Monday, July 6, 2020
What remains when the intoxicating distractions of life are removed?
I read both of these books on vacation at Ocean Isle, NC late last month; this was not exactly light, uplifting beach reading.
Before the plague engulfed the Algerian coastal town of Oran, Camus’ narrator notes that:
Our citizens work hard, but solely with the object of getting rich. Their chief interest is in commerce, and their chief aim in life is, as they call it, “doing business.” Naturally they don’t eschew such simpler pleasure as love-making, sea bathing, going to the pictures. But, very sensibly they reserve these past times for Saturday afternoons and Sundays and employ the rest of the week in making money, as much as possible . . . . Nevertheless there still exist towns and countries where people have now and then an inkling of something different. In general it doesn’t change their lives. Still they have had an intimation, and that’s so much to the good. Oran, however, seems to be a town without intimations; in other words, completely modern.
In sharp contrast to the citizens of Oran, Ben Ellis had steadier footing in advance of tragedy. Ben Ellis was a teacher at the private school connected to our church in Nashville (CPA). Our current pandemic has been clarifying for me in many ways, and it has convinced me that Saint Paul was correct when he wrote that faith, hope, and love are the things that remain. Ben Ellis was already building his life on those three things prior to his cancer diagnosis. As his condition worsened in September of 2016, over 400 students gathered outside of his home to sing worship songs with him. Ben Ellis died about 10 days later. Difficulties can clarify, and Ben’s death clarified that he spent his time focused on meaningful things outside of himself. Watch the clip below to see clear evidence of a man who loved God, his students, and his family well. (His daughter is so poised and thoughtful, and the headmaster obviously valued him).
But for many of the citizens of Oran, and many of us in the individualistic, materialistic United States, difficulties can also show that we rest on a shaky foundation. If we are focused primarily on financial success and personal status, something like a pandemic or cancer can destroy the entire endeavor in short order.
In terms of “success,” as it is typically defined in the United States, few could be said to surpass Doctor Paul Kalanithi. He followed an undergraduate and masters degree at Stanford University with medical school at Yale. At the time of his cancer diagnosis, he was in his last year of neurosurgical training as the chief resident back at Stanford University. But even with just a few months left to live, Paul went back to work. The purpose of work does not have to be centered on finances and status. In Paul’s case, he returned to work, I think, primarily because he was doing meaningful work with people he cared about. Impending death clarified that status was of little importance, and he turned down a prestigious and lucrative job offer far from family. I do wonder if he would have taken that job in Wisconsin, but for his diagnosis. From his writing, it sounds like he probably would and that may have been a mistake given his underlying priorities. We often lean toward finances and status, even if our highest priorities lie elsewhere. Hopefully, this pandemic can give us all some time for reflection and help us make decisions that elevate those things that are most important.
Monday, May 25, 2020
As we close out the holiday weekend, I offer simple words of respect, admiration, and thanks for those who have sacrificed their lives for all of us. Amidst the barbecues and beer and whatnot, it is sometimes difficult to remember that we take today to honor our fallen heroes. Although I spent today working (grades for all courses due tomorrow!), I took time out to remind myself that life is not all about business law prof'ing and contemplate the importance of the day.
The photo above (taken by my brother last year) depicts a gravestone honoring one of our family's military heroes. He did not die in combat, but he was wounded and received the Congressional Medal of Honor. Although we honor those kinds of commitments more directly on Veteran's Day, I was thinking about him today--and about the thin line that divides life and death, especially in times of military conflict.
My heart goes out to all who have lost family and friends in the line of battle or otherwise in service to our country. May those lost servants rest in peace. And may those who remain take pride in their ultimate sacrifice.
Monday, May 11, 2020
Maybe I am just sensitized to these media reports because of my research and teaching, but it seems that the COVID-19 pandemic has sparked new media interest in and engagement with corporate governance issues. I have received four media calls in the past few weeks--two on background and two for source quotations. That is an unusual rate of contact for me. Is anyone else noticing this?
Of course, there has been a lot to talk about. Annual meetings already called and noticed to shareholders needed to move online. As managers and employees moved out of workplaces to shelter at home, well-worn systems of decision-making and information dissemination--as well as the expectations of others in connection with them--changed or were challenged. Filing and other deadlines became guidelines . . . .
The two media calls in which I was asked to provide background information related to
- increased or altered director and legal counsel attentiveness to drafting force majeure clauses and material adverse change/effect definitions in light of what we now know about COVID-19 and its effects and
- prospects for various kinds of shareholder derivative, direct, and class action litigation in light of COVID-19 and related board decision making.
I was glad to be able to help the two journalists who called on these issues. They had great questions; made me think.
The two articles in which I was quoted are both (regrettably) secured behind firewalls. But if any of you are subscribers to Agenda, you will have access to them both. I have linked to each below. Both were written by Jennifer Williams-Alvarez.
The first piece, an April 22nd article entitled "Boards Adopt Emergency Bylaws for Critical Flexibility," put a spotlight on the potential utility of emergency bylaws in light of the pandemic. I admitted that I now am more sensitive and sympathetic to emergency bylaws than I used to be.
Decades ago, Heminway says she would not have necessarily recommended that companies include an emergency bylaw provision when drafting corporate governance documents. But with the financial crisis, the attacks on the United States on Sept. 11, 2001, and the current Covid-19 crisis, she says she would now make the suggestion.
I wonder how many of you who have been in practice for "more than a minute" feel the same way.
The second article, "DPA Forces New Unknowns for Boards to ‘Triage’," posted on April 27, offered insights on the Defense Production Act, the subject of multiple executive memoranda and orders relying to product manufacturing and distribution over the past month. This article picked up on a topic I wrote about here early last month. Since Agenda focuses on issues of importance to corporate directors and those who work with them, the article explored various angles of interest in the Defense Production Act relating to corporate boards. For example, we got into an extended conversation about public company reporting obligations and related information gathering and management.
Board members should think about disclosure responsibilities, says Heminway. For certain companies, such as manufacturers, an assessment must be made about whether it represents a material risk to repurpose operations or reprioritize contracts so that the government is at the front of the line, she says.
Between the two of us, we were able to find a few examples of COVID-19 Defense Production Act disclosures made in public filings with the U.S. Securities and Exchange Commission. Our coverage of applicable mandatory disclosure obligations led to a brief conversation about how boards of directors gather information.
“What I worry about is the board exercising its fiduciary duties in this context,” Heminway says, referring to reporting responsibilities. “The main issues here are going to be duty of care issues,” a requirement that directors fully inform themselves of all material information, she notes.
“The amount of information available now is overwhelming, and it’s changing every day. The Defense Production Act is a piece of that,” says Heminway. “It’s part of what they need to be informed about.
The article covers a lot of ground overall and quotes from a number of sources, including former and current government employees.
I admit that I have been impressed by the level of interest and engagement of the journalists with whom I have been speaking. What they and others like them are producing and publishing fueled my teaching during March and April (I assigned a number of articles to my students relating to COVID-19 and corporate governance) and is likely to continue to catalyze blog posts and, potentially, research projects as time goes on. It is good to know that corporate governance questions are motivating useful media inquiries and publications during the COVID-19 crisis. It also is nice to know that we law professors may be able to use our knowledge to help inform important constituencies during the pendency of the pandemic while, at the same time, expanding our own horizons. A true win-win.
Wednesday, April 29, 2020
This has been quite a first year as a dean. Heck, it's been quite a year for all of us.
I woke up (very) early this morning, and it struck me that I hadn't been in contact with our students since Friday, which was our last day of classes. I don't want to be a distraction to their studies, but I also realized the midway through the first week, they might need a reminder of what they have accomplished in the face of unique and unprecedented challenges. Following is the note I sent our students, which I share for all of us who might need a reminder of what we're accomplishing. It is addressed to our Creighton Law students, but it's for all law students. Hang in there.
It’s the middle of the first week of what has to be the strangest finals we have ever experienced. This is always a time of hard work, long days, and high stress, but never before have we had to be so separate while going through it. We can’t experience study group or lunch breaks with friends, or play basketball or soccer in a group to blow off steam. In addition, there are health concerns for ourselves and loved ones, and many of us have kids at home, in wide ranges of ages who may need help with homework or just to be watched because the daycares are closed.
Despite all of this, you have shown up. You have worked, and you have learned. You are a remarkable group of people, and I am so proud of all you have accomplished. I know there is more to do, and I know this has not been easy. And there will continue to be bumps in the road, so I need you to know you can do this. Not just exams. Not just law school. All of it. You can do life, and you can be exceptional at what you do.
This is true even if you’re struggling right now. It’s not what happens in the next couple of days that will define you. It will be how you respond on the other side of this that matters, and from what I have seen, you are up to the task. And know you will have your Creighton Law community by your side, or at you back, when you need it.
I know you have a lot left to do, so I won’t take up more of your time. Please just know that even though we’re not in the law school, we’re still here for you. Keep at it, and know you’re not alone.
Sunday, April 26, 2020
In his Wednesday post (here), co-blogger Stefan J. Padfield highlighted a recent development in the arbitration area that I also want to bring to readers’ attention. I’m sure that all BLPB readers are a party to an arbitration agreement as these provisions have become so widespread in consumer adhesion contracts. The New York Times recently ran a fascinating article by Michael Corkery and Jessica Silver-Greenberg, ‘Scared to Death’ by Arbitration: Companies Drowning in their Own System. It details an innovative development in which entrepreneurial lawyers “are leaders in testing a new weapon in arbitration: sheer volume,” which is something the current arbitration system can’t handle.
Arbitration provisions in consumer adhesion contracts generally bar class-action lawsuits and might also bar class-wide arbitration. And it often makes little economic sense for an individual to take a large corporation to arbitration. Not surprisingly, many don’t. Corkery and Silver-Greenberg note that “Over the past few years, the nation’s largest telecom companies, like Comcast and AT&T, have had a combined 330 million customers. Yet annually an average of just 30 people took the companies to arbitration…” Now entrepreneurial lawyers such as Teel Lidow, who runs FairShake, and Travis Lenkner at Chicago law firm Keller Lenkner have entered the picture and are shaking up the consumer arbitration area with mass arbitration filings. It’s going to be a really interesting development to watch. It’s also a great reminder to all of the power of entrepreneurial thinking: “ 'The conventional wisdom might say that arbitration is a bad development for plaintiffs and an automatic win for the companies,’ he said. ‘We don’t see it that way.’ ” (Lenkner, as quoted by Corkery and Silver-Greenberg)
Wednesday, April 15, 2020
The National Center for Public Policy Research has posted an open letter to Blackrock CEO Larry Fink that should be of interest to readers of this blog. I provide some excerpts below. The full letter can be found here.
Dear Mr. Fink,
This economic crisis makes it more important than ever that companies like BlackRock focus on helping our nation’s economy recover. BlackRock and others must not add additional hurdles to recovery by supporting unnecessary and harmful environmental, social, and governance (ESG) shareholder proposals.
…. we are especially concerned that your support for some ESG shareholder proposals and investor initiatives brings political interests into decisions that should be guided by shareholder interests…. when a company’s values become politicized, the interests of the diverse group of shareholders and customers are overshadowed by the narrow interests of activist groups pushing a political agenda.
…. ESG proposals will add an extra-regulatory cost .... This may harm everyday Americans who are invested in these companies through pension funds and retirement plans. While this won’t affect folks in your income bracket, this may be the difference between affording medication, being able to retire, or supporting a family member’s education for many Americans.
There is a financial risk to this tack as well. The Wall Street Journal recently reported that “[p]erformance of BlackRock’s own iShares range of ESG funds shows that ESG is no guarantee of gold-plated returns. Its two oldest in the U.S., set up in 2005 and 2006 and now tracking the MSCI USA ESG Select index and the MSCI KLD 400 Social index, have both lagged behind iShares’ S&P 500 fund.”
And while publicly traded companies operate under a legal fiduciary duty to their investors, this is also a moral imperative. Free market capitalism has lifted more people out of poverty than any economic system in world history. That’s because, at its simplest level, capitalism operates under the basic rule that all exchanges are voluntary. Therefore, to achieve wealth and create growth in a capitalist system, one must appeal to the self-interest of others….
Monday, April 6, 2020
In my post last week, I mentioned the President's invocation of the Defense Production Act during the current COVID-19 crisis. I was immediately curious about this law when news of the President's March 27 memorandum focused on General Motors and ventilator production hit my radar screen (a/k/a, my laptop, which has effectively become my lap these days). Surely, it must be unusual for the U.S. government, I thought, to direct the nature, means, and timing of production and supply. That seems antithetical to the spirit, if not the letter, of U.S. capitalism. However, the more I read, the less curious and concerned I am, at least for the moment. Perhaps some of the reporting in this area is more geared to generating a splashy news item than, well, alerting us to something truly unusual or troubling. Nevertheless, I will make a few foundational points on the Act here. I may have more to say later.
The Defense Production Act of 1950 can be found in Chapter 55 of Title 50 of the U.S. Code. The Act recognizes that "the security of the United States is dependent on the ability of the domestic industrial base to supply materials and services for the national defense and to prepare for and respond to military conflicts, natural or man-caused disasters, or acts of terrorism within the United States." 50 U.S.C. § 4502(a)(1). To meet these and other requirements, the Defense Production Act "provides the President with an array of authorities to shape national defense preparedness programs and to take appropriate steps to maintain and enhance the domestic industrial base." Id. at § 4502(a)(4).
The President's highly publicized General Motors memorandum referenced above is only one of a number of formalized presidential actions citing to or using the Defense Production Act in the war against COVID-19. That memorandum directs the Secretary of Health and Human Services to "use any and all authority available under the Act to require General Motors Company to accept, perform, and prioritize contracts or orders for the number of ventilators that the Secretary determines to be appropriate." The General Motors memorandum follows on a March 16 executive order delegating specified presidential powers under Section 101 of the Act to the Secretary of Health and Human Services. An April 2 memorandum directs the Secretary of Homeland Security "through the Administrator of the Federal Emergency Management Agency (Administrator), . . . [to] use any and all authority available under the Act to acquire, from any appropriate subsidiary or affiliate of 3M Company, the number of N-95 respirators that the Administrator determines to be appropriate." A second April 2 memorandum directs the Secretary of Health and Human Services, "in consultation with the Secretary of Homeland Security, . . . [to] use any and all authority available under the Act to facilitate the supply of materials to the appropriate subsidiary or affiliate of the following entities for the production of ventilators: General Electric Company; Hill-Rom Holdings, Inc.; Medtronic Public Limited Company; ResMed Inc.; Royal Philips N.V.; and Vyaire Medical, Inc." Finally, an April 3 memorandum directs the Secretary of Homeland Security "through the Administrator of the Federal Emergency Management Agency, in consultation with the Secretary of Health and Human Services, . . . [to] use any and all authority available under section 101 of the Act to allocate to domestic use, as appropriate, . . . [specified] scarce or threatened materials designated by the Secretary of Health and Human Services . . . ." The President also issued a related statement on April 3 that decries "wartime profiteering."
Although the use of the Defense Production Act in directing production during the ongoing COVID-19 crisis may be novel in its nature or scale, Fortune reports that the Act is used "routinely" to prioritize contracts relating to military procurements and in response to natural disasters. Other past uses also are mentioned in that Fortune article. None of the President's actions to date invoking the Act as to production by specific firms is in the form of an executive order. However, the President is afforded many powers under the Act, see 50 U.S.C. § 4554(a) (providing in relevant part that "the President may prescribe such regulations and issue such orders as the President may determine to be appropriate"), although they are subject to certain limitations (including, e.g., broad-based restrictions relating to "wage or price controls" and "chemical or biological weapons" under 50 U.S.C. § 4514).
Even without the issuance of enforceable presidential orders, however, those charged with manufacturing under the various presidential memoranda are (and in some cases, prior to presidential action, were) scrambling to make up for lost time. A report published over the weekend in The Washington Post describes the status of some of their efforts. CNBC's similar report is here. Time weighed in a few days earlier with its story. Finally, an earlier report from The New York Times offers historic details relevant at that time. Private industry has been stepping up in so many ways during the pandemic. With all the hullabaloo around the Defense Production Act, we all should know about and be proud of that.
As for the actual COVID-19 business operational effects of the powers afforded to the President under the Defense Production Act, they remain to be seen. My interest has been whetted, however, and I will be paying attention to future invocations of the Act not only in the COVID-19 crisis, but also in other contexts. My perception is that it is one of the lesser-known laws that can impact business in a significant ways if the full force of its provisions is employed. It is legislation--even 70 years out--that all of us business lawyers and law professors should be aware of.
Monday, March 30, 2020
COVID-19's effects on financings and M&A, as well as contracts more generally (as covered here, here, and here among many other places), the rapid adoption of the Coronavirus Act, Relief, and Economic Security Act, a/k/a the “CARES Act” (key terms summarized briefly here and elsewhere), and the President's invocation of the Defense Production Act have me feeling like I am drinking business law water out of a fire hose this past week. Anyone else feeling that way? Whew!
I am still sorting through it all. I am sure that I will have more to say on some of this as time passes. However, earlier today, in the process of reading online resources and watching and listening to others talk about the many legal aspects of the current pandemic, I came across this YouTube video, done by one of my former students, a local attorney who works with entrepreneurs, start-ups, and small businesses.
I have not fact-checked this video. And he jumps in to correct himself. But what I like about it is that it represents unvarnished, even humorous, boots-on-the-ground legal public service. He does not want businesses in the local community to miss out or waste time/money shooting in the dark--or in the wrong direction.
Sometimes, our students do great things after they leave the hallowed halls of law school. Many times, those good deeds go unrecognized. Haseeb has always been passionate. It makes me so happy to see him using his passion to help the local business community. I want to offer a "shout out" to him here. (And his dog, Simon, is the cutest! ♥)
Tuesday, March 24, 2020
Like so many law schools, we're navigating our way to online and other remote teaching and learning in a rapid and unexpected way. We started classes yesterday, and it's gone fairly well. Our faculty has worked hard, and our students have been incredibly resilient in the face this adversity we all, unfortunately, share. It does, though, impact people in many different ways.
Some people face additional health risks, financial challenges, childcare problems, technology limitations, learning disabilities, and more, and I have been so impressed with the strength and composure I have seen in our community. I suspect it's that way a lot of places, and I hope so, but it has been remarkable to see.
The Harvard Business Review posted a piece yesterday that framed this whole COVID-19 experience in a way I had not considered. The piece is titled, That Discomfort You’re Feeling Is Grief. I would not have framed it the way, but I think it's an important perspective. The whole piece is worth a read, but here are some important points worth considering:
Anticipatory grief is the mind going to the future and imagining the worst. To calm yourself, you want to come into the present. This will be familiar advice to anyone who has meditated or practiced mindfulness but people are always surprised at how prosaic this can be. You can name five things in the room. There’s a computer, a chair, a picture of the dog, an old rug and a coffee mug. It’s that simple. Breathe. Realize that in the present moment, nothing you’ve anticipated has happened. In this moment, you’re okay. . . . .
You can also think about how to let go of what you can’t control. What your neighbor is doing is out of your control. What is in your control is staying six feet away from them and washing your hands. Focus on that.
Finally, it’s a good time to stock up on compassion. Everyone will have different levels of fear and grief and it manifests in different ways. A coworker got very snippy with me the other day and I thought, That’s not like this person; that’s how they’re dealing with this. I’m seeing their fear and anxiety. So be patient. Think about who someone usually is and not who they seem to be in this moment.
This all makes sense to me, and it is a helpful way to think about things when everything feels a little off. And right now, that seems to be often. Another thing I have tried to do is find some routine and ways to share with one another. We have been having family dinners and family movie night most nights. And we have been reconnecting with friends around the country via phone calls, but more often on Zoom. Sharing some time with friends works remarkably well, at least now that we lack other options interaction.
In the interest of sharing, here are a few recommendations. As to movies and music, if periodic coarse language, drug references, etc., are not for you, my recommendations may not be for you. So in closing, I will share some (mostly new) songs you may not have heard (and I think you should). Be safe, be well, and be good to each other.
1. I think I'm OKAY, Machine Gun Kelly, et al., -- seems about right.
2. how will i rest in peace if i'm buried by a highway?, KennyHoopla (for old guys like me, there's a modern edge with an old techno, maybe New Order, feel)
3. Hit the back, King Princess (sultry, smooth, with a 70s dance vibe, not too sappy).
4. Celoso, Lele Pons (chill Latin dance that's upbeat yet goes well with a cocktail)
5. Don't You (Forget About Me), beabadoobee (Okay, you've probably heard this one, but not this version. Like I said, I'm Gen X).
Wednesday, March 4, 2020
Last year, in a post about personal finance, I mentioned my friend Joey Elaskr, who is completing a PHD/MD program at Vanderbilt University. In late 2019, Joey qualified for the Olympic Trials at the Monumental Marathon in an impressive 2:18:57 (5:18 per mile for 26.2 miles). On February 29th this year, just a couple weeks after successfully defending his dissertation, he competed in the Olympic Trials in Atlanta. You can read a bit about Joey's running on Lets Run and on Money & Megabytes. While the tie to "business law" is admittedly stretched, I do think our readers can learn a good bit about juggling demanding responsibilities from Joey, and I am glad he agreed to answer a few questions below the break.
Monday, March 2, 2020
I recently had occasion to offer background to, and be interviewed by, a local television reporter about a publicly traded firm that owns several health care facilities in East Tennessee and has been financed significantly through loans from and corporate payments made by a member of its board of directors. The resulting article and news clip can be found here. Since the story was published, a Form 8-K was filed reporting that the director has resigned from the board and the firm is negotiating with him to cancel its indebtedness in exchange for preferred stock.
In reviewing published reports on the firm, Rennova Health, Inc., I learned that it had been delisted from NASDAQ back in 2018. The reason? The firm engaged in too many stock splits.
I also came across an article reporting that another health care firm, a middle Tennessee skilled nursing provider, Diversicare Healthcare Services, Inc., had been delisted in late 2019. The same article noted two additional middle Tennessee health care firms also were in danger of being delisted from stock exchanges. One was subsequently delisted.
Health care mergers and acquisitions also have been in the news here in Tennessee. A Tennessee/Virginia health care business combination finalized in 2018 is one of two under study by the Federal Trade Commission. The combining firms, Mountain States Health Alliance and Wellmont Health System, avoided federal and state antitrust merger approvals and challenges through the receipt of a certificate of public advantage (COPA) under Tennessee law and a coordinated process in Virginia. The resulting firm, Ballad Health, is an effective health care monopoly in the region and has had well publicized challenges in meeting its commitment to provide cost-effective, quality patient care.
I can only assume that these health care corporate finance issues in Tennessee are a microcosm of what exists nationally.
All of this has made me interested in the U.S. healthcare industry as an engaging and useful lens through which one could teach and write about the legal aspects of corporate finance . . . . Many of the current business law issues in U.S. health care firms stem from well-known financial challenges in the industry and the related governmental responses (or lack thereof). With public debates--including in connection with this year's presidential caucuses, primaries, and election--over the extent to which the federal government should provide financial support to the health care industry under existing conditions and whether the health care industry has become too big to fail, health care examples and hypotheticals seem very salient now, in the same way that banking or telecomm examples and hypotheticals may have had pedagogical and scholarly traction in corporate finance in the past.
Some of the business law issues facing U.S. health care firms may be quite the same as they are for firms in any other industry. Yet, some also may be unique to the health care industry and worth further, individualized exploration in the classroom or in the research realm. For example, innovation and entrepreneurship--intricately tied to corporate finance--may be different in the health care space, as currently configured in the United States. This article makes arguments in that regard.
In all, it seems there is a synergy worth examining in the connections between the U.S. health care crisis and business law teaching and research. Unless and until something fundamental changes in the U.S. health care delivery system, corporate finance lawyers and professionals are likely to have important (if somewhat hidden) roles in ensuring that health care firms survive while providing cost-effective care to those who need it. Business law analyses and innovations are sure to play strong roles in this environment, making business law professors key potential contributors. Time for us to step up and take the challenge!
Monday, February 10, 2020
My short essay, "Me, Too and #MeToo: Women in Congress and the Boardroom," was recently published in the George Washington Law Review. The abstract follows.
The “Year of the Woman” (1992) and the year of #MeToo (2018) were landmark years for women in federal congressional elections. Both years also represent significant milestones for women’s roles as U.S. public company directors. In each of these two years, social context was interconnected with these political and corporate gender changes. The relevant social context in 2018 is most clearly defined by public revelations of sexual misconduct involving a significant number of men in positions of political and business power. The relevant social context in 1992 similarly involved specific, highly public disclosures and allegations of sexual misconduct.
These parallels beg many questions. In particular, one may ponder whether the correlation between social context and congressional or public company board elections is coincidence or something more. Apropos of the current era, those of us who focus on corporate board diversity may wonder whether looking at the election of women to Congress and corporate boards in the #MeToo era provides any insights or lessons about female corporate board representation.
This brief Essay examines and comments on possible gender effects of the #MeToo movement on public company board composition in relation to the possible gender effects of the #MeToo movement on the composition of legislative bodies. Although #MeToo has clarified, and perhaps expanded, the salient connections between business issues and women’s issues, those who have the power to elect corporate directors may not fully recognize this connection or other factors as unique values of female corporate board participation. Until additional female membership on corporate boards is substantively valued, swift sustainable changes in the gender makeup of corporate boards may not be realizable without specific, enforceable legal mandates. Although California’s state legislature has taken a bold step in this direction in the #MeToo era, it seems unlikely that additional state legislatures will follow its lead. As a result, the pace of change in corporate board gender composition is likely to continue to be more evolutionary than revolutionary.
I appreciate the opportunity to publish these thoughts generated in connection with a conference held at GWU Law back in 2018. The conference, "Women and Corporate Governance: A Conference Exploring the Role and Impact of Women in the Governance of Public Corporations," featured a number of super panels. I had the opportunity to moderate one ("Women as Counsel and Gatekeepers") and publish this piece.
Monday, January 20, 2020
[Image courtesy of Clipart Library, http://clipart-library.com/mlk-cliparts.html]
Today, on Martin Luther King Jr. Day, I was in the office preparing for the week+ ahead. I was not the only one there. Part of me wanted to be elsewhere, publicly supporting the life and legacy of Dr. Martin Luther King Jr. I did think about him and his work as I toiled away.
Although most of what I was sorting and sifting through today was business law-related, part of what I focused on was committee work for our celebration tomorrow that honors Dr. King. I chair a committee at UT Law this year that is responsible for hosting one or more Martin Luther King Jr. events every year. This year, we will have a luncheon and informal table discussions based on facts about Dr. King and quotes from his public appearances and published work. As I was going through the facts and quotes, I came upon this quote: "No work is insignificant. All labor that uplifts humanity has dignity and importance and should be undertaken with painstaking excellence." (The quote is apparently from Strength to Love, a 1963 book of Dr. King's sermons.) Admittedly, it spurred me on and made me feel more than a bit better about devoting much of my day to somewhat menial tasks.
As I continued to read through the quotes, I kept finding more and more that interested me. I observed that, among other things, Dr. King's speeches and writings address leadership in many ways. One of my favorites along these lines: "Change does not roll in on the wheels of inevitability but comes through continuous struggle." Yes! And another: "An individual has not started living until he can rise above the narrow confines of his individualistic concerns to the broader concerns of all humanity." Right! And inspiring, too, for those of us who are concerned about our students.
As I think about teaching materiality (in Securities Regulation), public company charter and bylaw issues (in Advanced Business Associations), and closely held corporation bylaw drafting (in Representing Enterprises) tomorrow, I plan to carry Dr. King's courage, perseverance, and energy into my day. And I hope that my students are ready to respond to my teaching with enthusiasm, trust, and confidence at this early stage of the semester. "Faith," Dr. King said, "is taking the first step, even when you don’t see the whole staircase." I may read that in class tomorrow . . . .
Wednesday, January 15, 2020
The following comes to us from Bernard S. Sharfman. It is a copy of the comment letter (without footnotes) that he recently sent to the SEC in support of the Amendments to Exemptions from the Proxy Rules for Proxy Voting Advice. (The comment letter with footnotes can be found here.) An introductory excerpt is followed, after the break, by the full letter. Please excuse any formatting errors generated by my poor copy-and-paste skills.
Part I of this letter will describe the collective action problem that is at the heart of shareholder voting. Part II will discuss the problems that this collective action causes for the voting recommendations of proxy advisors, including the creation of a resource constrained business environment. Part III discusses how proxy advisors deal with such a business environment. Part IV will discuss how the market for voting recommendations is an example of a market failure, requiring the SEC to pursue regulatory action to mitigate the harm caused by two significant negative externalities. Part V will discuss how the collective action problem of shareholder voting and the market failure impacts corporate governance. Part VI will discuss the value of the proposed amendments.
Tuesday, December 24, 2019
Happy holidays! Billions of people around the world are celebrating Christmas or Hanukah right now. Perhaps you’re even reading this post on a brand new Apple Ipad, a Microsoft Surface, or a Dell Computer. Maybe you found this post via a Google search. If you use a product manufactured by any of those companies or drive a Tesla, then this post is for you. Last week, a nonprofit organization filed the first lawsuit against the world’s biggest tech companies alleging that they are complicit in child trafficking and deaths in the cobalt mines of the Democratic Republic of Congo. Dodd-Frank §1502 and the upcoming EU Conflict Minerals Regulation, which goes into effect in 2021, both require companies to disclose the efforts they have made to track and trace "conflict minerals" -- tin, tungsten, tantalum, and gold from the DRC and surrounding countries. DRC is one of the poorest nations in the world per capita but has an estimated $25 trillion in mineral reserves (including 65% of the world's cobalt). Armed militia use rape and violence as a weapon of war in part so that they control the mineral wealth. The EU and US regulators believe that consumers might make different purchasing decisions if they knew whether companies source their minerals ethically. The EU legislation, notably, does not limit the geography to the DRC, but instead focuses on conflict zones around the world.
If you’ve read my posts before, then you know that I have written repeatedly about the DRC and conflict minerals. After visiting DRC for a research trip in 2011, I wrote a law review article and co-filed an amicus brief during the §1502 litigation arguing that the law would not help people on the ground. I have also blogged here about legislation to end the rule, here about the EU's version of the rule, and here about the differences between the EU and US rule. Because of the law and pressure from activists and socially-responsible investors, companies, including the defendants, have filed disclosures, joined voluntary task forces to clean up supply chains, and responded to shareholder proposals regarding conflict minerals for years. I will have more on those initiatives in my next post. Interestingly, cobalt, the subject of the new litigation, is not a “conflict mineral” under either the U.S. or E.U. regulation, although, based on the rationale behind enacting Dodd-Frank §1502, perhaps it should have been. Nonetheless, in all of my research, I never came across any legislative history or materials discussing why cobalt was excluded.
The litigation makes some startling claims, but having been to the DRC, I’m not surprised. I’ve seen children who should have been in school, but could not afford to attend, digging for minerals with shovels and panning for gold in rivers. Although I was not allowed in the mines during my visit because of a massacre in the village the night before, I could still see child laborers on the side of the road mining. If you think mining is dangerous here in the U.S., imagine what it’s like in a poor country with a corrupt government dependent on income from multinationals.
The seventy-nine page class action Complaint was filed filed in federal court in the District of Columbia on behalf of thirteen children claiming: (1) a violation of the Trafficking Victims Protection Reauthorization Act of 2008; (2) unjust enrichment; (3) negligent supervision; and (4) intentional infliction of emotional distress. I’ve listed some excerpts from the Complaint below (hyperlinks added):
Defendants Apple, Alphabet, Dell, Microsoft, and Tesla are knowingly benefiting from and providing substantial support to this “artisanal” mining system in the DRC. Defendants know and have known for a significant period of time the reality that DRC’s cobalt mining sector is dependent upon children, with males performing the most hazardous work in the primitive cobalt mines, including tunnel digging. These boys are working under stone age conditions for paltry wages and at immense personal risk to provide cobalt that is essential to the so-called “high tech” sector, dominated by Defendants and other companies. For the avoidance of doubt, every smartphone, tablet, laptop, electric vehicle, or other device containing a lithium-ion rechargeable battery requires cobalt in order to recharge. Put simply, the hundreds of billions of dollars generated by the Defendants each year would not be possible without cobalt mined in the DRC….
Plaintiffs herein are representative of the child cobalt miners, some as young as six years of age, who work in exceedingly harsh, hazardous, and toxic conditions that are on the extreme end of “the worst forms of child labor” prohibited by ILO Convention No. 182. Some of the child miners are also trafficked. Plaintiffs and the other child miners producing cobalt for Defendants Apple, Alphabet, Dell, Microsoft, and Tesla typically earn 2-3 U.S. dollars per day and, remarkably, in many cases even less than that, as they perform backbreaking and hazardous work that will likely kill or maim them. Based on indisputable research, cobalt mined in the DRC is listed on the U.S. Department of Labor’s International Labor Affairs Bureau’s List of Goods Produced with Forced and Child Labor.
When I mentioned above that I wasn’t surprised about the allegations, I mean that I wasn’t surprised that the injuries and deaths occur based on what I saw during my visit to DRC. I am surprised that companies that must perform due diligence in their supply chains for conflict minerals don’t perform the same kind of due diligence in the cobalt mines. But maybe I shouldn't be surprised at all, given how many companies have stated that they cannot be sure of the origins of their minerals. In my next post, I will discuss what the companies say they are doing, what they are actually doing, and how the market has reacted to the litigation. What I do know for sure is that the Apple store at the mall nearest to me was so crowded that people could not get in. The mall also has a Tesla showroom and people were gearing up for test drives. Does that mean that consumers are not aware of the allegations? Or does that mean that they don’t care? I’ll discuss that in the next post as well.
Wishing you all a happy and healthy holiday season.
December 24, 2019 in Compliance, Corporate Personality, Corporations, CSR, Current Affairs, Ethics, Financial Markets, Human Rights, Litigation, Marcia Narine Weldon, Securities Regulation, Shareholders | Permalink | Comments (0)
Saturday, September 7, 2019
Have you ever wanted to learn the basics about blockchain? Do you think it's all hype and a passing fad? Whatever your view, take a look at my new article, Beyond Bitcoin: Leveraging Blockchain to Benefit Business and Society, co-authored with Rachel Epstein, counsel at Hedera Hashgraph. I became interested in blockchain a year ago because I immediately saw potential use cases in supply chain, compliance, and corporate governance. I met Rachel at a Humanitarian Blockchain Summit and although I had already started the article, her practical experience in the field added balance, perspective, and nuance.
The abstract is below:
Although many people equate blockchain with bitcoin, cryptocurrency, and smart contracts, the technology also has the potential to transform the way companies look at governance and enterprise risk management, and to assist governments and businesses in mitigating human rights impacts. This Article will discuss how state and non-state actors use the technology outside of the realm of cryptocurrency. Part I will provide an overview of blockchain technology. Part II will briefly describe how public and private actors use blockchain today to track food, address land grabs, protect refugee identity rights, combat bribery and corruption, eliminate voter fraud, and facilitate financial transactions for those without access to banks. Part III will discuss key corporate governance, compliance, and social responsibility initiatives that currently utilize blockchain or are exploring the possibilities for shareholder communications, internal audit, and cyber security. Part IV will delve into the business and human rights landscape and examine how blockchain can facilitate compliance. Specifically, we will focus on one of the more promising uses of distributed ledger technology -- eliminating barriers to transparency in the human rights arena thereby satisfying various mandatory disclosure regimes and shareholder requests. Part V will pose questions that board members should ask when considering adopting the technology and will recommend that governments, rating agencies, sustainable stock exchanges, and institutional investors provide incentives for companies to invest in the technology, when appropriate. Given the increasing widespread use of the technology by both state and non-state actors and the potential disruptive capabilities, we conclude that firms that do not explore blockchain’s impact risk obsolescence or increased regulation.
Things change so quickly in this space. Some of the information in the article is already outdated and some of the initiatives have expanded. To keep up, you may want to subscribe to newsletters such as Hunton, Andrews, Kurth's Blockchain Legal Resource. For more general information on blockchain, see my post from last year, where I list some of the videos that I watched to become literate on the topic. For additional resources, see here and here.
If you are interested specifically in government use cases, consider joining the Government Blockchain Association. On September 14th and 15th, the GBA is holding its Fall 2019 Symposium, “The Future of Money, Governance and the Law,” in Arlington, Virginia. Speakers will include a chief economist from the World Bank and banking, political, legal, regulatory, defense, intelligence, and law enforcement professionals from around the world. This event is sponsored by the George Mason University Schar School of Policy and Government, Criminal Investigations and Network Analysis (CINA) Center, and the Government Blockchain Association (GBA). Organizers expect over 300 government, industry and academic leaders on the Arlington Campus of George Mason University, either in person or virtually. To find out more about the event go to: http://bit.ly/FoMGL-914.
Blockchain is complex and it's easy to get overwhelmed. It's not the answer to everything, but I will continue my focus on the compliance, governance, and human rights implications, particularly for Dodd-Frank and EU conflict minerals due diligence and disclosure. As lawyers, judges, and law students, we need to educate ourselves so that we can provide solid advice to legislators and business people who can easily make things worse by, for example, drafting laws that do not make sense and developing smart contracts with so many loopholes that they cause jurisdictional and enforcement nightmares.
Notwithstanding the controversy surrounding blockchain, I'm particularly proud of this article and would not have been able to do it without my co-author, Rachel, my fantastic research assistants Jordan Suarez, Natalia Jaramillo, and Lauren Miller from the University of Miami School of Law, and the student editors at the Tennessee Journal of Business Law. If you have questions or please post them below or reach out to me at firstname.lastname@example.org.
September 7, 2019 in Compliance, Conferences, Contracts, Corporate Governance, Corporations, CSR, Current Affairs, Financial Markets, Human Rights, Law Reviews, Lawyering, Legislation, Marcia Narine Weldon, Securities Regulation, Shareholders, Technology | Permalink | Comments (0)
Friday, August 23, 2019
I had planned to write about the Statement on the Purpose of a Corporation signed by 200 top CEOs. If you read this blog, you've likely read the coverage and the varying opinions. I'm still reading the various blog posts, statements by NGOs, and 10-Ks of some of the largest companies so that I can gather my thoughts. In the meantime, many of these same companies will be at the UN Forum on Business and Human Rights touting their records. I've been to the Forum several times, and it's worth the trip. If you're interested in joining over 2,000 people, including representatives from many of the signatories of the Statement, see below. You can register here:
The UN annual Forum on Business and Human Rights is the global platform for stock-taking and lesson-sharing on efforts to move the UN Guiding Principles on Business and Human Rights from paper to practice. As the world’s foremost gathering in this area, it provides a unique space for dialogue between governments, business, civil society, affected groups and international organizations on trends, challenges and good practices in preventing and addressing business-related human rights impacts. The first Forum was held in 2012. It attracts more than 2,000 experts, practitioners and leaders for three days of an action- and solution-oriented dialogue.The Forum was established by the UN Human Rights Council in 2011 “to discuss trends and challenges in the implementation of the Guiding Principles and promote dialogue and cooperation on issues linked to business and human rights, including challenges faced in particular sectors, operational environments or in relation to specific rights or groups, as well as identifying good practices” (resolution 17/4, paragraph 12).
The Forum addresses all three pillars of the Guiding Principles:
- The State duty to protect against human rights abuses by third parties, including business, through appropriate policies, regulation and adjudication;
- The corporate responsibility to respect human rights, which means to avoid infringing on the rights of others and to address adverse impacts with which a business is involved; and
- The need for access to effective remedy for rights-holders when abuse has occurred, through both judicial and non-judicial grievance mechanisms
The Forum is guided and chaired by the UN Working Group on Business and Human Rights and organized by its Secretariat at the Office of the UN High Commissioner for Human Rights (OHCHR).
If you have any questions about the value of attending the Forum, feel free to reach out to me at email@example.com.
August 23, 2019 in Conferences, Corporate Personality, Corporations, CSR, Current Affairs, Human Rights, International Business, International Law, Marcia Narine Weldon, Shareholders, Social Enterprise | Permalink | Comments (0)
Friday, August 16, 2019
Last week, I led a “legal hack” for some of the first year students during orientation. Each participating professor spoke for ten minutes on a topic of our choice and then answered questions for ten minutes. I picked business and human rights, my passion. I titled my brief lecture, “Are you using a product made by slaves, and if you are, can you do anything about it”?
In my ten minutes, I introduced the problem of global slavery; touched on the false and deceptive trade practices litigation levied against companies; described the role of shareholder activists and socially responsible investors in pressuring companies to clean up supply chains; raised doubts about the effectiveness of some of the disclosure regimes in the US, EU, and Australia; questioned the efficacy of conscious consumerism; and mentioned blockchain as a potential tool for provenance of goods. Yes. In ten minutes.
During the actual hack later in the afternoon, I had a bit more time to flesh out the problem. I developed a case study around the Rana Plaza disaster in which a building collapse in Bangladesh killed over 1,000 garment workers six years ago. Students brainstormed solutions to the problems I posed with the help of upperclassmen as student facilitators and community stakeholders with subject matter expertise. At the end of the two-hour brainstorming session, the students presented their solutions to me.
We delved deeper into my subject matter as I asked my student hackers to play one of four roles: a US CEO of a company with a well-publicized CSR policy deciding whether to stay in Bangladesh or source from a country with a better human rights record; a US Presidential candidate commenting on both a potential binding treaty on business and human rights and a proposed federal mandatory due diligence regime in supply chains; a trade union representative in Bangladesh prioritizing recommendations and demands to EU and US companies; and a social media influencer with over 100 million followers who intended to use his platform to help an NGO raise awareness.
This exercise was identical to an exercise I did in March in Pakistan with 100 business leaders, students, lawyers, government officials, and members of civil society as part of an ABA Rule of Law Initiative. The only difference was that I asked Pakistanis to represent the Bangladesh government and I asked the US students to represent a political candidate.
In both Pakistan and Miami, the participants had to view the labor issues in the supply chain from a multistakeholder perspective. Interestingly, in both Pakistan and Miami, the participants playing the social media influencer rejected the idea of a boycott. Even though multiple groups played this role in both places, each group believed that seeking a boycott of companies that used unsafe Bangladeshi factories would cause more harm than good.
Of note, the Miami Law students did their hack during the call for a boycott of Soul Cycle due to Steve Ross’ decision to hold a fundraiser for President Trump. In my unscientific poll, three out of three students who patronized Soul Cycle refused to boycott. When it came to the fictionalized case study, all groups raised concerns that a boycott could hurt garment workers in Bangladesh and retail workers in the US and EU. Some considered a “buycott” to support brands with stronger human rights records.
I’ve written before about my skepticism about long term boycotts, especially those led by millennials. Some of these same students echoed my concerns about their own lack of sustained commitment on proposed boycotts in the past. The “winning” hack- #DoBetterBangladesh was a multipronged strategy to educate consumers, adopt best practices of successful campaigns such as the Imokalee
farm workers, and form acoalition with other influencers to encourage consumer donations to reputable NGOs in Bangladesh. After seeing what these student groups could do in just two hours, I can’t wait to see what they can accomplish after three years of law school.
Friday, July 26, 2019
I'm at the tail end of teaching my summer transactional lawyering course. Throughout the semester, I've focused my students on the importance of representations, warranties, covenants, conditions, materiality, and knowledge qualifiers. Today I came across an article from Practical Law Company that discussed the use of #MeToo representations in mergers and acquisitions agreements, and I plan to use it as a teaching tool next semester. According to the article, which is behind a firewall so I can't link to it, thirty-nine public merger agreements this year have had such clauses. This doesn't surprise me. Last year I spoke on a webinar regarding #MeToo and touched on the the corporate governance implications and the rise of these so-called "Harvey Weinstein" clauses.
Generally, according to Practical Law Company, target companies in these agreements represent that: 1) no allegations of sexual harassment or sexual misconduct have been made against a group or class of employees at certain seniority levels; 2) no allegations have been made against independent contractors; and 3) the company has not entered into any settlement agreements related to these kinds of allegations. The target would list exceptions on a disclosure schedule, presumably redacting the name of the accuser to preserve privacy. These agreements often have a look back, typically between two and five years with five years being the most common. Interestingly, some agreements include a material adverse effect clause, which favor the target.
Here's an example of a representation related to "Labor Matters" from the June 9, 2019 agreement between Salesforce.com, Inc. and Tableau Software, Inc.
b) The Company and each Company Subsidiary are and have been since January 1, 2016 in compliance with all applicable Law respecting labor, employment, immigration, fair employment practices, terms and conditions of employment, workers' compensation, occupational safety, plant closings, mass layoffs, worker classification, sexual harassment, discrimination, exempt and non-exempt status, compensation and benefits, wages and hours and the Worker Adjustment and Retraining Notification Act of 1988, as amended, except where such non-compliance has not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
c) To the Company's Knowledge, in the last five (5) years, (i) no allegations of sexual harassment have been made against any employee at the level of Vice President or above, and (ii) neither the Company nor any of the Company Subsidiaries have entered into any settlement agreements related to allegations of sexual harassment or misconduct by any employee at the level of Vice President or above.
The agreement has the following relevant definitions:
"Knowledge" will be deemed to be, as the case may be, the actual knowledge of (a) the individuals set forth on Section 1.1(a) of the Parent Disclosure Letter with respect to Parent or Purchaser or (b) the individuals set forth on Section 1.1(a) of the Company Disclosure Letter with respect to the Company, in each case after reasonable inquiry of those employees of such Party and its Subsidiaries who would reasonably be expected to have actual knowledge of the matter in question.
Even though I like the idea of these reps. in theory, I have some concerns. First, I hate to be nitpicky, but after two decades of practicing employment law on the defense side, I have some questions. What's the definition of "sexual misconduct"? What happens of the company handbook or policies do not define "sexual misconduct"? The Salesforce.com agreement did not define it. So how does the target know what to disclose? Next, how should an agreement define "sexual harassment"? What if the allegation would not pass muster under Title VII or even under a more flexible, more generous definition in an employee handbook? When I was in house and drafting policies, a lot of crude behavior could be "harassment" even if it wouldn't survive the pleading requirements for a motion to dismiss. Does a company have to disclose an allegation of harassment that's not legally cognizable? And what about the definition of "allegation"? The Salesforce.com agreement did not define this either. Is it an allegation that has been reported through proper channels? Does the target have to go back to all of the executives' current and former managers and HR personnel as a part of due diligence to make sure there were no allegations that were not investigated or reported through proper channels? What if there were rumors? What if there was a conclusively false allegation (it's rare, but I've seen it)? What if the allegation could not be proved through a thorough, best in class investigation? How does the target disclose that without impugning the reputation of the accused?
Second, I'm not sure why independent contractors would even be included in these representations because they're not the employees of the company. If an independent contractor harassed one of the target's employees, that independent contractor shouldn't even be an issue in a representation because s/he should not be on the premises. Moreover, the contractor, and not the target company, should be paying any settlement. I acknowledge that a company is responsible for protecting its employees from harassment, including from contractors and vendors. But a company that pays the settlement should ensure that the harasser/contractor can't come near the worksite or employees ever again. If that's the case, why the need for a representation about the contractors? Third, companies often settle for nuisance value or to avoid the cost of litigation even when the investigation results are inconclusive or sometimes before an investigation has ended. How does the company explain that in due diligence? How much detail does the target disclose? Finally, what happens if the company legally destroyed documents as part of an established and enforced document retention and destruction process? Does that excuse disclosure even if someone might have a vague memory of some unfounded allegation five years ago?
But maybe I protest too much. Given the definition of "knowledge" above, in-house and outside counsel for target companies will have to ask a lot more and a lot tougher questions. On the other hand, given the lack of clarity around some of the key terms such as "allegations," "harassment," and "misconduct," I expect there to be some litigation around these #MeToo representations in the future. I'll see if my Fall students can do a better job of crafting definitions than the BigLaw counsel did.
July 26, 2019 in Compliance, Contracts, Corporate Governance, Corporate Personality, Corporations, Current Affairs, Employment Law, Ethics, Law School, Lawyering, Litigation, M&A, Management, Marcia Narine Weldon, Teaching | Permalink | Comments (0)
Tuesday, July 9, 2019
A recent Tennessee court decision subtly notes that limited liability companies (LLCs) are not, in fact corporations. In a recent Tennessee federal court opinion, Judge Richardson twice notes the incorrect listing of an LLC as a "limited liability corporation."
First, the opinion states:
The [Second Amended Complaint] alleges that Defendant Evans is a resident of Tennessee, Defendant #AE20, LLC is a California limited liability company, and Defendant Gore Capital, LLC is a Delaware limited liability “corporation.”3
3 Gore Capital is in fact a limited liability company.
Judge Richardson later notes, in footnote 11:
Plaintiff states that he was sent documents that listed Gore’s (not #AE20’s) principal place of business as being in Chattanooga, Tennessee, although the SAC lists Gore as a “Delaware limited liability corporation (sic)[.]”