Business Law Prof Blog

Fiduciary Duties: A Tale of Two Families

Check out the third issue of volume 73 of the DePaul Law Review!  It includes a series of papers emanating from the HBO series Succession.  As you may recall, I posted a call for papers for this issue about a year ago.  Most of the papers in the issue came from a venture originated and organized by Susan Bandes and Diane Kemker called the Waystar Royco School of Law.  I wrote about that enterprise here.  

I participated in the Waystar Royco School of Law Zoom meetings as the “Roy/Demoulas Distinguished Professor of Law and Business.”  I presented on fiduciary duty issues comparing the principals of two family businesses--The Demoulas family from Northern Massachusetts and Succession's Roy family from New York.  You can find my Zoom session here (Passcode: #hN+7J5N).  That presentation resulted in an essay that I wrote for the DePaul Law Review issue as well as an advanced business associations course based on the Succession series. I finish teaching that course this week.  I also presented on the topic of my Succession essay at the Popular Culture Association conference back in March.  I include a screenshot of my cover slide below.

I just posted the essay to SSRN.  The piece is entitled What the Roys Should Learn from the Demoulas Family (But Probably Won’t).  The SSRN abstract is set forth below.

This essay offers a comparison of the actions taken by members of two families: the Demoulas family, best known as owner-operators of northeastern regional supermarkets, and the Roy family featured in HBO's series "Succession." The comparative appraisal focuses principally on the selfish pursuit of individualized financial, social, and familial status by key members of both the Demoulas and Roy families as they relate to the law of business associations (principally corporate law). At the heart of the matter is the legal concept of fiduciary duty. A comparison of the two families’ exploits reveals that lessons earlier learned by the Demoulas family (and observers of the multifaceted, multi-year litigation involving them and their business undertakings) fail to positively impact the destiny and legacy of Succession’s Roy family—at least as far as the Roy family story has been told to date. Although hope may be limited, there is still time for the remaining Roy family members to take heed and make changes.

To execute and comment on the comparison of these two families, the essay starts by outlining relevant information concerning legally recognized fiduciary duties in the corporate (and, to a lesser degree, partnership) contexts. Next, the essay offers background information about the Demoulas and Roy families and their respective businesses (both organized as corporations) and selected business dealings and governance, noting actual and potential breaches of fiduciary duty in each case. A brief conclusion offers comparative observations about the actions taken by members of the Demoulas and Roy families that contravene or challenge applicable fiduciary duties and the opportunity for general reflection. Of particular note is the observation that the ability of corporate directors and officers to comply with their fiduciary duties may become more difficult and complicated when integrating family dynamics and business succession issues into business decisions in a family business context.

I have enjoyed the research and teaching I have done in this area over the past year.  It always is nice to take a fresh approach to familiar concepts.  I daresay my students have felt the same way in covering business associations topics through the lens of the happenings in the series.  They certainly have been attentive and communicative, which is what I had been shooting for in teaching corporate and other business associations law through the course.  I am happy to answer questions about the course and provide my syllabi to anyone who wants to see what I assigned and did for the course.  Just ask.

Teaching and Supporting Small Business and Innovation

As you may know or recall, I am teaching an advanced business law course that leverages the characters and transactions featured in HBO Max's Succession.  I reported on the course here back in November. The inspiration for the course came in part from the work some of us did to produce a series of educational sessions as the Waystar Royco School of Law last year.  I posted on that lecture series here on the BLPB, too, including here.

From that series of Zoomcasts, a publication opportunity, some press inquiries, and a few new friendships followed, as well as the idea for my Succession course.  We are only a few classes in so far, but we had the pleasure of hosting friend-of-the-BLPB Ben Means in class today.  As you may know, Ben directs South Carolina's innovative Family and Small Business Program.  He also participated int he Waystar Royco School of Law (ad)venture and was a super guest.  We covered a lot of ground on family businesses, big and small, in our 75 minutes together this morning.  Thank you, Ben.

This class meeting and my Securities Regulation teaching today had me thinking about small businesses and innovation.  That reminded me that I keep forgetting to blog about a nifty small business that I was introduced to last year.  The business is The Grain Free Baker.  I learned about the business from one of my fellow BLPB editors, Colleen Baker.  It is her sister's business.  As a cook, a foodie, and a business lawyer supportive of entrepreneurship, it was fun to learn about the business--founded by a Baker who is a baker!  You can read about it here. 

It is the need to bring money into businesses like this that helps drive me to teach a new generation of law students to be corporate finance lawyers.  It is essential that lawyers understand, I argued earlier today, what a security is and what the legal implications of offering and selling securities are if they are to use their law degrees to support start-ups and small businesses.  Although many entrepreneurs will seek out commercial loans to finance their businesses, corporate finance transactions are desired or needed by others.

I hope those of you who are instructors also can find passion projects that inspire your teaching.  They can be so helpful in motivating instruction at downtimes during the semester.  That has been true for me.  And what's not to like about financing businesses that produce amazing products like the mix that made these cookies?!

Governance, Finance, and HBO Max's Succession

The title of this post is the name of the advanced business associations law course I will teach in the spring.  I got the idea for this course after talking to students about decreasing enrollments in advanced business law courses.  Although they attributed much of the decrease to grade shopping, they also noted that they and their peers often base course registration decisions on course names (from which they make assumptions) without reading the course descriptions.  So, a course named "Advanced Business Associations," no matter how creatively it is taught (and I teach it as a discussion seminar), is not likely to attract positive attention.  When I floated using the HBO Max series Succession as a jumping off point for a discussion seminar on business law, they responded favorably.  The rest is, as they say, history. The proof of the pudding will be in the registration numbers.

The idea for the Succession-oriented course came to me quite naturally. I already was writing an essay on fiduciary duties relating to the series--forthcoming in the DePaul Law Review in a special volume focusing on Succession.  So, it was only a small jump to think about teaching more broadly from the many business law situations in the four seasons of the show.

Some of my friends from West Publishing heard about my teaching plans when they were visiting UT Law recently.  They mentioned the course to their colleague, Leslie Y. Garfield Tenzer, who produces a podcast for West Academic, Legal Tenzer: Casual Conversations on Noteworthy Legal Topics.  Leslie reached out and asked me to record an episode with her on the series and my course, which I recently did.  The podcast was released last week.  You can find it here.

My Succession course syllabus is still under construction.  If you have a favorite episode that you would like me to include--one that illustrates concepts from business governance or finance--let me know.  I admit that I am excited to teach from the material in Succession, a series that I enjoyed watching.

Succession: DePaul Law Review Call for Papers

The DePaul Law Review will devote the third issue of its 73rd volume (slated for publication in Spring 2024) to a symposium addressing the Emmy-winning scripted drama Succession from a legal and pedagogical point of view. The aim of this special issue is to collect in one place the insights of a variety of faculty members with different legal subject-matter expertise, as a resource for all who are interested in the use of this award-winning work for the teaching, practice, and study of law. The DePaul Law Review has already secured the participation of a number of distinguished scholars.

The DePaul Law Review invites proposals from others for two to four additional contributions to be included in this special issue. Proposals for a contribution of between 5,000 and 10,000 words are welcome from all who teach any area of law. (The print symposium will be accompanied by simultaneous online publication with live hyperlinks, allowing readers to access video links if the author desires.)

Potential contributions to the special issue might take a variety of forms. For example, these essays might:

• explore the legal implications of various plotlines through a variety of doctrinal lenses (e.g., mergers and acquisitions, wills and trusts, corporate law, employment law, criminal law);

• share classroom techniques for using Succession, and its scenarios or characters, in law teaching;

• consider how matters such as race, gender, sexual orientation, age, disability, and class are represented on Succession, or how the show depicts law, law enforcement, and lawyers; or

• draw on literary techniques to illuminate (or critique) Succession's approach to the myriad legal issues it presents.

Interested individuals should send an abstract outlining the topic and substance of their proposed contribution to the DePaul Law Review by email to Lizzie Carroll, Managing Editor of Lead Articles, at [email protected], or to Prof. Susan Bandes, [email protected], or Visiting Professor Diane Kemker, [email protected]. Abstracts (of 250 words at most) should be submitted by April 30, 2023. Proposals will be reviewed and invitations issued by June 1, 2023. Initial drafts will be due August 15, 2023, with final drafts due by October 1, 2023.

Call for Papers - DePaul Law Review "Succession" Symposium Issue

The DePaul Law Review will devote the third issue of its 73rd volume (slated for publication in Spring 2024) to a Symposium addressing the Emmy-winning scripted drama Succession from a legal and pedagogical point of view. The aim of this special issue is to collect in one place the insights of a variety of faculty members with different legal subject-matter expertise, as a resource for all who are interested in the use of this award-winning work for the teaching, practice, and study of law. The DePaul Law Review has already secured the participation of a number of distinguished scholars. 

The DePaul Law Review invites proposals from others for two to four additional contributions to be included in this special issue. Proposals for a contribution of between 5,000 and 10,000 words are welcome from all who teach any area of law. (The print symposium will be accompanied by simultaneous online publication with live hyperlinks, allowing readers to access video links if the author desires.)

Potential contributions to the special issue might take a variety of forms. For example, these essays might:

• explore the legal implications of various plotlines through a variety of doctrinal lenses (e.g., mergers and acquisitions, wills and trusts, corporate law, employment law, criminal law);
• share classroom techniques for using Succession, and its scenarios or characters, in law teaching;
• consider how matters such as race, gender, sexual orientation, and class are represented on Succession, or how the show depicts law, law enforcement, and lawyers; or 
• draw on literary techniques to illuminate (or critique) Succession's approach to the myriad legal issues it presents.

Interested individuals should send an abstract outlining the topic and substance of their proposed contribution to the DePaul Law Review by email to Lizzie Carroll, Managing Editor of Lead Articles at [email protected], or to Prof. Susan Bandes, [email protected], or Visiting Professor Diane Klein, [email protected].  Abstracts (of 250 words at most) should be submitted by April 30, 2023. Proposals will be reviewed and invitations issued by June 1, 2023. Initial drafts will be due August 15, 2023, with final drafts due by October 1, 2023.

Heminway on Fiduciary Duties and Succession - Tonight!!

As I noted in a post a few weeks ago, I am presenting on corporate fiduciary duties tonight as the Roy/Demoulas Distinguished Professor of Law and Business at the Waystar/ROYCO School of Law.  The title of my presentation is: What the Roys Should Learn from the Demoulas Family (But Probably Won't).  The presentation will run from 9:00 pm to 10:00 pm Eastern on Zoom at the following link:  https://us02web.zoom.us/j/86783560319?pwd=cTJza2N6elFyVGhBUFVjdk1Gb2oxQT09.

If you do not know about the Demoulas family and their fiduciary duty tangles up in Massachusetts, my presentation will inform you (and may even get you interested).  Members of the family were locked in litigation with each other for over 20 years.  Much of that litigation relates to alleged breaches of corporate and trust fiduciary duties.  And for those who have not watched the HBO Max series Succession, I will offer a window on some of the characters and plot lines, tying them in to observations about the Demoulas family.  

I welcome your attendance and participation!

waystar/ROYCO School of Law: Classes Start This Week!

As some of you may have heard, following on the success of the Yada Yada Law School, administered by friend-of-the-BLPB Greg Shill, a group of law faculty are getting together to teach classes in the waystar/ROYCO School of Law this semester.  Classes start this week.  Class meetings will be held weekly, on prescribed days, at 6pm-7pm Pacific/8pm-9pm Central/9pm-10pm Eastern.  The first two sessions are as follows:

Tuesday, January 24:
Professor Diane Kemker
Introduction: Using “Succession” (And Scripted Entertainment) to Teach Law: How and Why
[Assignment: Required: any/all of “Succession,” Seasons 1-3; Optional/recommended: any/all of “Yellowstone,” Seasons 1-5]

Wednesday, February 1:
Professor Megan McDermott
Greg Needs a Lawyer. Is He Getting an Ethical One?
[Assignment: Season 3, Ep. 2]

I will be presenting on February 16 on What the Roys Should Learn from the Demoulas Family (But Probably Won't), a lesson on corporate law fiduciary duties.

General information is provided in the syllabus included below.  A full schedule of class sessions will be available soon.  I will publish that, too.  I hope many of you will plan on attending.

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SYLLABUS
“Succession and the Law”
Spring 2023

About the course

This is a completely unofficial course for lawyers and law professor fans (or anti-fans!) of the HBO show, “Succession.”  It has been organized for informal educational/entertainment purposes only! Over the course of the spring semester, as we await the premiere of Season 4, we will look back at past episodes from a legal point of view.  Depending on when Season 4 begins, we may also schedule some additional group “watch parties” and real-time discussion groups.

We have assembled a terrific group of faculty from across the country and across a variety of disciplinary specialties.

Organizers

We are Prof. Diane Kemker and Prof. Susan Bandes, the organizers of our fun course on “‘Succession’ and the Law.”  Diane has a background in professional responsibility and wills and trusts, and Susan is one of the nation’s most-cited experts in criminal law and procedure.  Both of us have a longstanding interest in the use of popular culture for legal pedagogy.  In the spring of 2023, Diane will be a Visiting Professor of Law at DePaul University College of Law, from which Susan retired/took emeritus status in 2017.

Contact info

Diane: [email protected]
Susan: [email protected]

Meeting Details

Meeting time: 6pm-7pm Pacific/8pm-9pm Central/9pm-10pm Eastern

Meeting day:  Our class will meet on a weekly basis by Zoom.  Please note that we will meet on different nights of the week in different weeks, but always at the same time.

Zoom Link

https://us02web.zoom.us/j/86783560319?pwd=cTJza2N6elFyVGhBUFVjdk1Gb2oxQT09

Meeting ID: 867 8356 0319

Contact Diane or Susan for the meeting passcode.

Facebook Group

We have created a Facebook group, waystar/RoyCo School of Law, to support the class.  It will be a place for ongoing discussion of the show, of our sessions, and related issues.  To be added, please send a Direct Message to Diane Kemker.

https://www.facebook.com/groups/857390295272757

waystar/ROYCO Administration

Professor Diane Kemker ([email protected])
Visiting Professor of Law, DePaul University College of Law and Southern University Law Center
Dean and Gerri Kellman Professor of Professional Responsibility, waystar/RoyCo School of Law

Professor Susan Bandes ([email protected])
Centennial Distinguished Professor of Law, Emerita, DePaul University College of Law
Greg Hirsch Professor of Affectionate Litigation

Our Faculty

Professor Anat Alon-Beck
Associate Professor of Law, Case Western Reserve University School of Law

Professor Karyn Bass-Ehler
Assistant Chief Deputy Attorney General, Illinois Attorney General's Office

Professor Gillian Calder
Associate Professor
University of Victoria (Canada) Law

Professor Joan MacLeod Heminway
Interim Director of the the Institute for Professional Leadership, Rick Rose Distinguished Professor of Law
The University of Tennessee College of Law
Roy/Demoulas Distinguished Professor of Law and Business

Professor Lenese Herbert
Professor of Law
Howard University School of Law

Professor Rebecca Johnson
Associate Director, Indigenous Law Research Unit
Director, Graduate Program
University of Victoria (Canada) Law

Professor Richard McAdams
Bernard D. Meltzer Professor of Law
University of Chicago Law School

Professor Megan McDermott
Associate Teaching Professor
University of Wisconsin School of Law
Honorary Fellow at the Collingwood Centre for Ethics and Civility (Eastnor, England)

Professor Benjamin Means
Professor of Law and John T. Campbell Chair in Business and Professional Ethics
University of South Carolina School of Law

Professor Douglas Moll
Beirne, Maynard & Parsons, L.L.P. Professor of Law
University of Houston Law Center

Professor Robin Wagner
Attorney
Pitt, McGehee, Palmer, Bonanni & Rivers
NRPI Adjunct Lecturer of Employment Law

All meetings are at 6pm-7pm Pacific/8pm-9pm Central/9pm-10pm Eastern

The Wit and Wisdom of Tom N.

It was so wonderful to be able to host an in-person version of our "Connecting the Threads" Business Law Prof Blog symposium on Friday.  Connecting the Threads VI was, for me, a major victory in the continuing battle against COVID-19--five healthy bloggers and a live audience!  Being in the same room with fellow bloggers John Anderson, Colleen Baker, Doug Moll (presenting with South Carolina Law friend-of-the-BLPB Ben Means), and Stefan Padfield was truly joyful.  And the topics on which they presented--shadow insider trading, exchange trading in the cloud, family business succession, and anti-ESG legislation--were all so salient.  (I offered the abstract for my own talk on fiduciary duties in unincorporated business associations in last week's post.)  For a number of us, the topic of our presentations arose from work we have done here on the BLPB.

This year, as I noted in my post last week, we had a special guest as our luncheon speaker.  That guest would be known to many of you who are regular readers as "Tom N."  Tom has commented on our blog posts here on the BLPB for at least eight years.  (I rooted around and found a comment from him as far back as 2014.)  And Tom lives right here in Tennessee--in middle Tennessee, to be exact (closer to Haskell Murray than to me).  You can check out his bio here.  I am delighted that we were able to coerce Tom to give up a day of law practice to come join us at the symposium.

The title/topic for Tom's talk was "A Country Boy Busines Lawyer's View from Down in the Weeds."  The talk was, by design, a series of reflections on Tom's wide-ranging business law practice here in the state of Tennessee.  He tries to stay out of the courtroom, but by his own recounting, he has been in court in every county in the state--and Tennessee has 95 counties!  

In the end, Tom ended up offering a bunch of tips for law students and lawyers (both of whom were in attendance at the symposium).  I took notes during Tom's talk.  I have assembled them into a list below.  The key points are almost in the order in which they were delivered.  The stories that led to a number of these snippets of practical advice were priceless.  You had to be there.  Anyway, here is my list, together with a few editorial comments of my own.  Tom can feel free to add, correct, or dispute my notes in the comments!

• Take tax courses; if you fear they may hurt your GPA, audit them.
• Use all available resources to get more knowledge.  (Tom indicated that he bought Westlaw/used Practical Law as a solo practitioner for many years but recently gave it up.  he also noted that he regularly reads a number of the law prof blogs.)
• Be a bar association member and access the resources bar associations provide.  (Tom noted the excellent written materials published by the American Bar Association and the superior continuing legal education programs produced by the Tennessee Bar Association.)
• “You are going to learn to write in law school.”  (Tom advised focusing on clear, efficient writing—something I just emphasized with my Business Associations students last week.)
• Publish in the law.  (Tom shared his view that writing in the law improves both knowledge and analysis.)
• Expect the unexpected, especially in court (e.g., confronting in court transactions in pot-bellied pigs involving a Tennessee nonprofit).  And as a Corollary: "You can't make this stuff up."  The truth often is stranger than anything you could make up . . . .)
• In business disputes, never assume that an attorney was there on the front end.  (And yes, there was mention of the use by many unknowledgeable consumers of online entity formation services.)
• As a lawyer, be careful not to insert your own business judgment.  The business decision is the client's to make.
• Relatedly, let the business people hand you the framework of the deal.
• Along the same lines: "I am not paying people to tell me I can’t do it; I am paying people to tell me how to do it.”  (As heard by Tom from his father, a business owner-manager.  I think many of us have heard this or learned this—sometimes the hard way . . . .  I do try to prevent my students from learning that lesson the hard way by telling them outright.)
• And further: “You want to screw up a deal, put the lawyers in the center of it.”
• As a courtroom lawyer, know the judges and—perhaps more importantly—court clerks!
• Introduce yourself to everyone; they may be in a position to help you now or later (referencing the time he introduced himself, unknowingly, to John Wilder, the former Lt. Governor of Tennessee, who proceeded to introduce him to the local judges).
• Preparation for the bar exam is a curriculum of its own.  (That's close to a quote.)
• “A lot of things go more smoothly of you can get people talking.”  (Tom is more of a fan of mediation than arbitration.)
• Local rules of court may not be even published; sometimes, you just need to pick up the phone and call the court clerk.  (Another reason to get to know local court clerks!)
• Developing rapport with a judge is incredibly important to successful courtroom lawyering.
• Saying "I don’t know" does not hurt anything; in fact, it may help judges/others develop confidence in you and your integrity.
• Your law school grades will not matter after your first or second job.  Employers will be looking at you and your professional record, not your grades.

I am sure I missed something along the way.  Maybe my fellow bloggers in attendance will have something to add.  But this list alone is, imv, pure gold for students and starting lawyers.

AALS Section on Business Associations - Call for Papers for 2023 Annual Meeting

Dear Section Members --

On behalf of the Executive Committee for the AALS section on Business Associations, I'm writing with details of our two sessions at the 2023 AALS Annual Meeting, which will be held in San Diego, CA from January 4-7, 2023.

First, our main program is entitled, "Corporate Governance in a Time of Global Uncertainty.” We anticipate selecting up to two papers from this call for papers. To submit, please submit an abstract or a draft of an unpublished paper to Professor Mira Ganor, [email protected], on or before Friday, August 19, 2022. Authors should include their name and contact information in their submission email but remove all identifying information from their submission. Please include the words “AALS - BA- Paper Submission” in the subject line of your submission email.

Second, we are excited to announce that we will again hold a "New Voices in Business Law" program, which will bring together junior and senior scholars in the field of business law for the purpose of providing junior scholars with feedback and guidance on their draft articles. Junior scholars who are interested in participating in the program should send a draft or summary of at least five pages to Professor Summer Kim at [email protected] on or before Friday, August 19, 2022. The cover email should state the junior scholar’s institution, tenure status, number of years in his or her current position, whether the paper has been accepted for publication, and, if not, when the scholar anticipates submitting the article to law reviews. The subject line of the email should read: “Submission—Business Associations WIP Program.”

For further details on both sessions, please see the attached calls for papers. [Ed. Note: the calls for papers are included below.]

Thank you,

James Park
Chair, AALS Business Associations Section

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Call for Papers for the
Section on Business Associations Program on
Corporate Governance in a Time of Global Uncertainty
January 4-7, 2023, AALS Annual Meeting

The AALS Section on Business Associations is pleased to announce a Call for Papers for its program at the 2023 AALS Annual Meeting in San Diego, CA. The topic is Corporate Governance in a Time of Global Uncertainty. Up to two presenters will be selected for the section’s program.

Businesses are operating at an exceptional level of global uncertainty.  Mounting pressures from myriad fronts leave boards of directors to navigate new frontiers while maneuvering lingering challenges.  In addition to adjusting to uncertain economic and financial implications of geopolitical events and the global pandemic, businesses are asked to assume a distinct social role.  Proliferation of calls for corporate disengagement from certain states comes amidst continued disruption in supply chains and mounting diversity, inequality, climate, and cybersecurity challenges, as well as increased disclosure requirements.  This panel will explore the implications of global uncertainty on corporate governance and the role of corporations and their boards in these changing times.

Submission Information:

Please submit an abstract or a draft of an unpublished paper to Mira Ganor, [email protected], on or before Friday, August 19, 2022.  Authors should include their name and contact information in their submission email but remove all identifying information from their submission.  Please include the words “AALS - BA- Paper Submission” in the subject line of your submission email.  Papers will be selected after review by members of the Executive Committee of the Section.  Presenters will be responsible for paying their registration fee, hotel, and travel expenses.

We recognize that the past couple of years have been incredibly challenging and that these challenges have not fallen equally across the academy.  We encourage scholars to err on the side of submission, including by submitting early stage or incomplete drafts.  Scholars whose papers are selected will have until December to finalize their papers.   

Please direct any questions to Mira Ganor, the University of Texas School of Law, at [email protected].

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Call for Papers
AALS Section on Business Association
New Voices in Business Law
January 4-7, 2023, AALS Annual Meeting

The AALS Section on Business Associations is pleased to announce a “New Voices in Business Law” program during the 2023 AALS Annual Meeting in San Diego, CA. This works-in-progress program will bring together junior and senior scholars in the field of business law for the purpose of providing junior scholars with feedback and guidance on their draft articles.  To complement its other session at the Meeting, this Section is especially interested in papers relating to corporate governance in a time of global uncertainty, but it welcomes submissions on all business-related topics.

PROGRAM FORMAT:  Scholars whose papers are selected will provide a brief overview of their paper, and participants will then break into simultaneous roundtables dedicated to the individual papers.  Two senior scholars will provide commentary and lead the discussion about each paper.

SUBMISSION PROCEDURE:  Junior scholars who are interested in participating in the program should send a draft or summary of at least five pages to Professor Summer Kim at [email protected] on or before Friday, August 19, 2022.  The cover email should state the junior scholar’s institution, tenure status, number of years in his or her current position, whether the paper has been accepted for publication, and, if not, when the scholar anticipates submitting the article to law reviews.  The subject line of the email should read: “Submission—Business Associations WIP Program.”

Junior scholars whose papers are selected for the program will need to submit a draft to the senior scholar commentators by Friday, December 9, 2022.

ELIGIBILITY:  Junior scholars at AALS member law schools are eligible to submit papers.  “Junior scholars” includes untenured faculty who have been teaching full-time at a law school for ten or fewer years.  The Committee will give priority to papers that have not yet been accepted for publication or submitted to law reviews. 

Pursuant to AALS rules, faculty at fee-paid non-member law schools, foreign faculty, adjunct and visiting faculty (without a full-time position at an AALS member law school), graduate students, fellows, and non-law school faculty are not eligible to submit.  Please note that all presenters at the program are responsible for paying their own annual meeting registration fees and travel expenses.

Do Black Entrepreneurs Matter?

Yesterday, I had the pleasure of moderating a panel of Black entrepreneurs sponsored by the Miami Finance Forum, a group of finance, investment management, banking, capital markets, private equity, venture capital, legal, accounting and related professionals. When every company and law firm was posting about Black Lives Matter and donating to various causes, my colleague Richard Montes de Oca, an MFF board member, decided that he wanted to do more than post a generic message. He and the MFF board decided to launch a series of webinars on Black entrepreneurship. The first panel featured Jamarlin Martin, who runs a digital media company and has a podcast; Brian Brackeen, GP of Lightship Capital and founder of Kairos, a facial recognition tech company;  and Raoul Thomas, CEO of CGI Merchant Group, a real estate private equity group.

These panelists aren't the typical Black entrepreneurs. Here are some sobering statistics:

• Black-owned business get their initial financing through 44% cash; 15% family and friends; 9% line of credit; 7% unsecured loans; and 3% SBA loans;
• Between February and April 2020, 41% of Black-owned businesses, 33% of Latinx businesses, and 26% of Asian-owned businesses closed while 17% of White-owned business closed;
• As of 2019, the overwhelming majority of businesses in majority Black and Hispanic neighborhoods did not have enough cash on hand to pay for two weeks worth of bills;
• The Center for Responsible Lending noted that in April, 95% of Black-owned businesses were tiny companies with slim change of achieving loans in the initial rounds of the Paycheck Protection Program;
• Only 12% of Black and Hispanic business owners polled between April 30-May 12 had received the funding they requested from the stimulus program. In contrast half of all small business had received PPP funds in the same poll.

Because we only had an hour for the panel, we didn't cover as much as I would have liked on those statistics. Here's what we did discuss:

• the failure of boards of directors and companies to do meaningful work around diversity and inclusion- note next week,  I will post about the spate of shareholder derivative actions filed against companies for false statements about diversity commitments;
• the perceptions of tokenism and "shallow, ambiguous" diversity initiatives;
• how to get business allies of all backgrounds;
• the need for more than trickle down initiatives where the people at the bottom of the corporation/society don't reap benefits;
• the fact that investing in Black venture capitalists does not mean that those Black VCs will invest in Black entrepreneurs and the need for more transparency and accountability; 
• whether the Black middle class still exists and the responsibility of wealthier Black professionals to provide mentorship and resources;
• why it's easier for entrepreneurs to get investments for products vs. services, and a hack to convince VCs to invest in the service;
• whether a great team can make up for a so-so product when a VC hears a pitch; 
• why there are so many obstacles to being a Black LGBTQ entrepreneur and how to turn it to an advantage when pitching; and
• whether reparations will actually help Black entrepreneurs and communities.

If you want to hear the answers to these questions, click here for access to the webinar. Stay safe and wear your masks!

Calling LLCs "Corporations" Is Sometimes Harmless Error, But It Can't Be Ignored

Once again, a court seems to arrive at the correct outcome, while making mistakes in the describing entity type. As usual, the court mislabeled a limited liability company (LLC).  Here we go:  

Andrea and Timothy Downs each held a 50% interest in a corporation, Downs Holdings, Inc. It held limited liability corporation (“LLC”) and limited partnership (“LP”) ownership interests. Eventually, the Downs agreed to dissolve the corporation and, as shareholders, passed a corporate resolution electing dissolution.

In re: ANDREA STEINMANN DOWNS, Debtor. NORIO, INC., Appellant, v. THOMAS H. CASEY, Chapter 7 Tr., Appellee., No. 8:16-BK-12589-CB, 2019 WL 6331564, at *1 (B.A.P. 9th Cir. Nov. 25, 2019) (emphasis added). 

 

The Downs did not follow the necessary formalities to dissolve Downs Holdings, Inc., and had instead ask that the corporation's management company "distribute the payments and monies owed to Downs Holdings to each shareholder separately, 50% to Mr. Downs and 50% to Ms. Downs." Id. Further, it appeared that the Downs asked to be treated as separate interest holders for both the LLC and LP. Id. Ms. Downs later borrowed $50,000 from Norio, Inc. and pledged pledged her claimed interests in the LLC and the LP as collateral. Id. at *2.

 

Because Downs Holdings, Inc., was the named interest holder in the LLC and the LP, and it had not been dissolved, and because there was no showing "that the assets transferred from Downs Holdings to Ms. Downs, the bankruptcy court did not err when it determined that Norio, Inc. lacked secured status.  Id. at *5. 

That all seems about right.  At the beginning of the opinion, the court states, 

 

We acknowledge that some of the bankruptcy court’s findings lack support in the record, but we ignore harmless error because the bankruptcy court’s ultimate conclusion is correct: Downs Holdings owned the relevant assets, and Ms. Downs could not pledge them to Norio as collateral for the loan.

Id.at *1. Calling a LLC a corporation in this context is, this time, anyway, harmless error. But I am not inclined to ignore it. I mean, the entity type is specifically at issue in this case, with respect to the corporate form. Making sure the corporation and the LLC are clearly recognized as distinct entity types may not be essential to finding right outcome, but it sure would be appropriate.  

What if . . . . Delaware and Mrs. Pritchard

Many of us teach Francis v. United Jersey Bank, 432 A. 2d 814 (N.J. 1981), in Business Associations courses as an example of a substantive duty of care case.  The case involves a deceased woman, Lillian Pritchard, who, in her lifetime, did nothing as a corporate director to curb her sons' conversions of corporate funds.  The court finds she has breached her duty of care to the corporation, stating that:

Mrs. Pritchard was charged with the obligation of basic knowledge and supervision of the business of Pritchard & Baird. Under the circumstances, this obligation included reading and understanding financial statements, and making reasonable attempts at detection and prevention of the illegal conduct of other officers and directors. She had a duty to protect the clients of Pritchard & Baird against policies and practices that would result in the misappropriation of money they had entrusted to the corporation. She breached that duty.

Id. at 826.  In sum:

by virtue of her office, Mrs. Pritchard had the power to prevent the losses sustained by the clients of Pritchard & Baird. With power comes responsibility. She had a duty to deter the depredation of the other insiders, her sons. She breached that duty and caused plaintiffs to sustain damages.

Id. at 829.

Francis is followed in our text by a number of additional fiduciary duty law cases, including Delaware's now infamous Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985), Stone v. Ritter, 911 A.2d 362 (Del. 2006), and In re Walt Disney Derivative Litigation, 907 A 2d 693 (Del. 2005).  In covering these cases and discussing them with students during office hours, I became focused on the following passage from the Disney case:

The business judgment rule . . . is a presumption that "in making a business decision the directors of a corporation acted on an informed basis, . . . and in the honest belief that the action taken was in the best interests of the company [and its shareholders]." . . . .

This presumption can be rebutted by a showing that the board violated one of its fiduciary duties in connection with the challenged transaction. In that event, the burden shifts to the director defendants to demonstrate that the challenged transaction was "entirely fair" to the corporation and its shareholders.

In re Walt Disney Co. Derivative Litigation, 907 A.2d 693, 746-47 (Del. Ch. 2005).  I have some significant questions about the application of the "entire fairness" standard of review in certain types of cases.  In thinking those through with some of my colleagues (including a few of my co-bloggers), I realized I was curious about the answer to a related question: How would the Francis case be pleaded, proven, and decided as a breach of duty action under Delaware law?  

I have my own ideas.  But before I share them, I want yours.  How would you categorize/label the breach(es) of duty as a matter of Delaware law?  What standard of conduct and liability would you expect a Delaware court to apply as a matter of Delaware law?  And what standard of review would you expect that court to use?  Leave your ideas on any or all of the foregoing in the comments, please!

Family Business: Churchill's

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

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

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

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

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

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

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

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

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

An Oops In My New Paper: Survey of West Virginia Oil and Gas Law

So, this post is about shameless self-promotion and a cautionary tale.  A while back I was asked to write the West Virginia section of Texas A &M Journal of Property Law's Oil and Gas Survey.  It's a short overview of recent developments, and one of the many perils of the law review process is how long such things take to get to print.  

Even worse than a slow timeline, a miscommunication meant that my final round of edits did not make it into the piece, and there are a couple of errors. The editors were appropriately apologetic, and I know it all happened in good faith.  I take some ownership, too, in that I was not at all demanding about knowing the schedule for the next round of edits or the overall timeline.

Ultimately, despite the (nonsubstantive) errors, I hope the piece will be helpful to some folks. There are some interesting oil and gas cases happening in West Virginia (and around the country), and how they turn out could have a significant impact on the oil and gas business.  

Here's the abstract to my article, which you can find here: 

This Article summarizes and discusses important recent developments in West Virginia’s oil and gas law, including legislative action and case law. This Article is divided into three Sections. First, West Virginia’s evolution in its approach to fractional mineral owner disputes in the Marcellus Shale. After multiple efforts to pass a forced pooling bill, the state settled instead on a cotenancy solution. Second, West Virginia addressed flat-rate royalties, following two court cases, a legislative response, and a subsequent court challenge to the legislation. Finally, this Article discusses three developments in lease interpretation: (1) what will be deemed “reasonably necessary” for oil and gas development in West Virginia; (2) if implied pooling rights are included in West Virginia leases that are silent on the matter; and (3) whether non-executory and non-participating royalty owners have rights to approve pooling.

Washington Marijuana Law Has Entity Type Quirks (And LLCs Are Still Not Corporations)

A recent case in Washington state introduced me to some interesting facets of Washington's recreational marijuana law.  The case came to my attention because it is part of my daily search for cases (incorrectly) referring to limited liability companies (LLCs) as "limited liability corporations."  The case opens: 

In 2012, Washington voters approved Initiative Measure 502. LAWS OF 2013, ch. 3, codified as part of chapter 69.50 RCW. Initiative 502 legalizes the possession and sale of marijuana and creates a system for the distribution and sale of recreational marijuana. Under RCW 69.50.325(3)(a), a retail marijuana license shall be issued only in the name of the applicant. No retail marijuana license shall be issued to a limited liability corporation unless all members are qualified to obtain a license. RCW 69.50.331(1)(b)(iii). The true party of interest of a limited liability company is “[a]ll members and their spouses.”¹ Under RCW 69.50.331(1)(a), the Washington State Liquor and Cannabis Board (WSLCB) considers prior criminal conduct of the applicant.²

LIBBY HAINES-MARCHEL & ROCK ISLAND CHRONICS, LLC, Dba CHRONICS, Appellants, v. WASHINGTON STATE LIQUOR & CANNABIS BOARD, an Agency of the State of Washington, Respondent., No. 75669-9-I, 2017 WL 6427358, at *1 (Wash. Ct. App. Dec. 18, 2017) (emphasis added).  

 

The reference to a limited liability corporation appears simply to be a misstatement, as the statute properly references limited liability companies as distinct from corporations. The legal regime does, though, have some interesting requirements from an entity law perspective. First, the law provides:

 

(b) No license of any kind may be issued to:

 

. . . .

 

(iii) A partnership, employee cooperative, association, nonprofit corporation, or corporation unless formed under the laws of this state, and unless all of the members thereof are qualified to obtain a license as provided in this section;

Wash. Rev. Code § 69.50.331 (b)(iii) (West). It makes some sense to restrict the business to in-state entities given the licensing restrictions that state has, although it is not clear to me that the state could not engage in the same level of oversight if an entity were, say, a California corporation or a West Virginia LLC. 

 

The state's licensing requirements, as stated in Washington Administrative Code 314-55-035 ("What persons or entities have to qualify for a marijuana license?") provide: "A marijuana license must be issued in the name(s) of the true party(ies) of interest." The code then lists what it means to be a  “true party of interest” for a variety of entities. 

True party of interest: Persons to be qualified

 

Sole proprietorship: Sole proprietor and spouse.

 

General partnership: All partners and spouses.

 

Limited partnership, limited liability partnership, or limited liability limited partnership: All general partners and their spouses and all limited partners and spouses.

 

Limited liability company: All members and their spouses and all managers and their spouses.

 

Privately held corporation: All corporate officers (or persons with equivalent title) and their spouses and all stockholders and their spouses.

 

Publicly held corporation: All corporate officers (or persons with equivalent title) and their spouses and all stockholders and their spouses.

Multilevel ownership structures: All persons and entities that make up the ownership structure (and their spouses).

Wash. Admin. Code 314-55-035. 

This is a pretty comprehensive list, but I note that the corporation requirements are missing some noticeable parties: directors. The code states, for both privately and publicly held corporations, that all "corporate officers (or persons with equivalent title)" and their spouses and all stockholders and their spouses must be qualified. Directors are not "equivalent" in title to officers. Officers, under Washington law, are described as follows:

 

(1) A corporation has the officers described in its bylaws or appointed by the board of directors in accordance with the bylaws.

(2) A duly appointed officer may appoint one or more officers or assistant officers if authorized by the bylaws or the board of directors.

(3) The bylaws or the board of directors shall delegate to one of the officers responsibility for preparing minutes of the directors' and shareholders' meetings and for authenticating records of the corporation.

(4) The same individual may simultaneously hold more than one office in a corporation.

Wash. Rev. Code § 23B.08.400. Directors have a different role. The statute provides:

Requirement for and duties of board of directors.

(1) Each corporation must have a board of directors, except that a corporation may dispense with or limit the authority of its board of directors by describing in its articles of incorporation, or in a shareholders' agreement authorized by RCW 23B.07.320, who will perform some or all of the duties of the board of directors.

(2) Subject to any limitation set forth in this title, the articles of incorporation, or a shareholders' agreement authorized by RCW 23B.07.320:

(a) All corporate powers shall be exercised by or under the authority of the corporation's board of directors; and

(b) The business and affairs of the corporation shall be managed under the direction of its board of directors, which shall have exclusive authority as to substantive decisions concerning management of the corporation's business.

Wash. Rev. Code § RCW 23B.08.010.

 

The Code, then, seems to provide that directors are, as a group, exempt from the spousal connection. The code separately provides:

 

(4) Persons who exercise control of business - The WSLCB will conduct an investigation of any person or entity who exercises any control over the applicant's business operations. This may include both a financial investigation and/or a criminal history background. 

Wash. Admin. Code 314-55-035.  This provision would clearly include directors, but also clearly excludes spouses. That distinction is fine, I suppose, but it is not at all clear to me why one would want to treat directors differently than LLC managers (and their spouses).  To the extent there is concern about spousal influence--to the level that the state would want to require qualification of spouses of shareholders in a publicly held entity--leaving this gap open for all corporate directors seems to be a rather big miss (or a deliberate exception).  Either way, it's an interesting quirk of an interesting new statute.   

 

 

 

 

 

 

Waterhouse Wilson in DePaul Law Review: Cooperatives: The First Social Enterprise

The DePaul Law Review recently posted the article, Cooperatives: The First Social Enterprise, written by my friend and colleague Elaine Waterhouse Wilson (West Virginia Univ. College of Law). I recommend checking it out. Here is an overview: 

As the cooperative and social enterprise movements merge, it is necessary to examine the legal and tax structures governing the entities to see if they help or hinder growth. If the ultimate decision is to support the growth of cooperatives as social enterprise, then those legal and tax structures that might impede this progress need to be re-examined.

This Article considers some of the issues that may impede the charitable sector in supporting the growth of the cooperative business model as a potential solution to issues of income inequality. To do so, the Article first defines a “cooperative.” Part II examines the definition of a cooperative from three different viewpoints: cooperative as social movement, cooperative as economic arrangement, and cooperative as legal construct. From these definitions, it is possible to identify those elements inherent in the cooperative model that might qualify as a tax-exempt purpose under the Internal Revenue Code (the Code) §501(c)(3). Part III reviews the definition of “charitable” for § 501(c)(3) purposes, specifically in the context of economic development and the support of workers. This Part demonstrates that many of the values inherent in the cooperative model are, in fact, charitable as that term is understood for federal tax purposes.

If a cooperative has charitable elements, however, then it should be possible for the charitable sector to support the cooperative move- ment. Part IV analyzes the possibilities and limitations of direct support by the charitable sector, including mission-related investing by charities and program-related investing by private foundations. In this regard, the cooperative can be viewed in many respects as an ex- isting analog to the new social enterprise forms, such as the benefit corporation or the L3C. Finally, Part V provides recommendations for changing both federal and state law to further support the cooperatibe movement in the charitable sector.

 

Call for Papers/Participants: The Role of Corporate Personhood in Masterpiece Cakeshop

I am putting together a panel or discussion group (depending on how many folks respond positively) for the SEALS conference for next summer, which is scheduled to be held August 5-11, 2018, at the Marriott Harbor Beach Resort & Spa in Fort Lauderdale, Florida (details here).

Here is the proposed title and a brief draft description (which may have to be shortened for the submission):

The Role of Corporate Personhood in Masterpiece Cakeshop

The United States Supreme Court is scheduled to hear arguments in the case of Masterpiece Cakeshop, Ltd. v. Colorado Civil Rights Commission on Dec. 5, 2017 (SCOTUSblog summary here). The issue presented in that case is: “Whether applying Colorado's public accommodations law to compel the petitioner to create expression that violates his sincerely held religious beliefs about marriage violates the free speech or free exercise clauses of the First Amendment.” A group of corporate law professors have filed an amicus brief in support to the CCRC (available here). One of the two arguments in that brief is: “Because Of The Separate Legal Personality Of Corporations And Shareholders, The Constitutional Interests Of Shareholders Should Not Be Projected Onto The Corporation.” This [panel] [discussion group] features [paper presentations] [a dialogue] on the pros and cons of this argument, together with related analysis and observations. Please note that the Supreme Court will likely have issued its opinion in the case by the time of the panel/discussion.

Please email me at [email protected] if you would like to participate in this program, letting me know if you are interested in presenting a paper, participating in a discussion, or both. Also, let me know if you know of anyone else who may want to participate—or just pass this on to others. I must file the proposal soon in order to ensure its consideration (the “best practices” deadline for submissions has already passed).

My "New" Article on Fracking and Property Law in West Virginia: What's in a Date?

I am happy to say I just received my new article, co-authored with a former student, S. Alex Shay, who is now a Trial Attorney in the Office of the United States Trustee, Department of Justice. The article discusses property law challenges that can impeded business development and negatively impact landowners and mineral owners in shale regions, with a focus on the West Virginia portion of the Marcellus Shale. The article is Horizontal Drilling Vertical Problems: Property Law Challenges from the Marcellus Shale Boom, 49 John Marshall Law Review 413-447 (2015). 

If you note the 2015 publication date, you can see the article has been a long time coming.  The conference it is linked to took place in September 2015, and it has taken quite a while to get to print. On the plus side, I was able to do updates to some of the issues, and add new cases (and resolutions to cases) during the process.  I just received my hard copies yesterday -- January 9, 2017 -- and I received a notice it was on Westlaw as of yesterday, too.

I always find it odd when law reviews use a specific year for an issue, as opposed to the actual publication year.  I can understand how a January publication might have a 2016 date. That would have made sense, but dating the issue back to 2015, when I discuss cases decided in 2016 seems a little weird.  I know there is a certain level of continuity that the dates can provide, but still, this seems too long. 

When I was editor in chief of the Tulane Law Review, one of the things we prided ourselves on was not handing off any issue from our volume to the next board. A few years prior to our arrival, a committed group of Law Review folks caught up everything -- publishing, if memory serves (and legend was correctly passed on), two and a half volumes. And Tulane Law Review publishes six issues a year. They, apparently, did not sleep. 

I am happy to have the article our, and the editors did good work.  It just would have been nice to have it appear a little more timely and relevant than I think this "new" article does.  For anyone who is interested, here's the abstract (article available here): 

This article focuses on key property challenges appearing as part of the West Virginia Marcellus Shale play. The paper opens with an introduction to the Marcellus Shale region that is the focus of our analysis. The paper explains the horizontal drilling and hydraulic fracturing process that is an essential part of shale oil and gas development. To help readers understand the property challenges related to shale development, we include an introduction to the concept of severed estates, which can create separate ownership of the surface estate and the mineral estate. The article then focuses on two keys issues. First, the article discusses whether horizontal drilling and hydraulic fracturing constitute a “reasonably necessary” use of surface land to develop mineral rights, and concludes they are, at least in most instances. Second, the article discusses difficulties in analyzing deed language related to minerals rights and royalty interests, which has created challenges for mineral owners, leasing companies, and oil and gas developers. Please note that although the publication date is 2015, the article was not in print until January 2017 and discusses cases from 2016. 

Ultimately, the article concludes, legislators and regulators may choose to add surface owner protections and impose other measures to lessen the burden on impacted regions to ease the conflict between surface owners and mineral developers. Such efforts may, at times, be necessary to ensure continued economic development in shale regions. Communities, landowners, interest groups, companies, and governments would be well served to work together to seek balance and compromise in development-heavy regions. Although courts are well-equipped to handle individual cases, large-scale policy is better developed at the community level (state and local) than through the adversarial system.

The Conflicting Interests of the POTUS through a Corporate Lawyer's Eyes

In her post on Saturday, co-blogger Ann Lipton offered observations about possible legal issues resulting from the President-Elect's tweets regarding public companies.  She ends her post with the following:

So, it's all a bit unsettled. Let's just say these and other novel legal questions regarding the Trump administration are sure to provide endless fodder for academic analysis in the coming years.

Probably right.

Today, I take on a somewhat related topic.  I briefly explore the President-Elect's conflicting interests through the lens of a corporate law advisor.  For the past few weeks, the media (see, e.g., here and here and here) and many folks I know have been concerned about the potential for conflict between the President-Elect's role as the POTUS, public investor and leader of the United States, and his role as "The Donald," private investor and leader of the Trump corporate empire.

The existence of a conflicting interest in an action or transaction is not, in and of itself, fatal or even necessarily problematic.  In a number of common situations, fiduciaries have interests in both sides of a transaction.  For example, a business founder who serves as a corporate director and officer may lease property she owns to the corporation.  What matters under corporate law is whether the fiduciary's participation in the transaction on both sides results in a deal made in a fully informed manner, in good faith, and in the bests interests of the corporation.  Conflicting interests raise a concern that the fiduciary is or may be acting for the benefit of himself, rather than for and in the best interest of the corporation. 

Corporate law generally provides several possible ways to overcome concerns that a fiduciary has breached her duty because of a conflicting interest in a particular action or transaction:

• through good faith, fully informed approval of the action or transaction (e.g., after disclosure of information about the nature and extent of the conflicts) by either the corporation's shareholders or members of the board of directors who are not interested in the transaction; and
• through approval of a transaction that is entirely fair--fair as to process and price. 

See, e.g., Delaware General Corporation Law Section 144.  Yet, if I believe what I read, no similar processes exist to combat concerns about actions or transactions in which the POTUS has or may have conflicting interests.  In particular, to the extent one does not already exist, should a disinterested body of monitors be identified or constituted to receive information about actual and potential conflicting interests of the POTUS and approve the action or transaction involving the conflicting interests?  Perhaps the Office of Government Ethics ("OGE") already has something like this in place . . . .  If it does, then both the public media and I are underinformed about it.  While there seems to be OGE guidance on the President-Elect's nominees for executive branch posts (see, e.g., here and here) and on overall executive branch standards of conduct (see here), I have not found or read about anything applicable to the President-Elect or POTUS.

In making these observations, I recognize that our federal government is different in important ways from the corporation.  I also understand that the leadership of a country/nation is different from the leadership of a corporation.  Having said that, however, conflicting interests can have similar deleterious effects in both settings.  The analogy I raise here and this overall line of inquiry may be worth some more thought . . . .

Floods, Stakeholders, and Small Businesses

My wife and I both have many close family members in South Carolina, so the recent flood has been on our minds recently.

My first thoughts are with all of those affected by the flood.  

Relevant to this blog, the flood also reminds me of one of the opening passages in Conscious Capitalism by Whole Food's co-CEO John Mackey. In that passage, Mackey recalls the massive flood in Austin, TX in 1981. At that time, Whole Foods only had one store, and the flood filled that store with eight feet of water. Whole Foods had loses of $400,000 and no savings and no insurance.

Mackey notes that "there was no way for [Whole Foods] to recover with [its] own resources" and then:

• "[a] wonderfully unexpected thing happened: dozens of our customers and neighbors started showing up at the store....Over the next few weeks, dozens and dozens of our customers kept coming in to help us clean up and fix the store...It wasn't just our customers who helped us. There was an avalanche of support from our other stakeholders as well [such as suppliers extending credit and deferring payment]. . . . It is humbling to think about what would have happened if all of our stakeholders hadn't cared so much about our company then. Without a doubt, Whole Foods Market would have ceased to exist. A company that today has over $11 billion in sales annually would have died in its first year if our stakeholders hadn't loved and cared about us--and they wouldn't have loved and cared for us had we not been the kind of business we were." pgs. 5-7

I have two questions. First, what decisions lead to that sort commitment from stakeholders? Second, does this sort of commitment only attach to small businesses? 

Asked another way, would Whole Foods still have that sort of stakeholder turnout today? If not, is it because they have not continued to make decisions that inspire stakeholders or simply because they have grown so large that stakeholders assume the company can fend for itself.

It is seemingly easier to make connection with a small, local business than with a large chain, but there do seem to be a few larger companies that still reach their stakeholders on an individual and personal level. Companies, of all sizes, seem to reach stakeholders through making thoughtful decisions in hiring, training, producing, and giving. Authenticity seems to be quite important, as does listening to stakeholders and taking action to address stakeholder needs.