especially as there may have been compliance failures and more bribery because of a world-wide recession and COVID? It’s more likely that sophisticated companies will be prepared because of the revamp of compliance programs based on the June 2020 DOJ Guidance on Evaluation of Corporate Compliance Programs and the second edition of the joint SEC/DOJ Resource Guide to the US Foreign Corrupt Practices Act. (ok- that was an insight).
  7. How will the Biden Administration promote human rights, particularly as it relates to business? Congress has already taken some action related to exports tied to the use of Uighur forced labor in China. Will the incoming government be even more aggressive? I discussed some potential opportunities for legislation related to human rights abuses abroad in my last post about the Nestle v Doe case in front of the Supreme Court. One area that could use some help is the pretty anemic Obama-era US National Action Plan on Responsible Business Conduct.
  8. What will a Biden Department of Labor prioritize? Will consumer protection advocates convince Biden to delay or dismantle the ERISA fiduciary rule? Will the 2020 joint employer rule stay in place? Will OSHA get the funding it needs to go after employers who aren’t safeguarding employees with COVID? Will unions have more power? Will we enter a more worker-friendly era?
  9. What will happen to whistleblowers? I served as a member of the Department of Labor’s Whistleblower Protection Advisory Committee for a few years under the Obama administration. Our committee had management, labor, academic, and other ad hoc members and we were tasked at looking at 22 laws enforced by OSHA, including Sarbanes-Oxley retaliation rules. We received notice that our services were no longer needed after the President’s inauguration in 2017. Hopefully, the Biden Administration will reconstitute it. In the meantime, the SEC awarded record amounts under the Dodd-Frank whistleblower program in 2020 and has just reformed the program to streamline it and get money to whistleblowers more quickly.
  10. What will President-elect Biden accomplish if the Democrats do not control the Congress?

There you have it. What questions would you have added? Comment below or email me at mweldon@law.miami.edu. 

December 18, 2020 in Compliance, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Financial Markets, Human Rights, International Business, Legislation, Marcia Narine Weldon, Securities Regulation, Shareholders, White Collar Crime | Permalink | Comments (2)

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)

Sunday, December 6, 2020

A Purposive Approach to Corporate Governance Sustainability - Lécia Vicente Guest Post

The post below is the first in Lécia Vicente's December series that I heralded in my post on Friday.  Due to a Typepad login issue, I am posting for her today.  We hope to get the issue corrected for her post for next week. 

*     *     *

My series of blog posts cover the recent "Study on Directors' Duties and Sustainable Corporate Governance" ("Study on Directors' Duties") prepared by Ernst & Young for the European Commission. This study promises to set the tone of the EU's policymaking in the fields of corporate law and corporate governance. The study explains that the "evidence collected over 1992-2018 period shows there is a trend for publicly listed companies within the EU to focus on short-term benefits of shareholders rather than on the long-term interests of the company." The main objective of the study is to identify the causes of this short-termism in corporate governance and determine European Union (EU) level solutions that permit the achievement of the United Nations (UN) Sustainable Development Goals (SDGs) and the objectives of the Paris Agreement.

Both the United Nations 2030 Agenda and the Paris Agreement are trendsetters, for they have elevated the discussion on sustainable development and climate change mitigation to the global level. That discussion has been captured not only by governments and international environmental institutions but also by corporations. Several questions come to mind.

What is sustainability? This one is critical considering that the global level discussion is often monotone, with the blatant disregard of countries' idiosyncrasies, the different historical contexts, regulatory frameworks, and political will to implement reforms. The UN defined sustainability as the ability of humanity "to meet the needs of the present without compromising the ability of future generations to meet their own needs."

The other question that comes to mind is: what is development? Is GDP the right benchmark, or should we be focusing on other factors? There is disagreement among economists on the merit of using GDP as a development measure. Some economists like Abhijit Banerjee & Esther Duflo say, "it makes no sense to get too emotionally involved with individual GDP numbers." Those numbers do not give us the whole picture of a country's development.

The Study on Directors' Duties maintains as a general objective the development of more sustainable corporate governance and corporate directors' accountability for the company's sustainable value creation. This general objective would be specifically implemented either through soft law (non-legislative measures) or hard law (legislative measures) that redesign the role of directors (this includes the creation of a new board position, the Chief Value Officer) and directors' fiduciary duties. This takes me to a third question.

What is the purpose of the company? In other words, what is it that directors should be prioritizing? In a recent blog post, Steve Bainbridge says

I don't "disagree with the assertion that the law does not mandate that a corporation have as its purpose shareholder wealth maximization" but only because I don't think it's useful to ask the question of "what purpose does the law mandate the corporation pursue?

[…] Purpose is always associated with the intellect. In order to have a purpose or aim, it is necessary to come to a decision; and that is the function of the intellect. But just as the corporation has neither a soul to damn nor a body to kick, the corporation has no intellect.

Bainbridge prefers "to operationalize this discussion as a question of the fiduciary duties of corporate officers and directors rather than as a corporate purpose."

Continue reading

December 6, 2020 in Business Associations, Corporate Governance, Corporate Personality, Corporations, CSR, Joan Heminway, Law and Economics, Management, Social Enterprise | Permalink | Comments (0)

Friday, December 4, 2020

Did A Child Slave Help Make Your Chocolate Bar and If So, Who Should Be Responsible? The Supreme Court and Nestle v. Doe

If you’re sipping some hot chocolate while reading this post or buying your Hanukah or Christmas candy, chances are you’re consuming a product made with cocoa beans harvested by child slaves in Africa. Almost twenty years ago, the eight largest chocolate companies, a US Senator, a Congressman,  the Ambassador to the Ivory Coast, NGOs, and the ILO pledged through the Harkin Engel Protocol to eliminate “the worst forms of” child slavery and forced labor in supply chains. In 2010, after seeing almost no progress, government representatives fom the US, Ghana, and the Ivory Coast released a Framework of Action to support the implementation and to reduce the use of child and forced labor by 70% by 2020. But, the number of child slaves has actually increased.

2020 has come and almost gone and one of the Harkin Engel signatories, Nestle, and another food conglomerate, Cargill, had to defend themselves in front of the Supreme Court this week in a case filed in 2005 by former child slaves. The John Does were allegedly kidnapped in Mali and forced to work on cocoa farms in the Ivory Coast, where they worked 12-14 hours a day in 100-degree weather, spoke a different language from the farmers, lived off dirty water and bowls of rice, and were never paid. According to counsel for the Respondents who gave a debrief earlier this week, the children were locked up at night, told to work or starve, whipped, and when one tried to escape, his feet were slashed and then hot chilis were rubbed into his soles. Respondents sued under the Alien Tort Statute, which Congress passed in 1789 to allow foreign citizens to sue in US federal courts for violations of “the law of nations” to avoid international tensions. In two recent cases, the Court has limited the use of the ATS against foreign corporations sued for acts against foreign plaintiffs because of jurisdictional grounds and ruled that foreign corporations were not subject to the ATS. But the Nestle and Cargill case is different. Respondents sued a US company and the US arm of a Swiss company. (Click here for access to the briefs and here to listen to the oral argument.) For an excellent symposium on the issues see here.

Respondents claim that the companies provided money and resources to the farmers in Africa and knew that child slaves harvested their cocoa. The two questions before the Court were:

  1. May an aiding and abetting claim against a domestic corporation brought under the Alien Tort Statute overcome the extraterritoriality bar where the claim is based on allegations of general corporate activity in the United States and where the Respondents cannot trace the alleged harms, which occurred abroad at the hands of unidentified foreign actors, to that activity?
  1. Does the judiciary have the authority under the Alien Tort Statute to impose liability on domestic corporations?

To those who obsess about business and human rights and ESG issues like I do, this case has huge potential implications. Regular readers of this blog know that I’ve written more than half a dozen posts, law review articles, and an amicus brief on the Dodd-Frank conflict minerals disclosures, which purport to inform consumers about the use of forced labor and child slaves in the harvesting of tin, tungsten, tantalum, and gold. I’ve been skeptical of those disclosure rules that don’t have real penalties. The Nestle case could change all of that by crafting a cognizable cause of action.

To my surprise, the Justices weren’t completely hostile to the thought of corporate liability under the ATS. Here are some of the more telling questions to the counsel for the companies:

Justice Alito: Mr. Katyal, many of your arguments lead to results that are pretty hard to take. So suppose a U.S. corporation makes a big show of supporting every cause de jure but then surreptitiously hires agents in Africa to kidnap children and keep them in bondage on a plantation so that the corporation can buy cocoa or coffee or some other agricultural product at bargain prices. You would say that the victims who couldn't possibly get any recovery in the courts of the country where they had been held should be thrown out of court in the United States, where this corporation is headquartered and does business?

Justice Breyer: …I don't see why exempt all corporations, including domestic corporations, from this -- the scope of the statute.

Justice Kagan: If you could bring a suit against 10 slaveholders, when those 10 slaveholders form a corporation, why can’t you bring a suit against the corporation?

Justice Kavanaugh: The  Alien  Tort  Statute was once an engine of international human rights protection. Your position, however, would allow suits by aliens only against individuals, as you've said, and only for torts international law recognized that occurred in the United States. And Professor Koh's amicus brief on behalf of former government officials, for example, says that your position would "gut the statute." So why should we do that?

Here are some of the more interesting questions to the government, which supports the companies’ positions against application of the ATS to corporations:

Chief Justice Roberts: We don't have objections from foreign countries in this case. As far as we can tell, they're perfectly comfortable having U.S. citizens, U.S. corporations hailed into their U -- in U.S. courts. What should we make of that, and doesn't that suggest we ought to be a little more -- a little less cautious about finding a cause of action here?

Justice Breyer: …what’s new about suing corporations? When I looked it up once, there were 180 ATS lawsuits against corporations. Most of them lost but on other grounds. So why not sue a domestic corporation? You can't sue the individual because, in my hypothetical, the individuals have all moved to Lithuania. All you have is the corporate assets in the bank and minutes that prove it was a corporate decision. What's new about it? Why is it creating a form of action?

Justice Alito: Won't your arguments about aiding and abetting and extraterritoriality all lead to essentially the same result as holding that a domestic corporation cannot be sued under the ATS? Corporations always act through natural persons, so if a corporation can't aid and abet, there -- there will be only a sliver of activity where they could be responsible under respondeat superior, isn't that true?

Justice Amy Coney Barrett:  You say that the focus of the tort should be the primary conduct, so, here, what was happening in Cote d'Ivoire, rather than the aiding and abetting, which you characterize as secondary. But why should that be so? I mean, let's imagine you have a U.S. corporation or even a U.S. individual that is making plans to facilitate the use of child slaves, you know, making phone calls, sending money specifically for that purpose, writing e-mails to that effect.Why isn't that conduct that occurs in the United States something that touches and concerns, you know, or should be the focus of conduct, however you want to state the test?

Finally, here are some of the tough questions posed to counsel for the Respondents:

Justice Thomas: The TVPA [Trafficking Victims Protection Act] seems to suggest that Congress does not see the ATS the way you do. Obviously, there, you don't have corporate liability and you don't have aiding and abetting liability. So why shouldn't we take that as an indication that Congress sought limitations on -- on the ATS jurisdiction?

Justice Breyer: Assume that there is corporate liability for domestic corporations. Assume that there is aiding and abetting liability. Now what counts as aiding and abetting for purposes of this statute? When I read through your complaint, it seemed to me that all or virtually all of your complaint amount to doing business with these people.They help pay for the farm. And that's about it.And they knowingly do it. Well, unfortunately, child labor, it's terrible, but it exists throughout the world in many, many places. And if we take this as the norm, particularly when Congress is now working in the area, that will mean throughout the world this is the norm. And I don't know, but I have concern that treating this allegation, the six that you make here, as aiding and abetting falling within that term for purposes of this statute, if other nations do the same, and we do the same, could have very, very significant effects. I'm just saying I'm worried about that.

Justice Alito: So, after 15 years, is it too much to ask that you allege specifically that the -- the defendants involved -- the defendants who are before us here specifically knew that forced child labor was being used on the farms or farm cooperatives with which they did business? Is that too much to ask?

 

To be fair, Nestle and Cargill have worked to remedy these issues. Nestle’s 2019 Shared Values Report tracks its commitments to individuals and families, communities, and the planet to the UN Sustainable Development Goals. Among other things, the report highlights Nestle's work to reduce human rights abuses and links to its December 2019 report on child labor and cocoa farms. The company touts its progress but admits it has a long way to go. Cargill has a separate Cocoa Sustainability Progress Report, which describes its 2012 Cargill Cocoa Promise for capacity building and a more transparent supply chain. But is it enough?

In any event, we won’t know what the Court decides until Spring. In the meantime, despite the best efforts of the companies, almost two million children still work in the cocoa harvesting business and most aren’t kidnapped anymore. They need the work. The local governments have taken notice in part due to the terrible publicity from the media. Allegedly, however, Hershey and Mars are trying to avoid the $400 a ton premium that the West African governments are levying to provide more funding for the farmers. The companies deny these allegations. But there’s now a chocolate war. This means your chocolate may get more expensive, and that’s not necessarily a bad thing.

How will this all shake out? There’s a chance that the Court could find for the Respondents. More likely, though advocates will focus on convincing Congress to expand the Trafficking Victims Protection Act to include corporations. Some NGOs are already talking about increasing consumer awareness and spurring boycotts. Perhaps, advocates will put pressure on the Biden administration to ban the import on chocolate harvested with child labor, similar to the ban on some products produced by Uighurs in China.I expect that there will be a lot of lobbying at the state and federal level to deal with the larger issue of whether corporations that have some of the rights of natural persons should also have the responsibilities. Boards and companies should get prepared. In the meantime, do you plan to give up chocolate?

December 4, 2020 in Compliance, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Ethics, Human Rights, Legislation, Marcia Narine Weldon | Permalink | Comments (0)

Friday, October 23, 2020

When Wall Street Talks, Does Washington Listen?

It’s hard to believe that the US will have an election in less than two weeks. Three years ago, a month after President Trump took office, I posted about CEOs commenting on his executive order barring people from certain countries from entering the United States. Some branded the executive order a “Muslim travel ban” and others questioned whether the CEOs should have entered into the political fray at all. Some opined that speaking out on these issues detracted from the CEOs’ mission of maximizing shareholder value. But I saw it as a business decision - - these CEOs, particularly in the tech sector, depended on the skills and expertise of foreign workers.

That was 2017. In 2018, Larry Fink, CEO of BlackRock, told the largest companies in the world that “to prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society…Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders.” Fink’s annual letter to CEOs carries weight; BlackRock had almost six trillion dollars in assets under management in 2018, and when Fink talks, Wall Street listens. Perhaps emboldened by the BlackRock letter, one year later, 181 CEOs signed on to the Business Roundtable's Statement on the Purpose of a Corporation, which “modernized” its position on the shareholder maximization norm. The BRT CEOs promised to invest in employees, deal ethically and fairly with suppliers, and embrace sustainable business practices. Many observers, however, believed that the Business Roundtable statement was all talk and no action. To see how some of the signatories have done on their commitments as of last week, see here.

Then came 2020, a year like no other. The United States is now facing a global pandemic, mass unemployment, a climate change crisis, social unrest, and of course an election. During the Summer of 2020, several CEOs made public statements on behalf of themselves and their companies about racial unrest, with some going as far as to proclaim, “Black Lives Matter.” I questioned these motives in a post I called “"Wokewashing and the Board." While I admired companies that made a sincere public statement about racial justice and had a real commitment to look inward, I was skeptical about firms that merely made statements for publicity points. I wondered, in that post, about companies rushing to implement diversity training, retain consultants, and appoint board members to either curry favor with the public or avoid the shareholder derivative suits facing Oracle, Facebook, and Qualcomm. How well had they thought it out? Meanwhile, I noted that my colleagues who have conducted diversity training and employee engagement projects for years were so busy that they were farming out work to each other. Now the phones aren’t ringing as much, and when they are ringing, it’s often to cancel or postpone training.

Why? Last month, President Trump issued the Executive Order on Combatting Race and Sex Stereotyping. As the President explained:

today . . .  many people are pushing a different vision of America that is grounded in hierarchies based on collective social and political identities rather than in the inherent and equal dignity of every person as an individual. This ideology is rooted in the pernicious and false belief that America is an irredeemably racist and sexist country; that some people, simply on account of their race or sex, are oppressors; and that racial and sexual identities are more important than our common status as human beings and Americans ... Therefore, it shall be the policy of the United States not to promote race or sex stereotyping or scapegoating in the Federal workforce or in the Uniformed Services, and not to allow grant funds to be used for these purposes. In addition, Federal contractors will not be permitted to inculcate such views in their employees.

The Order then provides a hotline process for employees to raise concerns about their training. Whether you agree with the statements in the Order or not -- and I recommend that you read it -- it had a huge and immediate effect. The federal government is the largest procurer of goods and services in the world. This Order applies to federal contractors and subcontractors. Some of those same companies have mandates from state law to actually conduct training on sexual harassment. Often companies need to show proof of policies and training to mount an affirmative defense to discrimination claims. More important, while reasonable people can disagree about the types and content of diversity training, there is no doubt that employees often need training on how to deal with each other respectfully in the workplace. (For a thought-provoking take on a board’s duty to monitor diversity  training by co-blogger Stefan Padfield, click here.)

Perhaps because of the federal government’s buying power, the U.S. Chamber of Commerce felt compelled to act. On October 15th, the Chamber and 150 organizations wrote a letter to the President stating:

As currently written, we believe the E.O. will create confusion and uncertainty, lead to non-meritorious investigations, and hinder the ability of employers to implement critical programs to promote diversity and combat discrimination in the workplace. We urge you to withdraw the Executive Order and work with the business and nonprofit communities on an approach that would support appropriate workplace training programs ...  there is a great deal of subjectivity around how certain content would be perceived by different individuals. For example, the definition of “divisive concepts” creates many gray areas and will likely result in multiple different interpretations. Because the ultimate threat of debarment is a possible consequence, we have heard from some companies that they are suspending all D&I training.  This outcome is contrary to the E.O.’s stated purpose, but an understandable reaction given companies’ lack of clear guidance. Thus, the E.O. is already having a broadly chilling effect on legitimate and valuable D&I training companies use to foster inclusive workplaces, help with talent recruitment, and remain competitive in a country with a wide range of different cultures. … Such an approach effectively creates two sets of rules, one for those companies that do business with the government and another for those that do not. Federal contractors should be left to manage their workforces and workplaces with a minimum amount of interference so long as they are compliant with the law.

It’s rare for the Chamber to make such a statement, but it was bold and appropriate. Many of the Business Roundtable signatories are also members of the U.S. Chamber, and on the same day, the BRT issued its own statement committing to programs to advance racial equity and justice. BRT Chair and WalMart CEO Doug McMillon observed,  “the racial inequities that exist for many Black Americans and people of color are real and deeply rooted . .  These longstanding systemic challenges have too often prevented access to the benefits of economic growth and mobility for too many, and a broad and diverse group of Americans is demanding change. It is our employees, customers and communities who are calling for change, and we are listening – and most importantly – we are taking action.” Now that's a stakeholder maximization statement if I ever heard one.

Those who thought that some CEOs went too far in protesting the Muslim ban, may be even more shocked by the BRT’s statements about the police. The BRT also has a subcommittee to address racial justice issues and noted that “For Business Roundtable CEOs, this agenda is an important step in addressing barriers to equity and justice . . . This summer we took on the urgent need for policing reform. We called on Congress to adopt higher federal standards for policing, to track whether police departments and officers have histories of misconduct, and to adopt measures to hold abusive officers accountable. Now, with announcement of this broader agenda, CEOs are supporting policies and undertaking initiatives to address several other systems that contribute to large and growing disparities.”

Now that stakeholders have seen so many of these social statements, they have asked for more. Last week, a group of executives from the Leadership Now Project issued a statement supporting free and fair elections. However, as Bennett Freeman, former Calvert executive and Clinton cabinet member noted, no Fortune 500 CEOs have signed on to that statement. Yesterday, the Interfaith Center on Corporate Responsibility (ICCR) sent a letter to 200 CEOs, including some members of the BRT asking for their support. ICCR asked that they endorse:

  1. Active support for free and fair elections
  2. A call for a thorough and complete counting of all ballots
  3. A call for all states to ensure a fair election
  4. A condemnation of any tactics that could be construed as voter intimidation
  5. Assurance that, should the incumbent Administration lose the election, there will be a peaceful transfer of power
  6. Ensure that lobbying activities and political donations support the above

Is this a pipe dream? Do CEOs really want to stick their necks out in a tacit criticism of the current president’s equivocal statements about his post-election plans? Now that JPMorgan Chase CEO Jamie Dimon has spoken about the importance of respect for the democratic process and the peaceful transfer of power, perhaps more executives will make public statements. But should they? On the one hand, the markets need stability. Perhaps Dimon was actually really focused on shareholder maximization after all. Nonetheless, Freeman and others have called for a Twitter campaign to urge more CEOs to speak out. My next post will be up on the Friday after the election and I’ll report back about the success of the hashtag activism effort. In the meantime, stay tuned and stay safe.

October 23, 2020 in Contracts, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Employment Law, Ethics, Financial Markets, Human Rights, Legislation, Management, Marcia Narine Weldon, Nonprofits, Stefan J. Padfield | Permalink | Comments (1)