Monday, June 29, 2020
From In re Dell Techs. Inc. Class V Stockholders Litig., No. CV 2018-0816-JTL, 2020 WL 3096748, at *20–30 (Del. Ch. June 11, 2020) [Hat tip to Steve Bainbridge, who comments here.]:
Coercion is a multi-faceted concept in Delaware law. At least five strands of case law use the term ….
The first strand of coercion jurisprudence does not involve the conduct of fiduciaries. It rather addresses the ability of a non-fiduciary to offer a reward or impose a penalty as a means of inducing action in an arm’s-length setting. The seminal case is Katz v. Oak Industries, Inc., 508 A.2d 873 (Del. Ch. 1986)….
A second strand of jurisprudence involves a third party taking action that a fiduciary (typically the board of directors) believes could have a coercive effect on the fiduciary’s beneficiaries (typically stockholders). In that setting, the fiduciary has both the power and an affirmative duty to defend its beneficiaries from the coercive threat. See Unocal, 493 A.2d at 954….
A third strand of coercion jurisprudence examines whether a fiduciary has taken action to coerce its own beneficiaries. By doing so, the fiduciary acts disloyally and violates the standard of conduct expected of fiduciaries. The fiduciary may only avoid a finding of breach by proving that the transaction was nevertheless entirely fair, notwithstanding the fiduciary’s use of coercion. The seminal case in this line of authority is AC Acquisitions Corp. v. Anderson, Clayton & Co., 519 A.2d 103 (Del. Ch. 1986)….
A fourth strand of coercion jurisprudence has developed in response to the powerful cleansing effect of stockholder votes under Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015). Two decisions—Saba Software and Liberty Broadband—have held that forms of coercion that would not have supported claims for breach of duty were nevertheless sufficient to prevent stockholder votes from having a cleansing effect and changing the standard of review to the irrebuttable business judgment rule….
A final strand of coercion jurisprudence shifts the focus from the stockholder vote to the special committee. As with the stockholder vote, a controller’s explicit or implicit threats can prevent a committee from fulfilling its function and having a concomitant effect on the standard of review. The leading case … is Lynch I, where Lynch’s controller (Alcatel) offered to acquire Lynch at $14 per share. Lynch I, 638 A.2d at 1113….
Back in March, Richard Epstein published a new book, "The Dubious Morality of Administrative Law." Today, a review of that book by Michael S. Greve was published in Law & Liberty (here). The following excerpt from the review may be of interests to BLPB readers:
The book title, of course, invokes Lon L. Fuller’s famous account of The Morality of Law—in here-relevant part, an explication of the minimum conditions a legal system must satisfy, at least most of the time, to be called “legal” in a moral or rule-of-law sense.... Lon Fuller, Professor Epstein argues, omitted crucial rule-of-law conditions, especially the need for an impartial judge. At variance with Fuller, moreover, and on a Hayekian note, Professor Epstein argues that formal rule of law constraints work best in the context of a classical-liberal regime that rests on property rights, freedom of contract, and protection against uncompensated takings. Once those substantive commitments go by the boards, procedural rule-of-law requirements are bound to give way as well and, for that matter, may not be worth very much.... The APA says that the “administrative process” is an adequate substitute for regular legal procedures in an independent court and that it will have to do no matter what or how much is at stake for regulated parties. It so enshrines the very premises that Professor Epstein resists and contests.
Tuesday, June 16, 2020
We have been having an on-going discussion about corporate responses to the protests and riots (see here, here, and here). A large chunk of that discussion has focused on my proposal (here) to add enhanced scrutiny to business decisions sufficiently raising a specter of political bias, and whether such enhanced scrutiny would be warranted for corporate decisions to strongly support “Black Lives Matter” while staying silent on the riots. The relevant posts have apparently been of interest to our readers, having been shared a combined 600+ times as of this writing. The discussion has many moving parts, and my views of the relevant issues have advanced as a result. Thus, I thought it worth updating and summarizing at least some of my current positions.
1. The idea that “black lives matter” is unquestionably correct, and it is appropriate and important to strongly affirm that idea in light of current events.
2. Perhaps the foregoing should end the discussion, but politically-charged controversy lurks just around the corner. Is “Black Lives Matter” an idea or a movement? If the latter, what are corporations endorsing when they emblazon their corporate banners with the phrase? Are they putting their weight behind the “defund the police” movement? What about blue lives? Google “police ambushed” and you’ll see that’s unfortunately a thing. Why aren’t we seeing corporations get behind “Blue Lives Matter”? Should those who connect the BLM movement with hatred of the police be simply dismissed as racists? Does endorsing “Black Lives Matter” mean corporations will now refuse to stand for the national anthem (metaphorically)? And while condemning the killing of George Floyd and inequality is obviously correct, where is the condemnation of the riots?
3. Having said all that, does allowing concerns like those expressed above to trigger enhanced scrutiny lead to too many false positives, even if one believes political bias in corporate decision-making is a problem and that enhanced scrutiny of at least some business decisions could be an appropriate response thereto? Co-blogger Ann Lipton did a great job in her prior comments of pointing out that political controversy can be found lurking around many business decisions these days. Uncertainty is costly, and perhaps the uncertainty regarding the identification of business decisions sufficiently suggestive of political bias to warrant enhanced scrutiny is simply too high.
4. Nonetheless, I continue to believe that political bias in corporate decision-making is a problem that warrants a response. Private ordering and market solutions certainly may be sufficient, but that doesn’t mean judicial or legislative responses shouldn’t be considered. Furthermore, it is important to not overstate what enhanced scrutiny, as proposed, implies. At the end of the day, it merely asks corporate decision-makers to confirm that they are doing what they are already supposed to be doing, which is to consider all material information reasonably available when making business decisions; it does not mandate any particular outcome, and generally leaves board discretion intact. Furthermore, protective devices such as heightened pleading standards and a safe harbor for viewpoint diverse boards at least promise the possibility of efficiently balancing the relevant costs and benefits. Finally, and as alluded to earlier, perhaps there is a way to distinguish decisions that have as obviously strong a starting foundation as set forth in item #1 above. Courts are good at using materiality determinations to dismiss what they deem to be frivolous litigation. Perhaps we just make room for a defense that amounts to saying that all the material information corporate decision-makers need here is that black lives matter.
ADDENDUM (11:15 AM): Another protection against frivolous claims we haven't mentioned is the need to plead damages. In my paper, I discuss Nike's decision to make Colin Kaepernick a face of the brand, but frame that entire discussion in the understanding that a viable claim is limited under my proposal given the stock market's overall positive response. To the extent this constitutes a modification of Unocal's enhanced scrutiny, I consider it appropriate. Cf. Corwin v. KKR Fin. Holdings LLC, 125 A.3d 304, 312 (Del. 2015) ("Unocal and Revlon are primarily designed to give stockholders and the Court of Chancery the tool of injunctive relief to address important M & A decisions in real time, before closing. They were not tools designed with post-closing money damages claims in mind ....").
Sunday, June 14, 2020
The following will likely not make much sense if you haven’t read the preceding relevant discussion, most of which can be found here. The core issue addressed is whether the decision of many corporations to strongly support Black Lives Matter while staying silent on the riots should be insulated from scrutiny by the business judgment rule. I have put my original comments in bold, responses by Idriss Z in italics, and my further responses in plain text. In addition to comments on the substance of this post, I hope readers will let me know if the formatting can be improved.
"Are the corporate executives making these decisions doing so in accordance with their fiduciary duty to become informed of all material information reasonably available (which requires consideration of the impact of these decisions on the bottom line)..."
IZ- Of course they are! Many cases have held that companies can acquire much goodwill and better pr from such community action (examples have included charitable donations and philanthropy to local schools, including HBCUs). Or a more "hip" take: African American culture might be the most profitable marketing material source in the world, people all over the global love the various arts that come from our (unfortunately) marginalized communities.
You provide good reasons for concluding the decision is rational, but that does not tell us whether it was properly informed. Those are two different inquiries. For example, if the type of polling data I set forth in my prior comments (from here) was available, then that likely should have been considered. Charitable contribution cases are best treated separately from cases involving ordinary business decisions.
"..., or are they simply acting on the basis of some echo-chamber supported confidence in the obvious rightness of their beliefs"
IZ- One of the best aspects of the American system compared to those of the English commonwealths in my estimation is the lack of mental probing done to business decision-makers. What a ridiculous assertion it would be that there was some pro-Black echo-chamber effect in board rooms that are under criticism for having virtually no Black board members, right? Moreover, where are you getting their ideas or confidences in their beliefs from? You wouldn't be just making it up?
How free from scrutiny corporate decision-makers should be in cases like this is the issue. Many people believe the heightened political divisions of our day don’t constitute a good reason for additional scrutiny. As I’ve written elsewhere, I believe they do. Under my proposal, if a corporate decision appears to be sufficiently politicized, then our lack of knowledge regarding the decision-making process becomes a reason for increased scrutiny, not a reason for continued insulation of the decision. Whether the decision in this case is objectively politicized enough to warrant additional scrutiny would be a question of fact. One might point to the fact that, according to at least one poll, 71% of Americans supported National Guard intervention in the riots (more on that poll here), while 62% do not strongly support BLM (assuming we can read failure to choose "strongly support" as “don’t strongly support”). Yet corporate decision-makers made strong statements in support of BLM while remaining silent on the riots. Finally, the echo-chamber I’m referring to is a progressive echo chamber -- and it can be all white.
"– completely ignoring, if not being downright disdainful of, the views of the half of the country that believes law and order, blue lives, and black lives all matter?"
IZ- Again, it is unclear where you're getting your facts from, I am unable any factual support for this. Also, I think you might want to check the poll numbers on people's preferences. Moreover, supporting BLM and Civil rights for marginalized communities does not put you in opposition to law, order, or any other life. In fact many have quite intelligently and correctly pointed out that suggesting that supporting BLM and Civil Rights does put you in opposition is flat-out racist. Moreover, many have also correctly pointed out that alleging that one who supports BLM and Civil Rights supports riots is also in completely disregard of the gulf separating factual and disingenuously racist. Or consider this: "half" the country believes the world is flat, must board members take factor that unscientific argument into their decisions?
I agree that the numbers matter. And someone can agree with my proposal for heightened scrutiny of politicized decisions without agreeing that such scrutiny is appropriate here. Assuming we adopted heightened scrutiny for facially politicized decisions, the costs of heightened scrutiny argue in favor of keeping the scope of triggering facts narrow. Having said that, I think the polling I’ve identified so far provides at least some support for my position in that it concludes 71% of Americans supported some type of National Guard intervention in the riots, while 62% were reported to not strongly support BLM (including almost 30% of blacks, and almost 70% of whites). Of course, those numbers could be wrong and/or I could be wrong about the relevant weight/interpretation of those numbers. In all this, it’s important to keep in mind that the heightened scrutiny I’m advocating for merely seeks affirmation that corporate decision-makers are informing themselves of all material information reasonably available. It does not require a particular outcome. In this case, evidence that available relevant polling was considered would arguably be sufficient to carry that burden, even if the decisions remain the same.
Furthermore, I agree that there is no necessary conflict between “supporting BLM and Civil rights for marginalized communities” and supporting “law, order, or any other life.” In fact, we should expect them to support each other. I also agree that racists would want to draw connections between BLM and the riots. However, I don’t agree that corporate decision-makers can ignore relevant public opinion, including the relevant concerns of well-intentioned non-racists who may be having a hard time separating the protests from the riots, however misguided those concerns might be. Accordingly, if half the country believes the world is flat, then corporate decision-makers absolutely have a duty to consider that information when making a decision to roll out a “world is round” campaign. In fact, if the board is made up exclusively of round-earthers, and they refuse to even consider the contrary public opinion of half the nation (assuming those people would otherwise reasonably be deemed potential customers), then they would be acting in bad faith. The centrality of this point to my proposal is difficult to overstate. Critically, however, nothing requires them to shelve the campaign based on that information. They just need to fully inform themselves of all information reasonably available, and have a rational business purpose for their ultimate decision– which typically shouldn’t be hard to do.
"Such a conscious disregard of reasonably available material information would constitute not only a breach of their duty of care, but also bad faith."
IZ- Well, as I've pointed out these "conscious disregards" would be impossible to prove and are only based on conjecture. Moreover, there is a duty of care to all members of the community, so supporting a group such as BLM and civil rights would be beneficial to all members, a rising tide raises all ships. Whereas disapproval of these groups might certainly fit your criterion as they are of benefit to exactly no one. Further, consider the ramifications of your approach-> would not every corporation face the exact same liability for putting their name on a College Football Bowl Game should a "riot" breakout?
An utter failure to properly inform oneself would suffice to support a finding of bad faith consistent with a conscious disregard of a known duty. If we shift the burden to corporate decision-makers to show that they properly informed themselves, and they are unable to carry that burden – that is sufficient. I certainly want the heightened scrutiny I propose to leave significant discretion to corporate decision-makers to appropriately consider the impact of decisions on stakeholders. Nothing I’m proposing should prevent corporate decision-makers from concluding that strong support for BLM is in the best interests of the corporation, while at the same time concluding silence on the riots is likewise best. The only way my proposal should interfere with those decisions is if the decision-makers failed to properly inform themselves. Finally, the mere coincidence of a sponsorship decision and a riot would not trigger heightened scrutiny under my proposal.
Friday, June 12, 2020
Padfield on "the Omnipresent Specter of Political Bias" in Corporate Decision-Making (and 3 other papers)
I've finally gotten around to updating my SSRN page. I would love to hear any comments you might have.
June 12, 2020 in Behavioral Economics, Books, Constitutional Law, Corporate Governance, Corporate Personality, Corporations, CSR, Human Rights, Law and Economics, Stefan J. Padfield | Permalink | Comments (0)
Wednesday, June 10, 2020
Friend of the blog Bernard Sharfman has a new post up on the Oxford Business Law Blog, responding to Martin Lipton’s recent "On the Purpose of the Corporation" posts. Bernie's full post can be found here, and I've excerpted some portions (slightly out of order) below. I appreciate that the post highlights that a big part of the shareholder v. stakeholder debate is about whose rights are determined by contract v. fiduciary duties.
[T]he Lipton, Savitt, and Cain definition of corporate purpose is missing both an objective and a strategy on how it will create social value....
I am disappointed with this definition, a definition that ignores the social value created by for-profit businesses, namely the goods and services they produce; ignores that this social value is being produced for the financial benefit of its shareholders; and uses the pretense that uninformed institutional investors are partners in the management of a company....
[T]hey make no mention of the social value created by the corporation through the successful management of its stakeholder relationships, the goods and services it provides. How can a definition of corporate purpose not mention this? It’s as if a corporation should be ashamed of why it exists....
Pfizer, as a for-profit corporation, ... has the legal obligation of looking out for the interests of its shareholders. This is the only stakeholder group that the board owes fiduciary duties to, who can sue the board for a breach of those duties, who can approve major corporate decisions, and who can initiate and implement a proxy contest to remove board members. Thus, shareholder wealth maximization is the objective of Pfizer’s social value creation....
[A] collective action problem in shareholder voting leads to uninformed institutional investors, resource-constrained investor stewardship teams and proxy advisors that cannot solve this problem, and the current lack of enforcement of an investment adviser’s fiduciary duties does not solve the additional problem of institutional investor bias in shareholder voting.
Friday, June 5, 2020
Corporations have appropriately been condemning racism recently, but where's the condemnation of the riots? Does the following excerpt from "Understanding Antifa" provide some answers?
California Governor Gavin Newsom was a pitch perfect Rousseauist when he recently said that the violent riots were not caused by individuals; instead he insisted, “Our institutions are responsible.” Many progressives are ambivalent about criticizing the violence of Antifa because they retain this sympathetic worldview. While all on the left are not active in violent revolution, many liberal mayors and governors struggle to condemn it outright….
Some additional excerpts that may be of interest:
The anarchism of Antifa embodies the revolutionary outlook, common in the West since the 18th century, that … assumes any violent spark that creates a popular uprising will usher in a utopian world of equality and justice….
Antifa does not offer a platform of positive change. In the fashion of Robespierre, they seek to overthrow “the privileged” and they assume that this violence and destruction will inflame an uprising that will usher in a pure democracy of equality….
In the view of Antifa, traditionally powerful groups, such as white men and capitalists, conspire to suppress the natural nobility of underrepresented citizens….
The current politics of Western democracies are so roiled and divisive because strident elements on the left have adopted this revolutionary outlook and traditionalist and populist parties of the right, some genuinely suspect and some very healthy, have sprung up to resist it.
UPDATE (6/6/20): The conversation continues here.
Wednesday, June 3, 2020
To what extent can we say that Friedrich Hayek, Leo Strauss, Ludwig von Mises, Hannah Arendt, Henry Kissinger, and Ayn Rand all saw first-hand the horrors of state totalitarianism, and concluded that free-market capitalism was the best defense? Arendt fits least? #corpgov— Stefan Padfield (@ProfPadfield) June 1, 2020
Should corporate statements on "the tragedy that is enveloping our country right now" include an express rejection of rioting? Not a mention of that in this statement from Lyft: https://t.co/rT7VRd9yc2 #corpgov— Stefan Padfield (@ProfPadfield) June 2, 2020
I keep hearing people say don't worry about the burnt-out businesses because they'll get rebuilt. But apparently there's data showing these areas often don't rebuild after riots. The businesses just don't come back. Please pass along links to relevant studies if you have them. https://t.co/4Rs0pdWp0M— Stefan Padfield (@ProfPadfield) May 31, 2020
President Trump "signed an executive order cracking down on 'censorship' by social media sites"; said he would "pursue legislation in addition to the order"; AG Barr "said the Justice Department would also seek to sue social media companies." https://t.co/lRG2gq6mHE #corpgov— Stefan Padfield (@ProfPadfield) May 28, 2020
Wednesday, May 27, 2020
If you have trouble viewing the embedded Tweets, please try a different browser (I recommend Internet Explorer).
It's been 11 weeks since the WHO declared the coronavirus outbreak a pandemic, and the NBA cancelled games. As of this writing, the NY Post reports: Total cases globally = 5,589,626; Deaths = 350,453.
"Commerce Department to Add Two Dozen Chinese Companies ... to the Entity List"; "The entities, based in China, Hong Kong, and the Cayman Islands, represent a significant risk of supporting procurement of items for military end-use in China." https://t.co/d47Q0Q7uwk #corpgov— Stefan Padfield (@ProfPadfield) May 22, 2020
8 Chinese companies "are complicit in human rights ... abuses committed in China’s campaign of repression, mass ... detention, forced labor & high-technology surveillance against Uighurs, ... Kazakhs, & other members of Muslim minority groups" https://t.co/Q3j3COXQ9b #corpgov— Stefan Padfield (@ProfPadfield) May 22, 2020
If our lockdowns turn out to have been misguided, what biases might be to blame? A disdain for markets and capitalism? A devotion to centralized planning and "experts"? You can likely add to the list. "Do Lockdowns Work? Mounting Evidence Says No" https://t.co/sIIyrsTESC #corpgov— Stefan Padfield (@ProfPadfield) May 25, 2020
If your cost-benefit-analysis concludes you can afford to roll 100s through Walmart hourly, but you can't afford a single church service under any conditions, then your CBA is anti-religious. #corpgov https://t.co/xyTndaJYu2— Stefan Padfield (@ProfPadfield) May 25, 2020
Wednesday, May 20, 2020
If you have trouble viewing the embedded Tweets, please try a different browser (I recommend Internet Explorer).
It's been ten weeks since the WHO declared the coronavirus outbreak a pandemic, and the NBA cancelled games. As of this writing, the NY Post reports: Total cases globally = 4,897,492; Deaths = 323,285.
"In its 2018 report on comment letter trends, Ernst & Young (EY 2018) notes that 12 percent of comment letters reference a registrant’s disclosures associated with state sponsors of terrorism, making SST the seventh most common topic in 2018." #corpgov https://t.co/RaPD71q53P— Stefan Padfield (@ProfPadfield) May 19, 2020
COVID-19 or the lockdowns? "COVID-19 had a marked impact on M&A in April, extending the decline observed in March across all measures. Globally, the number of deals decreased by 24.2%, to 2,036, and total deal value decreased by 44.3%, to $118.34 billion." #corpgov https://t.co/rtzxAJkn11— Stefan Padfield (@ProfPadfield) May 19, 2020
If "labor markets & product markets are competitive, the shareholder primacy & stakeholder paradigms would lead to identical corporate policies. When these markets are not competitive" interventions should complement, not substitute for, long-term SH value maximization. #corpgov https://t.co/FdxkGWvuOv— Stefan Padfield (@ProfPadfield) May 18, 2020
Some governors have treated religion "the way you might treat going to a movie"; "less essential than say, hardware stores." That is "impermissible." Religious worship is "one of the most highly protected of all constitutional rights." https://t.co/yaQLn2fI7Z #corpgov— Stefan Padfield (@ProfPadfield) May 17, 2020
Wednesday, May 13, 2020
"Dear Mr. Fink": Stakeholder Governance Prioritizes Soothing "the political consciences of asset managers" Over Protecting Retirement Accounts
As reported here,
Thirty-one fellow CEOs wrote May 1 to BlackRock CEO Laurence Fink to argue that a publicly traded company is responsible to investors and shouldn’t engage in politics in the midst of an economic crisis.
What follows are some excerpts from the letter, which can be found in full here.
The word “stakeholder,” when used in this context, is intentionally nebulous. It can mean whatever the user chooses it to mean. And therefore, it means nothing....
any honest assessment of the successful “shareholder” model MUST acknowledge that it is inarguably stakeholder friendly as well. The distinction between the two models is purely cosmetic, an artificial construct purposefully fashioned to sow confusion and to permit its architects to pursue their own ends rather than those of American business.
In most cases, these ends are political. By adopting an explicitly “stakeholder”-centered model, activists are attempting to subvert the great American process of self-government, substituting their own views and beliefs for those of the people. By drawing a false distinction between shareholders and stakeholders, asset managers like BlackRock, CalPERS, and countless others intend to “target” corporations whose business models don’t meet their personal definitions of acceptable behavior. Whether done to intimidate corporations into toeing the vacuous and amorphous “sustainability” line, or to force “unacceptable” corporations out of business, the net effect is the same, namely the creation of an overtly ideological and extra-legal regulatory regime....
asset managers who capitalize on Americans’ inherent goodness and decency to push their own values under the headings of “sustainability” and “stakeholders,” are playing politics with OTHER PEOPLE’S MONEY. An asset or wealth manager’s primary fiduciary responsibility is to his CLIENTS… to manage the CLIENTS’ assets faithfully and in keeping with the CLIENTS’ needs, values, and risk tolerance. Substituting one’s own political predilections for the obligations owed to the clients is among the most offensive and irresponsible actions a manager can take. This is all the more the case when the manager is not chosen by the individual investor but dictated by law, as is the case with government employee retirement and pension plans.
Particularly now, in the age of COVID-19, the related economic collapse, and exponentially expanding state budget deficits, it is absolutely imperative that state and public employee pension funds – most of which were woefully underfunded BEFORE the collapse, during the longest bull market in history – NOT be used to soothe the political consciences of asset managers hired by the state or the government officials responsible for assigning those contracts. These are benefits that have been promised to workers and HAVE ALREADY BEEN EARNED. To risk them in pursuit of political trends and fads is the height of irresponsibility.
Wednesday, May 6, 2020
If you have trouble viewing the embedded Tweets, please try a different browser (I recommend Internet Explorer).
It's been eight weeks since the WHO declared the coronavirus outbreak a pandemic, and the NBA cancelled games. As of this writing, the NY Post reports: Total cases globally = 3,662,691; Deaths = 257,239.
"How can it be that stocks are soaring when the economy is crashing?" The answer "may be relatively simple: b/c of moves by the Federal Reserve, financial markets are awash in money, vast, water-hose supplies of money... And it’s not just the Fed" https://t.co/7Xi4AUPtBz #corpgov— Stefan Padfield (@ProfPadfield) May 1, 2020
"Our unique privilege is delusion" leading to the belief that abundance "simply materializes around us, regardless of incentives, and the job of politicians is to rearrange this abundance more equitably." https://t.co/LH1ezWaNS8 #corpgov— Stefan Padfield (@ProfPadfield) May 1, 2020
"Regardless of whether a PIPE transaction triggers a change of control under a company’s compensatory arrangements, it may constitute a change in ownership or effective control for purposes of Sections 280G of the tax code, the golden parachute excise tax provisions" https://t.co/UFhxLE1NFK— Stefan Padfield (@ProfPadfield) April 30, 2020
Wednesday, April 29, 2020
It's been seven weeks since the WHO declared the coronavirus outbreak a pandemic, and the NBA cancelled games. As of this writing, the NY Post reports: Total cases globally = 3,116,398; Deaths = 217,153.
"the Oxford Business Law Blog has published posts on how Business Laws could contribute to containing the effects of the COVID-19 Pandemic, and on how they need (or need not) to be adapted to achieve the desired effect" https://t.co/X5C99N4fhx #corpgov— Stefan Padfield (@ProfPadfield) April 27, 2020
1/2: "Boeing SHs today rejected a SH proposal calling on the company to consider viewpoint diversity when it seeks new board candidates"; "Pepsi, CVS, Walmart, Gap, Walgreens, Prudential & JPMorgan Chase have adopted @FreeEntProject’s proposal." https://t.co/FomUCvhpkO #corpgov— Stefan Padfield (@ProfPadfield) April 27, 2020
2/2: "'For years, ISS has urged its clients to approve ... liberal board diversity resolutions .... However, it is rejecting our call for viewpoint diversity,' notes Shepard. 'This is a clear demonstration that ISS is not ... politically neutral'" https://t.co/FomUCvhpkO #corpgov— Stefan Padfield (@ProfPadfield) April 27, 2020
Glass Lewis "highlighted its support for the board of directors of a company that recently adopted a rights plan with a 5% trigger (which conversely led ISS to recommend against the election of chairman of the company’s board)." https://t.co/169lHlkO3Z— Stefan Padfield (@ProfPadfield) April 26, 2020
"EU Taxonomy on Sustainable Finance provides performance thresholds for identifying environmentally sustainable" activities; "Large companies must disclose the percentage of turnover (revenue), capital expenditure & operating expenses qualifying as environmentally sustainable." https://t.co/eIZizNyylJ— Stefan Padfield (@ProfPadfield) April 26, 2020
Wednesday, April 22, 2020
It's been six weeks since the WHO declared the coronavirus outbreak a pandemic, and the NBA cancelled games. As of this writing, the NY Post reports: Total cases globally = 2,561,044; Deaths = 176,984.
"in the absence of the state as a part of the collaboration, the focus of business trusts is unrepentant profit maximization .... In addition, ... default fiduciary duties in business trusts are stronger than those in corporations" @EricChaffee, 88 U. Cin. L. Rev. 797 #corpgov— Stefan Padfield (@ProfPadfield) April 19, 2020
"challenging corporate bans on classwide arbitration by filing a deluge of arbitration claims against companies"; "FairShake uses an automated system to get the arbitration started" https://t.co/zDpOAQfm2r #corpgov— Stefan Padfield (@ProfPadfield) April 17, 2020
"technology manufacturers, sellers, & service providers are richly rewarded for innovations that bring security risks, while technology users bear the bulk of the costs associated with those risks" Cybersecurity and Moral Hazard, 23 Stan. Tech. L. Rev. 71 #corpgov— Stefan Padfield (@ProfPadfield) April 19, 2020
"Our analysis shows that it is likely that both Ms. Loeffler and Mr. Burr portrayed the impact of the virus in a more positive light than they believed, and that they both made or authorized inappropriate trades based on what they knew by virtue of their positions." https://t.co/Xbng8Slo8g— Stefan Padfield (@ProfPadfield) April 16, 2020
"Form 8-K disclosure is triggered when": "an executive officer’s responsibilities are materially reduced"; "if an individual is elevated to ... performing the function of the ... absent executive"; "death or resignation of an executive officer or director" https://t.co/syJ3PzUwph— Stefan Padfield (@ProfPadfield) April 20, 2020
Wednesday, April 15, 2020
The National Center for Public Policy Research has posted an open letter to Blackrock CEO Larry Fink that should be of interest to readers of this blog. I provide some excerpts below. The full letter can be found here.
Dear Mr. Fink,
This economic crisis makes it more important than ever that companies like BlackRock focus on helping our nation’s economy recover. BlackRock and others must not add additional hurdles to recovery by supporting unnecessary and harmful environmental, social, and governance (ESG) shareholder proposals.
…. we are especially concerned that your support for some ESG shareholder proposals and investor initiatives brings political interests into decisions that should be guided by shareholder interests…. when a company’s values become politicized, the interests of the diverse group of shareholders and customers are overshadowed by the narrow interests of activist groups pushing a political agenda.
…. ESG proposals will add an extra-regulatory cost .... This may harm everyday Americans who are invested in these companies through pension funds and retirement plans. While this won’t affect folks in your income bracket, this may be the difference between affording medication, being able to retire, or supporting a family member’s education for many Americans.
There is a financial risk to this tack as well. The Wall Street Journal recently reported that “[p]erformance of BlackRock’s own iShares range of ESG funds shows that ESG is no guarantee of gold-plated returns. Its two oldest in the U.S., set up in 2005 and 2006 and now tracking the MSCI USA ESG Select index and the MSCI KLD 400 Social index, have both lagged behind iShares’ S&P 500 fund.”
And while publicly traded companies operate under a legal fiduciary duty to their investors, this is also a moral imperative. Free market capitalism has lifted more people out of poverty than any economic system in world history. That’s because, at its simplest level, capitalism operates under the basic rule that all exchanges are voluntary. Therefore, to achieve wealth and create growth in a capitalist system, one must appeal to the self-interest of others….
Wednesday, April 8, 2020
It's been four weeks since the WHO declared the coronavirus outbreak a pandemic, and the NBA cancelled games. As of this writing, the NY Post reports: Total cases globally = 1,426,096; Deaths = 81,865.
In the past, we "more or less accepted the basic liberal premise of separating the public from the private," but we've "now so pervasively blended public and private identities and powers that the traditional liberal divide has all but collapsed." 120 Colum. L. Rev. 465 #corpgov— Stefan Padfield (@ProfPadfield) April 5, 2020
"right-of-center populists find themselves increasingly at odds w/ an emergent class of social justice warrior CEOs, whose views on a variety of critical issues are increasingly closer to those of blue state elites than those of red state populists" 98 Neb. L. Rev. 543 #corpgov— Stefan Padfield (@ProfPadfield) April 5, 2020
"Stop Blaming Milton Friedman!" The "shareholder-first mentality ... would only take hold in the mid-1980s.... due to an unprecedented wave of hostile takeovers rather than anything Friedman said." https://t.co/8IaD4ialut #corpgov— Stefan Padfield (@ProfPadfield) April 6, 2020
"With Nevsun Resources Ltd. v. Araya, 2020 SCC 5 (Nevsun), the Supreme Court of Canada has changed the way that senior business decision makers must think about the human rights impacts of their decisions on people abroad." https://t.co/2O70tjmTSI #corpgov— Stefan Padfield (@ProfPadfield) April 2, 2020
2/2: "the [Business Roundtable] shift says nothing about actually being accountable, truly transparent, or giving stakeholders any real power, and so adheres to the long-standing managerialist goal of autonomy over all else" Langevoort, 43 Seattle U. L. Rev. 377 #corpgov— Stefan Padfield (@ProfPadfield) April 7, 2020
Wednesday, April 1, 2020
It's been three weeks since the WHO declared the coronavirus outbreak a pandemic, and the NBA cancelled games. As of this writing, the NY Post reports: Total cases globally: 857,487; Deaths: 42,107.
"federal prosecutors have learned that they have better and more effective weapons than Rule 10b-5": "(1) the STOCK Act; (2) wire fraud (18 U.S.C. §1343); (3) conversion of governmental property (18 U.S.C. §641); and (4) a new securities fraud charge (18 U.S.C. §1348)" #corpgov https://t.co/Ji7Ge6dOWg— Stefan Padfield (@ProfPadfield) March 31, 2020
"Months before the Coronavirus, Georgetown law professor @ChrisBrummerDr warns of the fragility of non-bank mortgage loans and servicers and that taxpayer bailouts would be needed if the economy slowed." https://t.co/vE7sqszB44 #corpgov #shadowbanking— Stefan Padfield (@ProfPadfield) March 31, 2020
"The Court's use of the concept of public rights in Oil States has profound implications not only for patent law but also for ... bankruptcy, federal regulation of employment contracts and other commerce ...." 95 Notre Dame L. Rev. 1281 #corpgov— Stefan Padfield (@ProfPadfield) March 29, 2020
"some of the nation’s largest brokers are warning that transferring shares from a brokerage account into record name to be eligible to nominate a director may take a number of weeks" https://t.co/Y2eR8ZdPTG— Stefan Padfield (@ProfPadfield) March 31, 2020
"The states’ positions as to the market exception can be grouped in four general categories."; "States use widely varying criteria in determining whether a corporation is to be deemed public" https://t.co/phCKMqRckj— Stefan Padfield (@ProfPadfield) March 30, 2020
Wednesday, March 25, 2020
It's been two weeks since the WHO declared the coronavirus outbreak a pandemic, and the NBA cancelled games. As of this writing, the NY Post reports: Total cases globally: 417,966; Deaths: 18,615.
"As of this week, we estimate that there are just under 150 significant M&A transactions ... waiting to close .... corporate lawyers everywhere are spending their shelter-in-place hours scouring the terms of these deals in a frenzied search for an escape hatch" #corpgov https://t.co/EA3Zzg6F0O— Stefan Padfield (@ProfPadfield) March 19, 2020
BlackRock: "Key steps towards increased transparency include 1) moving from annual to quarterly voting disclosure, 2) prompt disclosure around key votes including an explanation of our voting decisions, and 3) enhanced disclosure of our company engagements." https://t.co/HnULcurK6z— Stefan Padfield (@ProfPadfield) March 20, 2020
"The more modern corporate social responsibility scholarship ... is dominated by Panglossians who believe that moral choices have essentially no economic cost ...." 41 Cardozo L. Rev. 1081 #corpgov— Stefan Padfield (@ProfPadfield) March 22, 2020
There are many places (including faculty meetings) where decision-making goes: (1) it's a good idea; (2) let's do it -- w/o ever asking what we will do less of in order to shift resources (assuming no new tech/synergy). Then we act surprised when some valued thing deteriorates.— Stefan Padfield (@ProfPadfield) March 22, 2020
"Awesemo will stream an NBA 2K game each night at 8pm/et between two computer controlled teams and FanDuel is giving users a free Single Game DFS contest to play alongside it. Boom: The ability to watch a game and follow your DFS lineup during it." https://t.co/oIeskPjZcS #degen— Stefan Padfield (@ProfPadfield) March 22, 2020
Wednesday, March 18, 2020
It's been a week since the WHO declared the coronavirus outbreak a pandemic, and the NBA cancelled games. As of today, the NY Post reports: Total cases globally: 198,179; Deaths: 7,954.
Do these two men have too much power to advance their agendas? "board members have become accustomed to receiving ... letter[s] every January.... from the CEOs of two of their largest investors, BlackRock and State Street Global Advisors .... Larry Fink and Cyrus Taraporevala" https://t.co/1JUbfvHSnR— Stefan Padfield (@ProfPadfield) March 12, 2020
"This article examines the rise of SRI [socially responsible investing] in major financial markets and compare the approaches adopted by regulators in these financial markets to regulate on ESG disclosure and reporting." https://t.co/Pd7uC5aa3V #corpgov— Stefan Padfield (@ProfPadfield) March 12, 2020
1/2: "Kaeser dismisses the [green] protesters’ attempt to force Siemens to change its mind: 'The impact is zero — there has not been any movement on the share price.'" https://t.co/ui34FklaDO #corpgov— Stefan Padfield (@ProfPadfield) March 16, 2020
Did "corporations, stock markets and the corporate economy enjoy a long and prosperous history well before limited liability in its modern sense became established and dominant"? https://t.co/k3NmXDdZod #corpgov— Stefan Padfield (@ProfPadfield) March 17, 2020
"There are no companies, no jobs, and there is no progress without investment, and Milken would vastly improve the world around him through skillful development of ... bespoke finance." https://t.co/cCYwJVPXT3 #corpgov— Stefan Padfield (@ProfPadfield) March 12, 2020
Thursday, March 12, 2020
Over at Law & Liberty, Richard Reinsch reviews (here) Christopher Caldwell's new book, The Age of Entitlement: America Since the Sixties. As Reinsch puts it, Caldwell's premise is that we are currently battling over "two irreconcilable constitutions: the constitution of 1788 and of 1964." What follows is an excerpt from the review. Given the emphasis on diversity in corporate governance, the connection to this blog should be relatively obvious. Since I am not an expert in the area, I'm curious if readers will identify any misstatements of fact in the excerpt or linked-to materials.
As many legal scholars have observed, the Rehnquist and Roberts Courts have aimed to return to the “color-blind” understanding of equal protection that inspired the Brown decision and the civil rights movement of the 1960s. Of course, many of these same scholars reject such an understanding as a just one …. But the colorblind position is on solid ground ….
As Shep Melnick argues, “the NAACP lawyers who brought the long string of cases culminating in Brown” endorsed the “colorblind” interpretation of the Fourteenth Amendment. It was chief counsel Thurgood Marshall before the Court who argued that the Fourteenth Amendment denies states authority “to make any racial classification in any government field.” Leaders in the Civil Rights movement in the late 1960s argued against the collection of any hiring or employment data regarding blacks and whites. Of course, the Rehnquist and Roberts Court, the NAACP, and those who claim this argument stand on Justice John Marshall Harlan’s legendary dissent in Plessy v. Ferguson (1896) that argued the government use of racial classifications is an invitation to majority tyranny. Justice Thomas therefore is correct to argue in his concurring opinion in Parents Involved v. Seattle School District (2007) “what was wrong in 1954 cannot be right today.” In his majority opinion in the same case, Chief Justice Roberts memorably wrote “The way to stop discrimination on the basis of race is to stop discriminating on the basis of race.” Case closed.