Friday, January 6, 2023
Vikas Mittal and Jihye Jung have posted Strategic Management of Corporate Political Activism on SSRN. Here is the abstract:
Senior leadership at many organizations engages in overt corporate political activism (CPA), defined as activities that are visible to stakeholders that support or undermine issues viewed as politically charged. According to media accounts, consumers, employees and shareholders want executives to engage in CPA. Evidence from peer-reviewed research shows that CPA does not help, but can harm companies on many fronts. This evidence shows that CPA is detrimental to a company’s brand equity, employee productivity, and financial performance while also alienating some customers. To help address these issues, this article develops a strategic framework to assess where a company is in its CPA journey and determine its path forward. The framework proposes four strategies: convergence, divergence, selective engagement, and depoliticized but supporting stance. Companies can use this framework to assess whether and how they should engage in political activism and then find ways to adapt their political activism strategy over time.
Saturday, December 31, 2022
Are the following two items related?
- Yesterday, CNN reported (here) that "the S&P 500 is down about 20% in 2022 – but .... Buffet’s [sic] Berkshire Hathaway (BRKA) is doing fine, though, up over 3% this year."
- Back in July, CIO reported (here) that "Buffett, Who Terms ESG Reporting ‘Asinine,’ Adds to Oil Holdings."
Tuesday, December 20, 2022
The Akron Law Review seeks articles and essays of any length, speakers, and panel participants for a symposium on issues related to sports and entertainment law. The Symposium, “Game Changers: Rewriting the Playbook” A Sports and Entertainment Law Symposium will take place at the University of Akron School of Law, Akron, OH, on Friday, April 14, 2023.
The editors seek articles, essays, and speakers that address one or more of the following topics, or other related topics:
- Contract Negotiations
- Diversity in Sports Leadership
- The Interplay of Ethics and Sports Agency
The editors seek articles, essays, and speakers for panel discussions on the following topics:
- Name, Image, and Likeness (NIL) – With this panel, we seek discussion of NIL policy and how athletes do, can, and/or should navigate new and evolving guidelines.
- Equality in Pay – With this panel, we seek discussion of the differences in pay between women and men in team and individual sports, such as soccer and golf.
The Akron Law Review has been highly ranked in the Washington and Lee Law Review Rankings for several years. In five recent years (2015-2019), the Akron Law Review ranked in the top 100 for student-edited, general journals in the Washington and Lee Law Library law journal rankings for “combined score” and in the top 107 for student-edited, general journals in the category of “impact factor.”
The Call for Papers will remain open until Saturday, December 31, 2022. Article proposals should be around 300 words. Submit proposals to the Editor-in-Chief, Jennifer Cranmer, and Managing Editor of the Symposium Edition, Demetria Kimble, at [email protected].
Selected participants and writers will be notified by January 7, 2023. Finished articles will be due by February 3, 2023. Our editors will work with you to prepare your work for the symposium and/or publication. Articles will be published in the 2023 Symposium edition of the Akron Law Review.
Wednesday, December 7, 2022
The Federalist: "Republicans Launch Antitrust Investigation Into Climate-Obsessed Corporate ‘Cartel’"
Back in October, I posted a blog asking "Should Antitrust Regulators Come for the ESG Cartel?" Yesterday, The Federalist reported (here) that Republicans are launching an investigation into the "Climate-Obsessed Corporate ‘Cartel.’" Some key points from the article:
- In a June op-ed published in the Wall Street Journal and cited by lawmakers, Sean Fieler, the president of Equinox Partners, a Manhattan-based investment firm, outlined how “The ESG Movement Is a Ripe Target for Antitrust Action.”
- Republican Arizona Attorney General Mark Brnovich launched a separate antitrust investigation into the Climate Action 100+ network in November last year.
- House Republicans launched an investigation Tuesday probing whether major climate groups that spearhead the “environmental, social, and governance” (ESG) movement are violating antitrust laws.
The article notes that:
In a letter sent to executives of the Steering Committee for Climate Action 100+, Republicans led by Ohio Rep. Jim Jordan are demanding a treasure trove of documents that illustrate the coalition’s network of influence.... “Woke corporations are collectively adopting and imposing progressive policy goals that American consumers do not want or do not need. An individual company’s use of corporate resources for progressive aims might violate fiduciary duties or other laws, harming its viability and alienating consumers,” Republicans warned. “But when companies agree to work together to punish disfavored views or industries, or to otherwise advance environmental, social, and governance (ESG) goals, this coordinated behavior may violate the antitrust laws and harm American consumers.”
Tuesday, December 6, 2022
ICYMI: "Lawsuit filed against City of Seattle for hostile workplace caused by pervasive 'racial equity training'"
A Pacific Legal Foundation press release from Nov. 16 (here) reports the following, which may be of interest to #corpgov types overseeing DEI initiatives.
Today, Joshua Diemert, a former City of Seattle employee, filed a federal lawsuit against the City and Mayor Bruce Harrell for subjecting him to a racially hostile work environment.... Diemert endured years of harassment and racial discrimination in the workplace. Some incidents officially sanctioned by the city were so severe that they created a racially hostile working environment. For example:
- He was pressured to resign from a position rather than take FMLA leave because he was told that taking FMLA leave would be an exercise of his “white privilege” and would deny a “person of color” an opportunity for promotion.
- On multiple occasions, upper-level managers verbally told him and other department employees that new positions should be filled with people of color, particularly senior roles.
- He was forced to attend training that demanded he acknowledge his complicity in racism, not based on his personal actions or beliefs but because he is white.
- When he spoke up against egregiously racist messaging at a required workshop, his coworkers labeled him a white supremacist. And belligerent colleagues continuously berated him about his race.
“Instead of supporting its employees and providing them with opportunities, the City of Seattle is encouraging racial discrimination and harassment through its Race and Social Justice Initiative,” said Laura D’Agostino, an attorney at Pacific Legal Foundation. “Seattle employees should be treated as individuals with dignity and evaluated by the content of their character, not the color of their skin.”... The case is Joshua Diemert v. City of Seattle, filed in the United States District Court for the Western District of Washington.
Thursday, December 1, 2022
Press Release: "the Florida Treasury will begin divesting $2 billion worth of assets currently under management by BlackRock"
In a press release issued today (here), "Florida Chief Financial Officer (CFO) Jimmy Patronis announced that the Florida Treasury will begin divesting $2 billion worth of assets currently under management by BlackRock." Stated Patronis:
Using our cash ... to fund BlackRock’s social-engineering project isn’t something Florida ever signed up for. It’s got nothing to do with maximizing returns and is the opposite of what an asset manager is paid to do. Florida’s Treasury Division is divesting from BlackRock because they have openly stated they’ve got other goals than producing returns. As Larry Fink stated to CEOs "[A]ccess to capital is not a right. It is a privilege." As Florida’s CFO I agree wholeheartedly, so we’ll be taking Larry up on his offer. There’s no lack of companies who will invest on our behalf, so the Florida Treasury will be taking its business elsewhere.
At some point, these millions/billions being divested from Blackrock are going to add up to real money.
Tuesday, November 22, 2022
I highly recommend these podcasts from the ABA Business Law Section:
VC Law: Episode 8: Capital Raising Considerations for Emerging Companies with Jose Ancer, author of Silicon Hills Lawyer and partner at Optimal Counsel (here)
Host Gary J. Ross talks with Jose Ancer, partner (and CTO) at Optimal Counsel and the author of Silicon Hills Lawyer, an internationally-recognized legal blog on emerging companies and VC fundamentals. Gary and Jose discuss the advantages and disadvantages of different securities instruments for emerging companies, including convertible notes and pre-money and post-money SAFEs; friends & family vs. angel rounds; the Series Seed and NVCA documents; valuation caps; and the significance of relationship building in the VC world.
VC Law: Episode 9: Discussing down round financings with Troy Foster, partner at Perkins Coie (here)
Host Gary J. Ross discusses down round financings with Troy Foster, partner and firmwide co-chair of emerging companies and venture capital practice at Perkins Coie. Topics covered include common provisions in down round term sheets, such as pay-to-play and pull-up mechanisms; anti-dilution adjustment mechanisms; obtaining the consent of previous investors; Section 228 notices; and Business Judgment Rule vs. Entire Fairness Review.
Monday, November 21, 2022
The Federalist Society has posted a review of the oral argument in Mallory v. Norfolk Southern (here):
Under Pennsylvania law, a foreign corporation “may not do business in this Commonwealth until it registers” with the Department of State of the Commonwealth. State law further establishes that registration constitutes a sufficient basis for Pennsylvania courts to exercise general personal jurisdiction over that foreign corporation. Norfolk Southern Railway objected to the exercise of personal jurisdiction, arguing that the exercise violated the Due Process Clause of the Fourteenth Amendment. The trial court agreed and held Pennsylvania’s statutory scheme unconstitutional. The Pennsylvania Supreme Court affirmed. The Supreme Court is to decide if a state registration statute for out-of-state corporations that purports to confer general personal jurisdiction over the registrant violates the Due Process Clause of the Fourteenth Amendment.
Sunday, November 13, 2022
My Akron Law colleague Camilla Hrdy recently published The Value in Secrecy in the Fordham Law Review. You can find the SSRN version here. Below is the abstract.
Trade secret law is seen as the most inclusive of intellectual property regimes. So long as information can be kept secret, the wisdom goes, it can be protected under trade secret law, even if patent and copyright protections are unavailable. But keeping it a secret does not magically transform information into a trade secret. The information must also derive economic value from being kept secret from others. This elusive statutory requirement--called “independent economic value”--might at first glance seem redundant, especially in the context of litigation. After all, if information had no value, why would the plaintiff have bothered to keep it secret, and why would the parties be arguing over the right to use or disclose it? Surely, well-kept secrets that end up in court must be valuable.
That assumption is pervasive. But it is wrong. Secrecy does not demonstrate value. Even a company's best-kept secrets might be commercially worthless if vetted against what is known in the rest of the industry. Nor does the decision to pursue litigation indicate value. Trade secret litigants have plenty of exogenous reasons for pursuing lawsuits that have little to do with information's inherent value. Most importantly, “value” is not the statutory standard; the standard is economic value that comes specifically from secrecy.
Some federal courts have begun to call out weak assertions of independent economic value and, in the process, are redefining the role of this neglected statutory requirement. By analyzing this case law and drawing on insights from the larger field of intellectual property law, this Article generates a typology of “value failures” that can arise in any given trade secret dispute--amount failures, causation failures, type failures, and timing failures. Courts in trade secret cases should screen for value failures far more consistently than they currently do. Otherwise, courts risk giving trade secret status to mere confidential information. This leads to wasted court resources and has detrimental consequences for competition, innovation, speech, and employee mobility.
Tuesday, November 1, 2022
ICYMI: Kentucky treasurer on "political subjugation" of S&P's inclusion of ESG factors in credit ratings.
I recently came across a letter sent by Kentucky State Treasurer Allison Ball to S&P Global Ratings back in June 2022 and thought the contents might be of interest to any of our readers who missed the letter when it was originally sent. Below is an excerpt. You can find the full letter here.
On behalf of the Commonwealth of Kentucky and those we serve, we firmly and collectively object to S&P Global Ratings’ (S&P) new plan to include ESG credit indicators in its credit ratings for states and state subdivisions....
These ESG credit indicators inject unnecessarily subjective and political judgments into a rating system that should be solely pecuniary in nature. Earlier this year, S&P wrote, “having a social mission and strong ESG characteristics does not necessarily correlate with strong credit worthiness and vice versa,” making it abundantly clear these factors are not relevant for determining state credit calculations. We thus agree with our friends in Utah who admonished these new scoring standards and exposed them as an exercise in political subjugation when they noted the following in a recent letter signed by every Utah statewide official and their entire federal delegation:
[there are] two layers of indeterminacy that make ESG an exercise in servitude: 1) which “ESG factors” are chosen, and 2) the “correct” answer to any given factor. Whoever answers those questions has all the power in achieving a desired outcome.
Blinded by the desire to achieve politically-motivated outcomes, S&P also fails to complete a cost-benefit analysis for how this new plan will impact both individual states and the country at large. The core purpose of S&P is to provide objective insights into the financial competencies of each state. However, this new plan looks more like China’s social credit system and purposefully muddies the waters between objective financial concerns and normative political issues. It creates a dangerous framework for state borrowing mechanisms, whereby state creditworthiness will fluctuate wildly based on ever-changing political tides.
It is easy to discern the significant harm caused by placing subjective and environmental factors ahead of objective financial factors. For example, lessening American production of fossil fuels before our country has the infrastructure to support widespread reliance on green energy will only lead to a dependence on the fossil fuels produced by hostile nations and create significant national security risks.
S&P has yet to engage in a cost-benefit-analysis that weighs national security risks and the health of state economies against the need to introduce these ESG factors into its credit ratings. S&P should be forced to grapple with these realities, as subjective, leftist ESG scoring will unquestionably hurt states like Kentucky—where a reduction in coal, oil, and gas production would cause increased unemployment, higher fuel costs, and a decrease in overall tax revenue, thereby negatively impacting Kentucky’s overall creditworthiness and causing undue hardship and suffering for the people of this state. The fossil fuel industry is one of Kentucky’s signature industries, and stifling it will be harmful and costly for Kentuckians and our economy. Simply put, the emergence of these factors creates a no-win situation for our country and states like Kentucky. S&P should be forced to explain how it has weighed these factors against its decision to implement its new plan. We believe, S&P has not produced such a document because it is unable to perform a true cost-benefit-analysis without exposing itself as a political devotee instead of a leading provider of objective credit ratings.
Accordingly, we object to S&P’s new ESG credit indicators and urge S&P to only evaluate the creditworthiness of states and state subdivisions based on objective and financial factors. These ratings should not be politicized.
Friday, October 28, 2022
Two recent posts that might be related:
On Tuesday, Vivek Ramaswamy posted The ESG Fiduciary Gap on The Harvard Law School Forum on Corporate Governance. In that post, he noted that:
BlackRock is currently under investigation for antitrust violations precisely because of its coordinated ESG activism through groups like Climate Action 100+, Net Zero Asset Managers, and Glasgow Financial Alliance for Net Zero. Vanguard and State Street are members of many of the same groups. In fact, until recently, as Arizona’s Attorney General has observed, “Wall Street banks and money managers [were] bragging about their coordinated efforts to choke off investment in energy.” U.S. antitrust statutes are broad by design. They forbid competitors from entering into any agreement with the purpose or likely effect of reducing supply in a relevant market. Here, through these groups, BlackRock is cooperating with its competitors to make concerted efforts to decrease marketwide output in fossil fuels. That is no secret; it is the very purpose of these organizations. Net Zero Asset Managers, for example, makes clear that it has an “expectation of signatories” like BlackRock to force a “rapid phase out of fossil fuel[s],” including by, for example, refusing to finance new coal projects. If the CEOs of Exxon, Chevron, and Shell decided to cut gas production and prices then spiked, the DOJ Antitrust Division would be making arrests. But when the Big Three pressure them to do the same thing, it is praised as “ESG.”
Led by antitrust officials in the US appointed by President Biden, authorities around the world have turned a critical eye towards private equity (PE), making PE the latest target in the global trend toward increased antitrust scrutiny.... The focus on PE in the US may inspire other regulators, in particular across the Atlantic. In Germany, a draft law is being discussed which would grant the Federal Cartel Office broad powers to address perceived “disruptions” of competition. Those powers are likely to include oversight of cross-ownerships and interlocking directorates. In 2020, the European Commission requested a study on the effects of common shareholdings by institutional investors and asset managers on European markets. While no major enforcement action has been taken since the report, the headlines generated by the DOJ may inspire the European Commission to have a renewed look at these issues in Europe. And in the UK, while the Competition and Markets Authority has recognized that highly leveraged private equity acquisitions are unlikely in themselves to impact competition, it has demonstrated a willingness to follow the European Commission in pursuing private equity owners for potential antitrust violations by their portfolio companies, as demonstrated most recently in relation to its case against excessive pricing for thyroid drugs.
And one might want to add the following from Amanda Rose (which I previously quoted here):
Traditional asset managers claim their commitment to ESG is motivated by a desire to improve long-term fund performance for the benefit of investors. But agency costs offer an alternative potential explanation: embracing the ESG movement may help asset managers curry political favor, enabling them to fend off greater regulation of the industry; it may advance the personal sociopolitical commitments of those who ran them; or it may offer a way to attract investors to fund offerings without imposing any meaningful limitations on how a fund is managed.
Sunday, October 9, 2022
At our wonderful BLPB conference a week ago (details here), I presented "An Introduction to Anti-ESG Legislation." Thus, news that Louisiana Treasurer John Schroder plans to liquidate all BlackRock investments within three months over Blackrock's ESG policies caught my eye. Here are some notable excerpts from the FOXBusiness article (here) on the news:
Louisiana Treasurer John Schroder penned a letter to BlackRock CEO Larry Fink, explaining the state would liquidate all BlackRock investments within three months and, over a period of time, divest nearly $800 million from the bank's money market funds, mutual funds or exchange-traded funds. The state treasurer blasted Fink's pursuit of so-called environmental, social and governance (ESG) standards that promote green energy over traditional fossil fuels. "Your blatantly anti-fossil fuel policies would destroy Louisiana’s economy," Schroder wrote to Fink in the letter .... "Consumers' Research applauds Treasurer Schroder's commendable decision to withdraw the state's assets from BlackRock's misuse," Will Hild, the executive director of Consumer's Research, told FOX Business in a statement. "As noted in his letter, BlackRock is using the people of Louisiana's money to advance a destructive agenda that raises costs for consumers in the state and across the country. The seeds of today's energy crisis were planted by BlackRock and others in their reckless abandonment of their fiduciary duty [in order] to cozy up to radical, woke politicians," he continued. "We are glad to see the Treasurer working to put an end to their economic vandalism."
You can find the full letter to BlackRock here. Here is a notable excerpt:
[A]ccording to my legal counsel, Environmental, Social and Governance (ESG) investing is contrary to Louisiana law on fiduciary duties, which requires a sole focus on financial returns for the beneficiaries of state funds. Focusing on ESG’s political and social goals or placing those goals above the duty to enhance investors’ returns is unacceptable under Louisiana law. A letter signed by 19 state attorneys general sent to you recently emphasized this same point…. You have admitted that your ESG agenda of forcing behaviors will not increase investor returns. Your 2022 letter to CEOs stated plainly that “We need to be honest about the fact that green products often come at a higher cost.” High cost/low return environmental policies will reduce a company’s profits ... and investors’ returns…. Recently Blackrock set a record for “the largest amount of money lost by a single firm over a six-month period” having “lost $1.7 trillion of clients’ money,” associated with ESG accounts, according to a July 20, 2022 Bloomberg article titled “BlackRock Is Breaking the Wrong Kind of Records.” Such huge losses would seem to indicate that BlackRock is either not focused on investor returns or that its ESG investment strategy is flawed. Neither bodes well for investors…. I’m convinced that ESG investing is more than bad business; it’s a threat to our founding principles: democracy, economic freedom, and individual liberty. It threatens our democracy, bypasses the ballot box and allows large investment firms to push political agendas. It threatens our economic freedom because these firms use their massive shareholdings to compel CEOs to put political motivations above a company’s profits and investors’ returns. Finally, it threatens our personal liberty because these firms are using our money to push their agendas contrary to the best interests of the people whose money they are using!
Monday, October 3, 2022
It was so wonderful to be able to host an in-person version of our "Connecting the Threads" Business Law Prof Blog symposium on Friday. Connecting the Threads VI was, for me, a major victory in the continuing battle against COVID-19--five healthy bloggers and a live audience! Being in the same room with fellow bloggers John Anderson, Colleen Baker, Doug Moll (presenting with South Carolina Law friend-of-the-BLPB Ben Means), and Stefan Padfield was truly joyful. And the topics on which they presented--shadow insider trading, exchange trading in the cloud, family business succession, and anti-ESG legislation--were all so salient. (I offered the abstract for my own talk on fiduciary duties in unincorporated business associations in last week's post.) For a number of us, the topic of our presentations arose from work we have done here on the BLPB.
This year, as I noted in my post last week, we had a special guest as our luncheon speaker. That guest would be known to many of you who are regular readers as "Tom N." Tom has commented on our blog posts here on the BLPB for at least eight years. (I rooted around and found a comment from him as far back as 2014.) And Tom lives right here in Tennessee--in middle Tennessee, to be exact (closer to Haskell Murray than to me). You can check out his bio here. I am delighted that we were able to coerce Tom to give up a day of law practice to come join us at the symposium.
The title/topic for Tom's talk was "A Country Boy Busines Lawyer's View from Down in the Weeds." The talk was, by design, a series of reflections on Tom's wide-ranging business law practice here in the state of Tennessee. He tries to stay out of the courtroom, but by his own recounting, he has been in court in every county in the state--and Tennessee has 95 counties!
In the end, Tom ended up offering a bunch of tips for law students and lawyers (both of whom were in attendance at the symposium). I took notes during Tom's talk. I have assembled them into a list below. The key points are almost in the order in which they were delivered. The stories that led to a number of these snippets of practical advice were priceless. You had to be there. Anyway, here is my list, together with a few editorial comments of my own. Tom can feel free to add, correct, or dispute my notes in the comments!
- Take tax courses; if you fear they may hurt your GPA, audit them.
- Use all available resources to get more knowledge. (Tom indicated that he bought Westlaw/used Practical Law as a solo practitioner for many years but recently gave it up. he also noted that he regularly reads a number of the law prof blogs.)
- Be a bar association member and access the resources bar associations provide. (Tom noted the excellent written materials published by the American Bar Association and the superior continuing legal education programs produced by the Tennessee Bar Association.)
- “You are going to learn to write in law school.” (Tom advised focusing on clear, efficient writing—something I just emphasized with my Business Associations students last week.)
- Publish in the law. (Tom shared his view that writing in the law improves both knowledge and analysis.)
- Expect the unexpected, especially in court (e.g., confronting in court transactions in pot-bellied pigs involving a Tennessee nonprofit). And as a Corollary: "You can't make this stuff up." The truth often is stranger than anything you could make up . . . .)
- In business disputes, never assume that an attorney was there on the front end. (And yes, there was mention of the use by many unknowledgeable consumers of online entity formation services.)
- As a lawyer, be careful not to insert your own business judgment. The business decision is the client's to make.
- Relatedly, let the business people hand you the framework of the deal.
- Along the same lines: "I am not paying people to tell me I can’t do it; I am paying people to tell me how to do it.” (As heard by Tom from his father, a business owner-manager. I think many of us have heard this or learned this—sometimes the hard way . . . . I do try to prevent my students from learning that lesson the hard way by telling them outright.)
- And further: “You want to screw up a deal, put the lawyers in the center of it.”
- As a courtroom lawyer, know the judges and—perhaps more importantly—court clerks!
- Introduce yourself to everyone; they may be in a position to help you now or later (referencing the time he introduced himself, unknowingly, to John Wilder, the former Lt. Governor of Tennessee, who proceeded to introduce him to the local judges).
- Preparation for the bar exam is a curriculum of its own. (That's close to a quote.)
- “A lot of things go more smoothly of you can get people talking.” (Tom is more of a fan of mediation than arbitration.)
- Local rules of court may not be even published; sometimes, you just need to pick up the phone and call the court clerk. (Another reason to get to know local court clerks!)
- Developing rapport with a judge is incredibly important to successful courtroom lawyering.
- Saying "I don’t know" does not hurt anything; in fact, it may help judges/others develop confidence in you and your integrity.
- Your law school grades will not matter after your first or second job. Employers will be looking at you and your professional record, not your grades.
I am sure I missed something along the way. Maybe my fellow bloggers in attendance will have something to add. But this list alone is, imv, pure gold for students and starting lawyers.
October 3, 2022 in Colleen Baker, Conferences, Corporate Governance, Family Business, Haskell Murray, Joan Heminway, John Anderson, Lawyering, Securities Regulation, Stefan J. Padfield, Unincorporated Entities | Permalink | Comments (1)
Sunday, October 2, 2022
SCOTUS will begin hearing oral arguments for its next term tomorrow. One of the cases of particular interest to BLPB readers will be 303 Creative LLC v. Elenis. As noted on SCOTUSblog (here), the issue in 303 Creative is: "Whether applying a public-accommodation law to compel an artist to speak or stay silent violates the free speech clause of the First Amendment." The case promises to resolve important issues left open by the Masterpiece Cakeshop decision. For whatever it may be worth, I predict that the following excerpt from the 10th Circuit's decision below will be critical to the Supreme Court's analysis -- with SCOTUS rejecting the 10th Circuit's conclusions.
Excepting Appellants from the Accommodation Clause would necessarily relegate LGBT consumers to an inferior market because Appellants’ unique services are, by definition, unavailable elsewhere.... To be sure, LGBT consumers may be able to obtain wedding-website design services from other businesses; yet, LGBT consumers will never be able to obtain wedding-related services of the same quality and nature as those that Appellants offer. Thus, there are no less intrusive means of providing equal access to those types of services.... This case does not present a competitive market. Rather, due to the unique nature of Appellants’ services, this case is more similar to a monopoly. The product at issue is not merely “custom-made wedding websites,” but rather “custom-made wedding websites of the same quality and nature as those made by Appellants.” In that market, only Appellants exist. And, as amici apparently agree, monopolies present unique anti-discrimination concerns. See *1181 Br. of Law and Economics Scholars at 9 (["As Thomas Jefferson wrote, 'the first principle of association' is 'the guarantee to every one of a free exercise of his industry, and the fruits acquired by it.'"] “The only exception to this principle is a monopoly situation, in which consumers are faced with a sole supplier who could decide for all sorts of reasons, including invidious motives, to refuse to deal with a group of potential consumers.”).
303 Creative LLC v. Elenis, 6 F.4th 1160, 1180–81 (10th Cir. 2021), cert. granted in part, 212 L. Ed. 2d 6, 142 S. Ct. 1106 (2022).
Monday, September 26, 2022
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!
Sunday, September 25, 2022
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.
Sunday, September 18, 2022
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.
Monday, September 12, 2022
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).
Friday, September 9, 2022
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").
Tuesday, August 30, 2022
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.