Monday, September 26, 2022

UT Law Again Welcomes the Business Law Prof Blog to Knoxville!

After two years of the "Zoom version" of the annual Business Law Prof Blog symposium, Connecting the Threads VI, the live, in-person symposium is back.  Scheduled for this coming Friday, September 30, the symposium features presentations by me and fellow BLPB bloggers John Anderson, Colleen Baker, Doug Moll (with co-presenter and special guest Ben Means), and Stefan Padfield.  The agenda and more can be found here.  UT Law looks forward to hosting this event for a sixth year!

I will be speaking on The Fiduciary-ness of Business Associations.  A brief summary follows.

Fiduciary duty has historically been a core value of statutory business associations.  However, with Delaware leading the charge, limited liability company and limited partnership statutes in some jurisdictions allow equity holders to contractually eliminate fiduciary duties.  In addition, state legislatures in jurisdictions like Wyoming and Tennessee have adopted legislation that allows decentralized autonomous organizations—blockchain-based associations of business venturers—to organize as limited liability companies and avoid statutory fiduciary duties without engaging in private ordering. 

The public policy ramifications of some of these legislative moves have not been fully vetted in traditional ways or have not been completely explored in certain contexts.  Moreover, business lawyers now have more options in advising businesses and their constituents, adding to already complex matrices applicable to choice-of-entity decision making.  This presentation offers a window on recent fiduciary-related legislative developments in business entity law and identifies and reflects on related professional responsibility questions impacting lawyers advising business entities and their owners.

I look forward to seeing my co-bloggers in person, sharing some ideas, and hearing from the commentators--my UT Law colleagues and students.  BLPB commenter Tom N. is making a special appearance as the symposium lunch speaker, too.  It should be a great day all around!

September 26, 2022 in Colleen Baker, Conferences, Joan Heminway, John Anderson, Stefan J. Padfield | Permalink | Comments (0)

Sunday, September 25, 2022

Podcast on "The Shareholder Solution to Corporate Race Discrimination"

I recently had a chance to listen to an episode of the Institutionalized podcast discussing efforts by the American Civil Rights Project to combat the embrace of neo-racism by corporate America. (Cf. "In his new book, Woke Racism: How a New Religion Has Betrayed Black America, Professor John McWhorter argues that a neoracism, disguised as antiracism, is hurting Black communities in this country.")  In the course of that podcast, Dan Morenoff, Executive Director of the American Civil Rights Project, discussed a relevant recent litigation filing against Starbucks. A copy of the complaint can be found in the ACRP press release here, and here is an excerpt from that release:

Yesterday [8/30/22], for the National Center for Public Policy Research, a longtime Starbucks shareholder, the American Civil Rights Project sued Starbucks’ officers and directors. That suit – NCPPR v. Schultz et al. – seeks both to bar those officers and directors from continuing to implement racially discriminatory policies and to hold them responsible for the harms those policies have done to shareholders. This step follows the parties’ exchange of letters.  In March, the ACR Project wrote the defendants and Starbucks demanding the immediate retraction of seven racially discriminatory policies. In July, the defendants responded that Starbucks’ directors had “determined that it is not in the best interest of Starbucks to accept the Demand and retract the Policies.” That response compelled the ACR Project’s filing. The complaint argues that Starbucks’ policies violate applicable state and federal civil rights laws, creating material corporate liabilities.... “Corporate America has embraced illegal, discriminatory policies that almost all Americans oppose …,” said ACR Project Executive Director Dan Morenoff…. [Meanwhile,] Director of the National Center for Public Policy Research’s Free Enterprise Project Scott Shepard explained, “NCPPR is proud to stand up for the countless small shareholders who feel powerless to challenge Starbucks’ disregard for civil rights. It cannot be in the best interests of shareholders for Starbucks to violate a huge array of civil rights law by discriminating on the basis of race. Its officers and directors ought to be ashamed of themselves and must be held liable.”… The ACR Project’s previous demands to the Coca Cola Corporation and the Lowes Companies, Inc. ended in each abandoning its illegally discriminatory policy, without litigation.

A Wolters Kluwer summary (here) provides some additional details on the Starbucks suit:

Specifically, the plaintiff alleges that the DEI policies violate 42 U.S.C. § 1981, which codifies the Civil Rights Act of 1866 to prohibit racial discrimination in contracting. The policies obligate Starbucks to base its contracting decisions on race by adopting race-based goals for hiring employees and nominating directors; excluding some employees from career development programs based on their race; basing executive compensation on the racial composition of the workforce; choosing suppliers based on the race of their owners; and reallocating advertising funds away from vendors owned by non-minorities toward minority-owned and -targeted media companies. All these policies exclude individuals and businesses from contracts on a “but-for” basis because of their race, the complaint argues. The complaint also alleges that some of the policies violate Title VII's prohibitions on race-based employment decisions, as well as the civil rights laws of multiple states .... In addition to seeking declaratory judgment that the policies violate the above laws, the complaint also asks for a declaratory judgment that they expose Starbucks to material liabilities to private plaintiffs and governmental authorities, including the potential for uncapped damages and punitive damages…. The plaintiff alleges that the many D&O defendants breached their fiduciary duties in adopting and implementing the policies. Some or all of them knew or should have known the policies were illegal, and any who didn't could only have failed to know by failing to inquire, in breach of their duties of due care. Alternatively, the defendants learned the policies were illegal no later than March 2022, when they received the ACR Project's demand letter. The complaint also raises an alternative theory for breach of fiduciary duty, which is that the policies' adoption constituted self-dealing at the expense of Starbucks and its shareholders. The D&O defendants allegedly enjoyed the social benefits of promoting the policies, while the corporation and shareholders bear the expenses and liabilities.

September 25, 2022 in Stefan J. Padfield | Permalink | Comments (0)

Sunday, September 18, 2022

Zheng on "Corporations As Private Regulators"

Wentong Zheng has published Corporations As Private Regulators, 55 U. Mich. J.L. Reform 649. The paper can be downloaded here. Below is an excerpt.

In August 2018, technology giant Microsoft made headlines by announcing that it would soon require its suppliers and contractors with more than fifty employees to offer workers at least twelve weeks of paid parental leave.1 Microsoft's new policy closely mirrors a Washington state law requiring that workers in the state receive twelve weeks of paid family leave; it is an effort to extend that same level of benefit to workers outside of the company's home state.2

While groundbreaking for the world of paid family leave, Microsoft's move was only one example of an increasingly common trend of corporations weighing in on public policy through corporate action. Following the 2018 mass shooting at Marjory Stoneman Douglas High School in Parkland, Florida, Dick's Sporting Goods banned sales of assault-style weapons and raised the minimum age for purchase of firearms and ammunition in its stores to twenty-one.3 Citigroup placed restrictions on their new retail business clients, prohibiting them from selling guns to customers who have not passed a background check and are under the age of twenty-one.4 Bank of America announced that it would stop lending money to gun manufacturers that make military-style firearms for civilian use.5 In addition to gun control, banks are taking meaningful action on immigration. In March 2019, JPMorgan Chase & Co. announced its plan to stop financing private operators of prisons and immigration detention centers.6 JPMorgan's move was followed by Wells Fargo, which in the same month told Congress that it was exiting its business relationship with the private prison industry.7 *651 As a final example, banks are facing increasing pressure from politicians and advocacy groups to stop funding oil pipelines, a major source of greenhouse gas emissions widely believed to cause climate change.8 In March 2020, UBS Group said it would no longer finance certain fossil fuel projects, including new offshore oil projects in the Arctic, thermal coal mines, and oil sands on undeveloped lands.9

In a sense, this trend of corporate action on public policy issues is a continuation of the corporate social responsibility (CSR) movement that dates back to at least the 1950s.10 As opposed to the traditional corporate model, CSR “refers to the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society.”11 The earlier forms of CSR, however, featured mostly voluntary action on the part of willing corporations, be it charitable donations or corporate action to improve employee, customer, or shareholder relations.12 For instance, during the civil rights movement, many corporations in the South hired and served African American employees and customers before the practice was widely accepted.13 Another example is when corporations offered employment benefits to LGBTQ employees before they were legally required to do so.14 These corporate actions were mostly voluntary, with little coercion involved.

By contrast, the recent corporate action on public policy issues heralds a fundamentally different mode of corporate activism. Instead of relying on voluntary action, corporations impose their preferred policies *652 on their suppliers, contractors, and customers. Parties on the receiving end of such corporate action are forced to either comply with the action or discontinue their business relationship with the corporation.15 More importantly, this corporate action goes above and beyond the law--parties on the receiving end of such action are required to undertake activities not required by law, or barred from activities that they are legally entitled to do.16 Through this kind of coercive action, corporations are assuming the role of regulators and are drastically changing the scope of permissible and impermissible business conduct in the marketplace.17

This scholarship is the first to discuss this new phenomenon--referred to as “Corporations as Private Regulators” (CPR) in this Article--which signifies a new mode of corporate participation in public policymaking in the United States. Traditionally, corporations affect public policy through lobbying or industry self-regulation.18 Under either of these two modes, corporations attempt to capture, manipulate, or avoid the sovereign power of the government in an effort to shape public policy in their favor.19 CPR, however, departs from these traditional modes by disregarding the sovereign power of the government and relying instead on corporations' own private regulatory power.20 This changing role of corporations in public policymaking is another manifestation of the complex relationships between private businesses and government in the modern economy. Whereas governments increasingly conduct business affairs as market participants, private businesses increasingly exercise power akin to the government's regulatory power.21

Indicating the nuanced nature of corporations' private regulatory power, many politicians decry corporations' economic power in general but are nonetheless comfortable encouraging corporations to exercise their regulatory power--which is predicated upon their economic power--to achieve desired political outcomes.22 Political convenience aside, *653 one reason for this apparent contradiction is that the consequences and broader implications of corporations' private regulatory power have not been thoroughly scrutinized….

[T]there are no perfect solutions to the CPR problem. Tackling the problem within the existing legal framework faces serious limitations. Whether antitrust, property, or constitutional law, existing laws do not provide a natural fit for corporations exercising CPR power. A general CPR law that would prohibit large corporations from exercising CPR power on any issues is too inflexible to be practicable. For the time being, an ad hoc approach that allocates the right of refusal on a case-by-case basis appears to be the most realistic way to discipline the CPR power.

Of course, before deciding how to deal with the CPR power, society must first decide a threshold question: whether the CPR power is a problem to begin with. If society does not consider corporations wielding CPR power to be problematic and desires that corporations exercise that power, society more likely than not will embrace the status quo. If society considers the CPR power a threat to citizens' rights, it is conceivable that society will gravitate toward reformed legal arrangements in effort to reign in the CPR power. The greater the threat society considers the CPR power to pose, the more radical the legal solution society will be willing to adopt. On the far end of this spectrum is a completely revamped constitutional order under which private corporations are made subject to constitutional constraints.

September 18, 2022 in Stefan J. Padfield | Permalink | Comments (0)

Monday, September 12, 2022

The Buckingham Leadership Series at Akron Law

As set forth below, on September 23 I'll be moderating two panel discussions as Akron Law hosts the Buckingham Leadership Series. The images below are JPEGs, so please click here if you'd like to register to attend (registration is free).

Buckingham 1

Buckingham 2

Buckingham 3

September 12, 2022 in Stefan J. Padfield | Permalink | Comments (0)

Friday, September 9, 2022

Are we hiring to fire?

From what I can tell, law schools are seemingly falling over one another to hire this season. Following an understandable period of dormancy, lots of schools are apparently looking to fill a lot of slots -- perhaps restocking to get back to pre-pandemic student-faculty ratios. But there appear to be some dark clouds looming. The news on college enrollments is not great (cf. "First-year and transfer enrollment at Rutgers-Camden is down 27%, and faculty are concerned"), hiring is slowing in some areas (cf. "Some law firms are 'pulling back the throttle' on hiring as expenses rise and deal work slows"), winter is coming (cf. "Europe’s household electrical bills could surge by $2 trillion by next year amid a worsening energy crisis"), and some smart market watchers are predicting a long period of significant economic pain ahead (cf. "Chamath Palihapitiya goes into detail on the 2022 economic crisis and warns about an imminent and very prolonged recession."). Of course, these sorts of predictions are fraught with peril, and -- despite the click-bait title of this post -- I'm not arguing that newly-hired faculty will be fired even if the gloomy predictions pan out (buyouts and early retirements for senior faculty are much more likely). I'm also not arguing that law schools should slam on the brakes when it comes to hiring because, as we know: "When the music stops ... things will be complicated.... But as long as the music is playing, you’ve got to get up and dance.”

ADDENDUM: You might want to avoid Googling "layoffs" if the foregoing has bummed you out (cf. "The 'scariest economic paper of 2022' predicts big layoffs over the next 2 years as the fight against inflation gets more intense").

September 9, 2022 in Stefan J. Padfield | Permalink | Comments (1)

Tuesday, August 30, 2022

Thomas, Thompson, and Wells on "Delaware's Shifting Judicial Role in Business Governance"

Randall Thomas, Robert Thompson, and Harwell Wells have posted Delaware's Shifting Judicial Role in Business Governance on SSRN (here). The abstract is below, but I thought it worth highlighting the following two quotes from the paper:

  • For 2021, 28 percent of Delaware’s state budget was estimated to be provided by corporate franchise tax and business entity fees deriving from corporations, LLCs, LPs, and other business entities organized under its laws.
  • LLCs now provide Delaware almost thirty percent of its budgetary income from entity chartering, up from the low single digits twenty years ago.


This Article examines the changing nature of judicial review of governance in American businesses. Drawing on a detailed study of all cases filed in 2018 in Delaware, the country’s dominant jurisdiction for corporate law, and a previous study of such litigation at the turn of the century, it reveals fundamental changes in corporate law issues brought to court in the twenty-first century. Twenty years ago, the chief task of the Delaware Court of Chancery, the nation’s preeminent business court (and the Delaware Supreme Court that hears all appeals from that court), was to apply fiduciary duties to resolve disputes over the governance of publicly traded corporations in an acquisition setting. Today, the Chancery Court’s ambit is far broader. Fiduciary duty litigation is still important, but alongside these cases, the chancellors are now spending more time resolving governance disputes by applying statutory provisions. In a new development for Chancery, its judges now regularly interpret contracts establishing governance in entities beyond the corporation, most prominently the limited liability company (LLC). Corporations are still important, but litigation over LLCs has sharply risen, and the court’s caseload is increasingly dominated by privately (not publicly) held firms—some corporations, some not. The court still spends most of its time resolving governance disputes within firms, but in another change, it is also being called on to resolve non-governance, commercial disputes arising between business firms, especially after an acquisition. This study has important implications for governance of contemporary business entities. It draws attention to the multiple ways that corporate governance questions are now presented to courts and the different skills judges are called upon to employ in the various settings.

In addition to documenting major changes in corporate litigation over the past two decades, this Article draws on its findings to make two additional contributions. First, it proposes new measures to determine the extent to which different kinds of cases heard in the Chancery Court take up different amounts of judges’ and litigants’ time and resources. Second, its findings shed new light on the long-debated question of state competition for business formation and litigation. LLCs now provide Delaware almost thirty percent of its budgetary income from entity chartering, up from the low single digits twenty years ago. The data on commercial non-governance filings suggest Delaware is competing for litigation, separate from chartering, more than it has in the past.

August 30, 2022 in Stefan J. Padfield | Permalink | Comments (1)

Friday, August 26, 2022

"NCLA Presents Oral Argument in Case Challenging Nasdaq Board Diversity Rules"

I received the following in an email and thought it might be of interest to BLPB readers.


MONDAY: NCLA Presents Oral Argument in Case Challenging Nasdaq Board Diversity Rules  

WHO: NCLA Senior Litigation Counsel Peggy Little, NCLA Litigation Counsel Sheng Li

WHAT: NCLA will appear before Judges Carl E. Stewart, James L. Dennis, and Stephen A. Higginson, in the U.S. Court of Appeals for the Fifth Circuit for a hearing in the case of National Center for Public Policy Research v. SEC.

On August 6, 2021, SEC narrowly approved a Rule requiring disclosure of the aggregate race, gender, and sexual preference of Nasdaq-listed companies, with two of five Commissioners dissenting. The Board Diversity Rule subjects Nasdaq-listed companies to the following requirements: (a) they must disclose information about their board’s self-identified gender, race, and sexual preference; and (b) either (i) meet minimum quotas of individuals of a certain gender, racial, and sexual preference, or (ii) publicly explain why the board does not meet such quotas.

The Board Diversity Rules fall outside of the agency’s regulatory authority.

WHERE: Room 209 of the Wisdom Courthouse, 600 S Maestri Pl, New Orleans, LA 70130

The hearing is open to the public.

Click on this link to listen live to the oral argument (Note, this link is active only during the hearing.)

Click on this link to listen to a recording of the argument after the hearing (Recordings are posted shortly after the hearing.)WHEN: Monday, August 29, 2022. The oral arguments for the court begin at 9:00AM CT. Click on this link for the full schedule. NCLA is expected to begin presenting from 9:40AM - 9:50AM. 

For more information click here to visit the case page here.

August 26, 2022 in Stefan J. Padfield | Permalink | Comments (1)

Sunday, August 21, 2022

Robert Miller: "decisions made under the stakeholder model are necessarily unprincipled"

One of my Westlaw alerts this morning included: Robert T. Miller, How Would Directors Make Business Decisions Under A Stakeholder Model?, 77 Bus. Law. 773 (2022). Here is the abstract:

Under the stakeholder model of corporate governance, directors may confer benefits on corporate constituencies other than shareholders without regard to whether doing so produces benefits for the shareholders even in the long run. Contrary to what advocates of stakeholder theory often say, stakeholder theory does not put all corporate constituencies on a par, letting directors give equal consideration to the interests of all constituencies. Rather, stakeholder theory uniquely disadvantages shareholders, allowing directors to transfer value from shareholders to other constituencies but never from other constituencies to shareholders. More importantly, although critics of the stakeholder model going back to Berle have complained that the model provides directors with no clear standard by which to make business decisions, this criticism grossly understates the problem. In fact, the stakeholder model says nothing at all about which interests of the various constituencies are legitimate interests, much less about how such interests should be balanced against each other. As a result, the model provides no normative criteria of any kind on the basis of which we can intelligibly say that one business decision is any better--or any worse--than any other. Consequently, under stakeholder theory, every possible decision is as good and as bad as every other possible decision. The stakeholder model is thus not just insufficiently determinate but radically indeterminate. The question thus becomes whether there are any plausible normative criteria that can be added to the stakeholder model to make it reasonably determinate. Some obvious candidates are Kaldor-Hicks efficiency, hypothetical bargains among the corporate constituencies (both ex ante and ex post), and Delaware doctrines about the apportionment of merger consideration among different classes of shareholders, but it turns out that none of these can supply the normative lacuna in the stakeholder model. The model could be supplemented with a robust normative theory, such as that in Rawls's A Theory of Justice, Mill's act utilitarianism, or Aquinas's natural law theory, but this would require directors to become experts in moral philosophy and so echoes the improbabilities of Plato: until directors become moral philosophers or moral philosophers directors, there shall be no coherent stakeholder governance. The view that decisions made under the stakeholder model are necessarily unprincipled is confirmed from the writings of leading stakeholder advocates who expressly concede that, under a stakeholder model, the decisions of directors will be essentially political--i.e., determined not according to any rational, normative principles but by the varying abilities of different interest groups to pressure or lobby the directors. As an attempt to explain how directors should make business decisions, the stakeholder model is thus hopelessly and fatally flawed.

August 21, 2022 in Stefan J. Padfield | Permalink | Comments (1)

Wednesday, August 17, 2022

Brennan on "Diversity for Justice vs. Diversity for Performance"

Jason Brennan has posted Diversity for Justice vs. Diversity for Performance: Philosophical and Empirical Tensions on SSRN (here).  The abstract:

Many business ethicists, activists, analysts, and corporate leaders claim that businesses are obligated to promote diversity for the sake of justice. Many also say—good news!—that diversity promotes the bottom line. We ... need not choose between social justice and profits. This paper splashes some cold water on the attempt to mate these two claims. On the contrary, I argue, there is philosophical tension between arguments which say diversity is a matter of justice and (empirically sound) arguments which say diversity promotes performance. Further, the kinds of interventions these distinct arguments suggest are different. Things get worse when we examine the theory and empirical evidence about how diversity affects group performance. The kind of diversity which promotes justice and the kind which promotes the bottom line are distinct—and the two can be at odds.

August 17, 2022 in Stefan J. Padfield | Permalink | Comments (0)

Saturday, July 30, 2022

WFSU on Gov. DeSantis taking aim at 'woke' ideology in Florida's investments

I’m currently working on a piece on anti-ESG legislation for our upcoming BLPB Symposium. According to The Heartland Institute (here), as of April 5, 2022, twenty-eight states have initiated some form of “anti-ESG action.” So, recent news of Florida Governor Ron DeSantis pushing for further action in this area caught my eye. Here is an excerpt from relevant coverage by WFSU (go read the full piece here):

DeSantis plans to have the State Board of Administration, which oversees investments, direct pension-fund managers against “using political factors when investing the state's money.” So-called ESG policies have drawn criticism from Republicans across the country…. Renner, who will become House speaker after the November elections, called the corporate practices a national-security issue and a pocketbook issue. "What we have is these large corporations and banks that are pursuing a woke agenda that is artificially driving up our costs in energy,” Renner said. “There's a reason why we haven't built new refineries. There's a reason why we're not drilling for oil even though we have more reserves in this country than any other place in the world, it’s because the banks and this woke agenda is choking off their ability to get financing to do that.” DeSantis said ESG is a being used by “upper echelons of our society” to impose a “woke ideology on the economy.” “We don't want to see the economy further politicized, and we want to push back against the politicization that's already happened,” DeSantis said. “Our investment of funds should be for the best interest of our beneficiaries here in the state of Florida, it should not be a vehicle to impose an ideological agenda.”

July 30, 2022 in Stefan J. Padfield | Permalink | Comments (1)

Tuesday, July 19, 2022

More on Crony Stakeholder Capitalism: Threats to Democracy

Last week, I posted the abstract to my paper Crony Stakeholder Capitalism (here).  One of the comments to that post perspicaciously noted the issue of "how to ensure democratic accountability for private actors that are taking on social goals historically reserved for democratically accountable government."  In my brief reply, I focused on the duties to shareholders, but I want to follow-up here to note that I do in fact flag the relevant threat to democracy in a footnote in my paper:

A related concern is the potential for stakeholder capitalism to undermine our political system by shifting governmental power to private actors, thereby undermining public accountability of government. Cf. Dorothy S. Lund, Asset Managers as Regulators, THE CLS BLUE SKY BLOG (June 16, 2022) (“allowing three private investment companies that lack political accountability to set regulatory policies for the U.S. economy is dangerous for our democracy”), available at ....

Along these lines, I recently came across some related podcast comments from Vivek Ramaswamy, author of Woke, Inc.: Inside Corporate America's Social Justice Scam, and co-founder and Executive Chairman of Strive Asset Management ("Our mission is to restore the voices of everyday citizens in the American economy by leading companies to focus on excellence over politics."):

[W]hat the ESG movement has allowed … the progressive movement to do in this country is to allow government actors to do through the back door what they could not get done through the front door. Let's take the green new deal for example. There was not enough political support to get the green new deal done through the front door of congress so what they did is they deputized companies like Blackrock … just like they did to big tech by the way … to force … asset managers to enforce these values through the back door. So it is politics, but it's politics in the avatar of the free market. And this is a threat to both capitalism and democracy…. A lot of Milton Friedmanites … worry that this makes companies less effective. I think that's definitely true. I've seen that firsthand and I have a concern about it. But the real problem is that it is a threat to democracy. And that's the part that the left especially misses. But the left and the right both miss [this] because what this says is the questions that we should be sorting out through free speech and open debate in the public square as citizens in a democracy … we should sort them out through the political process -- we're instead working it out through force using capital as a vehicle of force in the private sector to decide on one monolithic view of how to fight systemic racism or how to fight environmental challenges like global climate change by enforcing one orthodoxy and using capital as the vector to do it. That's the real threat to democracy.

Some relevant questions that flow from this are: (1) To what extent, if any, are these concerns about ESG and stakeholder capitalism valid and what, if anything, should be done in response? (2) Even if the substance of the concerns should be dismissed as some sort of conspiracy theory what, if anything, does the perception of such a threat tell us about the challenges faced by the ESG and stakeholder capitalism movement going forward?  

July 19, 2022 in Stefan J. Padfield | Permalink | Comments (0)

Friday, July 15, 2022

Padfield on Crony Stakeholder Capitalism

I have posted a draft of my latest paper, Crony Stakeholder Capitalism (Kentucky Law Journal, forthcoming), on SSRN (here).  The abstract is below.  Comments are most welcome.

Capitalism in the context of corporate governance may be understood as an economic system that equates efficiency with corporate managers only pursuing projects that they reasonably expect will have a positive impact on the value of the corporation’s shares (accounting for opportunity costs). Such projects may be referred to as positive net-present-value (NPV) projects. Stakeholder capitalism, on the other hand, may be understood a number of different ways, including: (1) an improved form of calculating NPV; (2) a conscious choice to sacrifice some NPV in order to advance broader social objectives; (3) a form of rent-seeking; (4) a form of green-washing; (5) a manifestation of the agency problem whereby managers prioritize their personal political preferences over NPV; (6) a manifestation of the agency problem whereby managers prioritize their personal financial wealth over NPV; (7) a form of crony capitalism. Of these, an argument can be made that only the first is both legal and efficient, at least in the case of Delaware corporations operating under the relevant default rules. Given the high risk of stakeholder capitalism thus constituting illegal or inefficient conduct, this Essay argues that decisions justified on the basis of stakeholder capitalism (as opposed to NPV calculations) should not be presumed to be fully informed and free of material conflicts, as is the case when the business judgment rule otherwise applies. Rather, such conduct should be subject to enhanced scrutiny to account for the omnipresent specter of illegal/inefficient motives. Such a rule would be similar to what is already often the case in Delaware when corporations defend against hostile takeovers, due to the omnipresent specter of managerial entrenchment motives.

Following an Introduction, this Essay proceeds as follows. First, because the argument that stakeholder capitalism can constitute a form of crony capitalism is at least somewhat novel, the connection between the two is fleshed out. Second, Senator Marco Rubio’s Mind Your Own Business Act (MYOBA) is analyzed as a potential solution to the problem of crony stakeholder capitalism. Finally, recommendations are made for improving MYOBA.

July 15, 2022 in Stefan J. Padfield | Permalink | Comments (5)

Wednesday, July 13, 2022

Adler on the Implications of West Virginia v. EPA for the SEC’s Climate Disclosure Rule

Over at The Volokh Conspiracy, Jonathan Adler has posted "Does West Virginia v. EPA Doom the SEC's Climate Disclosure Rule?" Here is a brief excerpt:

One regulatory proposal sure to get additional scrutiny in the wake of WVA v. EPA is the Security and Exchange Commission's proposal to "enhance and standardize climate-related disclosures for investors." In today's Wall Street Journal, former SEC Commissioner Paul Atkins and former OIRA Administrator Paul Ray make the case that the SEC's proposal is likely to be struck down in light of the WVA decision. According to Atkins and Ray, the SEC is seeking to repurpose pre-existing statutory authority to address a new concern outside of the SEC's core expertise. In other words, it is seeking to pour new wine out of old bottles, and this is something the Court rejected in WVA (as well as in its decision invalidating the OSHA test-or-vax mandate)....

More broadly, WVA v. EPA and NFIB v. Dept. of Labor suggest that the Court is likely to be skeptical of the Biden Administration's "whole of government" approach to climate change insofar as it involves deploying statutory authority that was not enacted with climate change in mind.... [T]he Court is wary of agencies repurposing existing statutory authority without congressional approval. This creates a serious obstacle for climate measures that are not authorized by Congress.

July 13, 2022 in Stefan J. Padfield | Permalink | Comments (0)

The Ohio State University Moritz College of Law seeks candidates for two tenure-track positions.

The following comes to us from Paul Rose.

The Ohio State University Moritz College of Law seeks candidates for two tenure-track positions. We are seeking a junior to mid-career lateral candidate for a position in the area of Tax Law or in both Business and Tax Law, and an entry-level candidate with interdisciplinary teaching and scholarship interests related to race and criminal justice.

The Ohio State University Moritz College of Law is committed to building and maintaining a diverse and inclusive community to reflect human diversity and improve opportunities for all. Diversity, inclusion, and equity are essential to the excellence of our community, culture, and curriculum, and the pursuit of this excellence is critical to our educational mission. We value diversity in all of its dimensions, including gender, gender identity or expression, race, ethnicity, religion, age, sexual orientation, physical and learning abilities, socioeconomic status, veteran status, and viewpoint. We seek to reflect multiple perspectives, backgrounds, and interests in all facets of our community. The Ohio State University is committed to equal employment opportunity and does not discriminate on any basis prohibited by law in its activities, programs, admission, and employment. All qualified applicants will receive consideration for employment without regard to a protected status.

Candidates should send a cover letter, including a statement of work they have done to promote diversity and inclusion, and C.V. to Paul Rose by email ( Applicants are encouraged to submit OSU's Equal Employment Identification Form.

July 13, 2022 in Stefan J. Padfield | Permalink | Comments (0)

The Ohio State Business Law Journal is currently accepting submissions.

The following comes to us from Paul Rose.

The Ohio State Business Law Journal is currently accepting submissions for Volume 17, Issue 1, which will be published in Fall, 2022. The Ohio State Business Law Journal is nationally renowned for its intersection of business and the law. Created and managed by students, this semi-annual journal explores the legal issues facing entrepreneurs, small business owners, and venture capitalists.

For more information about our submission preferences and author guidelines, please see our submissions page ( Our editors are looking forward to reading your submissions!

July 13, 2022 in Stefan J. Padfield | Permalink | Comments (0)

Saturday, July 9, 2022

"states are targeting Wall Street with 'anti-woke' laws"

Via Reuters (go read the whole thing here):

Republican-led states have unleashed a policy push to punish Wall Street for taking stances on gun control, climate change, diversity and other social issues, in a warning for companies that have waded in to fractious social debates…. This year there are at least 44 bills or new laws in 17 conservative-led states penalizing such company policies …. West Virginia and Arkansas ..., for example, stopped using BlackRock Inc (BLK.N) for certain services, due to its climate stance .... In Texas, JPMorgan Chase & Co (JPM.N), Bank of America (BAC.N) and Goldman Sachs (GS.N) have been sidelined from the municipal bond market due to laws passed last year barring firms that "boycott" energy companies or "discriminate" against the firearms industry from doing new business with the state…. The ... "anti-woke" measures are gaining ground not only in traditional conservative strongholds such as Texas and Kentucky but also in so-called purple states ... such as Arizona and Ohio…. Guns and energy were the focus of the roughly dozen state laws and bills last year .... But this year there were also more than a dozen bills relating to ... other issues, including “divisive concepts” like critical race theory … mandatory COVID-19 vaccines, or the use of "social credit scores” .... The latter is a theory that companies may take into account an individual’s political leanings when providing and pricing services.

July 9, 2022 in Stefan J. Padfield | Permalink | Comments (0)

Friday, July 8, 2022

Kühling on Companies Using Climate Change as an Excuse to Obtain More Market Power

Jürgen Kühling is the chair of Germany’s Monopolies Commission. The following is a hopefully interesting excerpt from a recent interview he did with ProMarket (here).

When the Federal Cartel Office blocks a merger in Germany, the merging parties can seek an exemption from the minister of economic affairs to clear the merger. And we had a case three years ago where companies argued that the merger would lead to sustainable efficiencies that would benefit the economy as a whole in such magnitude that the efficiencies would outweigh the merger’s adverse effect on competition completely. We had concluded that the alleged environmental public benefits were either not demonstrated or ultimately represented self-serving benefits. In general, we think such sustainable benefits that are in the consumers’ interest can already be addressed under the current competition law. All sustainability aspects that consumers do not value lie outside the scope of competition law, in our view, and require regulation.

Kühling then provided some additional details:

As I mentioned before, there was a merger in 2019 that came under ministerial review, which we advised the ministry of economics on as well. After a substantial assessment, we concluded that the merger would not have any substantial positive impact on the development of new green products. Besides, the Federal Cartel Office concluded that this merger would lead to an adverse effect on competition and that considering efficiencies within the current merger control framework, there were no benefits for consumers. Yet, the economics minister argued that, when weighing the adverse effect on competition against the positive effect of reducing carbon dioxide emissions, there is an overall benefit for society, and therefore, the merger was granted ministerial approval.

July 8, 2022 in Stefan J. Padfield | Permalink | Comments (0)

Monday, July 4, 2022

Berlau on the Declaration of Independence and the Administrative State

Over at Law & Liberty (here), John Berlau has posted a comment on Jarkesy v. SEC, in which the Fifth Circuit recently ruled that "(1) the SEC's in-house adjudication of Petitioners' case violated their Seventh Amendment right to a jury trial; (2) Congress unconstitutionally delegated legislative power to the SEC by failing to provide an intelligible principle by which the SEC would exercise the delegated power, in violation of Article I's vesting of 'all' legislative power in Congress; and (3) statutory removal restrictions on SEC ALJs violate the Take Care Clause of Article II." Jarkesy v. Sec. & Exch. Comm'n, 34 F.4th 446, 449 (5th Cir. 2022). What follows is a brief excerpt from Berlau's post, but please go read the whole thing.

Critics and proponents of the ruling by the U.S. Court of Appeals for the Fifth Circuit in Jarkesy v. SEC have called revolutionary the new limits it places on federal regulatory agencies’ use of administrative law judges, a core tool of the administrative state…. Jarkesy is indeed revolutionary—both in the jurisprudence it could usher in limiting the power of the administrative state and in its concern for issues involved in the American Revolution. The ruling “has taken what could be a historic step toward restoring the Constitution’s checks and balances,” predicts Mario Loyola, professor at Florida International University and … [a] senior fellow at the Competitive Enterprise Institute (CEI), writing for the Wall Street Journal.

These checks and balances—including the right to a jury trial for common law offenses and a separation of powers of the different branches of government—came about due to the abuses the Founding generation suffered at the hands of Great Britain. Documents of the Founding era from the writings of George Washington to the Declaration of Independence itself list as grievances the quasi-courts created by the British to prosecute tax and trade offenses. These courts, which bypassed jury trials and due process for the colonists, and were under the rhetorical thumb of the British officials prosecuting the alleged offenses, bear a striking resemblance to the administrative venues run by regulatory agencies today.

July 4, 2022 in Stefan J. Padfield | Permalink | Comments (2)

Sunday, June 26, 2022

The Duty of Care and Moving Operations Out of Pro-Life States

Abortion is obviously one of our most divisive political issues. Thus, when corporate leaders make decisions related to abortion laws, such as moving out of a pro-life state (see, e.g., CEO: Duolingo will move operations should Pennsylvania ban abortion), a specter of political bias is arguably raised. One normative question that then arises is whether such a decision is sufficiently conflict-prone to warrant enhanced scrutiny, as I have argued here. There is certainly a shareholder-wealth-maximization case to be made for moving out of a pro-life state -- specifically, the argument that high-value employees demand such action. But this determination should be supported by something more than trending Twitter comments or the personal biases of decision-makers. Corporate fiduciaries are required to consider all material information reasonably available, and where decision-making is sufficiently prone to conflicts of interest the accountability concerns of corporate governance should trump its protection of discretion.

As a perhaps related aside, one may compare the argument against state universities having official positions on whether the Constitution should be read as protecting abortion. As Prof. Leslie Johns noted in an e-mail she sent to the UCLA Chancellor following his related public statement asserting that Dobbs “is antithetical to the University of California's mission and values” (via The Volokh Conspiracy here):

As a faculty member in both the political science department and the Law School, I feel compelled to remind you that Americans (and even Californians) have diverse and complicated viewpoints on the issue of abortion. The legal issues involved in the recent US Supreme Court ruling cannot be simply reduced to a statement about restrictions on "women's reproductive rights."

Abortion is not a simple matter of access to health care. It is a complex moral and political question that involves balancing fundamental rights to life and physical autonomy. By denying this reality, you are asserting a political position. Yet your employment as a public employee explicitly prohibits you from using your office for political purposes. It is both inappropriate and illegal for you (and for me) to use our official capacity to make claims that specific abortion policies or constitutional interpretations are "antithetical to the University of California's mission and values."

Given UCLA's professed commitment to "diversity, equity, and inclusion," I respectfully ask you to carefully consider the implications of declaring that a conservative viewpoint is "antithetical to the University of California's mission and values."

June 26, 2022 in Stefan J. Padfield | Permalink | Comments (5)

Thursday, June 23, 2022

George Will: “‘stakeholder’ capitalism is parasitic progressivism”

In February 2021, Samuel Gregg argued (here) that: “To expect the rest of the world simply to accept whatever stakeholder-corporatist insiders have decided to be the new global consensus on any given topic seems disconcertedly utopian. It also increases the possibility of more populist backlashes on an international level.”

Yesterday, George Will published an op-ed in the Washington Post that appears to capture some more of this sentiment. You should go read the whole thing (here), but here is a brief excerpt:

The New York Times recently interviewed two advocates of ESG investing. One said, in effect, that only such investing fulfills fiduciary obligations because the welfare of those whose money is being used depends on “a planet that is livable.” Meaning: Politically enlightened ESG advocates know what unenlightened investors would want if they were as intelligent and virtuous as the advocates. The other ESG enthusiast the Times interviewed said “social justice investing” is “the deep integration of four areas: racial, gender, economic and climate justice.” And the “single-issue CEO” — the kind focused on maximizing shareholders’ value — is “not the way of the future.” This is often the progressives’ argument-ending declaration: Non-progressives are on the wrong side of history, so they can be disregarded until history discards them. The Times’s interviewer observed that “defining justice seems messy these days.” These days? Actually, justice has been a contested concept since Plato wrote. For today’s ESG advocates, however, the millennia-long debate is suddenly over: Justice is 2022 American progressivism, period.

June 23, 2022 in Stefan J. Padfield | Permalink | Comments (2)