Wednesday, November 25, 2020
For the one BLPB reader who doesn't also check in on The CLS Blue Sky Blog:
Based on an analysis of public communications around earnings announcements, we find that managers are 34 to 43 percent more likely to cite stakeholder value maximization during periods following earnings announcements that fall short of market expectations. This finding is consistent with concerns that the inability to measure stakeholder value may reduce managers’ accountability for firm performance....
Managers seem to be aware that stakeholder-oriented goals may reduce their accountability for performance, but does the manager’s push for stakeholder objectives sway the board’s evaluation of an underperforming manager? We use CEO turnover-performance sensitivity, a measure used in numerous prior studies of CEO evaluation, to determine whether this behavior produces any observable benefit to the manager. Indeed, we find that it does; CEOs that cite stakeholder value maximization as an objective are less likely to see turnover following poor performance.
Tuesday, November 24, 2020
ICYMI: "SEC Proposes Temporary Rules to Facilitate Measured Participation by Certain 'Platform Workers' in Compensatory Offerings"
The Securities and Exchange Commission today voted to propose rules that, on a temporary basis and subject to percentage limits (no more than 15% of annual compensation), dollar limits (no more than $75,000 in three years) and other conditions, would permit an issuer [to] provide equity compensation to certain "platform workers" who provide services available through the issuer's technology-based platform or system.
The proposed rules reflect the significant evolution that has taken place in the composition and participation of the workforce since the Commission last substantively amended Rule 701 or Form S-8, particularly the development of the so-called "gig economy," which has resulted in new work relationships.
Thursday, November 19, 2020
Over at the Harvard Business Law Review, Sanjai Bhagat has posted Economic Growth, Income Inequality, and the Rule of Law (here). Here's what caught my eye:
Besides the size of the national pie, which is measured by GDP, senior policy makers and the media across the globe are increasingly concerned about how this pie is sliced, that is, about income inequality. We find that countries with greater adherence to Rule of Law are characterized by less income inequality. Additionally, we find that countries with greater GDP per capita are characterized by less income inequality; however, once we control for Rule of Law in the country, we do not observe this negative correlation between GDP per capita and income inequality. This further highlights that adherence to the Rule of Law relates to reducing income inequality.
Monday, November 16, 2020
FIRE on "How parents and educators can push back against chilled speech and thought conformity in K-12 education."
The Foundation for Individual Rights in Education (FIRE) was founded in 1999 in response to "hundreds of communications and pleas for help from victims of illiberal policies and double standards that violated their rights and intruded upon their private consciences." Now, FIRE reports that from "partisan lessons, to schoolwide 'belief' statements, to demands for performative activism, we have never seen such intense ideological orthodoxy and compelled speech at the K-12 level." Thus, FIRE is hosting a virtual event: "How parents and educators can push back against chilled speech and thought conformity in K-12 education." The event is scheduled for Nov 19, 2020, at 01:00 PM, and you can register here.
Sunday, November 15, 2020
The following is excerpted from Richard A. Epstein, The Civil Rights Juggernaut, 2020 U. Ill. L. Rev. 1541, 1542–44 (2020).
[T]he expansions in the 1970s and early 1980s of the various provisions of the Civil Rights Act of 1964 were done to advance the purpose of ending segregation and promoting integration. I continue to feel much uneasiness about these decisions, in part because they move away from the initial “colorblind” standard by creating preferences for protected classes and allowing affirmative action in their favor. But none of these cases, whatever their merits, had the effect of targeting small and isolated businesses and individuals for powerful government sanctions. Instead, the earlier string of successes were targeted to make sure that powerful groups did not themselves engage in various forms of invidious discrimination--here the word “invidious” is used to allow for affirmative action programs but only in favor of protected groups. Today, all too many civil rights commissions especially at the state level function only to pressure small businesses and individuals to conform to a powerful and overriding vision of the “right” view of the evils of discrimination across the board. The situation marks a powerful change from the landscape that existed at the start of the civil rights movement in 1938, when Justice Harlan Fiske Stone warned that lax standards of review would not be sufficient to protect what he termed in Carolene Products the “discrete and insular minorities” of today. Today those minority groups are in fact the dominant power-brokers on matters of civil rights, and their influence is all-pervasive, dealing not only with matters of race and sex discrimination, but also with freedom of speech and religion for groups that are not members of the dominant coalition.
It is important to understand that the pervasive modern references to “diversity and inclusion” are not renewed calls to heed the lesson of Dr. Martin Luther King Jr., who proclaimed that what matters is the content of one's character and not the color of one's skin. Nor do such references refer to reaching out to make sure that individuals from all groups and all walks of life are included in modern social discourse. Rather, it is evident from the constant insistence that diversity and inclusion are compelling state interests that any other concern, including freedom of speech and conscience, must take a subordinate place when pitted against them, if only so that people whose views do not fit this modern conception can be shouted down with the justification that their views are so odious that they do not require refutation. One general theme in this discourse is a strong distaste for capitalism and an embrace of controversial causes as though they embody eternal truths….
This creeping orthodoxy is not confined to any single subject matter. As is evident from the pronouncements of once great institutions like Harvard University and the University of California, that same authoritarian impulse now guarantees that the phrase “diversity and inclusion” is transformed into a commitment to establish, in both hiring and admissions, systematic preferences in favor of women and some minority groups, with the deliberate intention of reducing and marginalizing the position of those who do not share that common vision.
Thus, forty-seven years after Professor Baum's early death, both the agenda and the players in the civil rights movement are far different from what they were in those distant times. I often say to myself, virtually every day, that the news will contain some disturbing story about how it is that the civil rights movement has deviated from its original mission. In this lecture I shall talk about some of the cases that I think should give pause to the way in which we think about civil rights.
Wednesday, November 11, 2020
First: To all the veterans -- thank you for your service! As an immigrant who became a U.S. citizen in college and served 6 years of active duty in the U.S. Army before attending law school, I am proud to have joined you in taking the oath to support and defend the Constitution of the United States against all enemies, foreign and domestic.
Second: Jody Greene and Sharif Youssef have published "Human Rights after Corporate Personhood: An Uneasy Merger" (you can order an examination copy here or pre-order via Amazon here). I am grateful to have had the opportunity to contribute a chapter: "Killing Corporations to Save Humans: How Corporate Personhood, Human Rights, and the Corporate Death Penalty Intersect." Here's the University of Toronto Press pitch:
Human Rights after Corporate Personhood offers a rich overview of current debates, and seeks to transcend the "outrage response" often found in public discourse and corporate legal theory. Through original and innovative analyses, the volume offers an alternative account of corporate juridical personality and its relation to the human, one that departs from accounts offered by public law. In addition, it explores opportunities for the application of legal personality to assist progressive projects, including, but not limited to, environmental justice, animal rights, and Indigenous land claims.
Presented accessibly for the benefit of non-specialist readers, the volume offers original arguments and draws on eclectic sources, from law and poetry to fiction and film. At the same time, it is firmly grounded in legal scholarship and, thus, serves as an essential reference for scholars, students, lawmakers, and anyone seeking a better understanding of the interface between corporations and the law in the twenty-first century.
Wednesday, November 4, 2020
Over at Law & Liberty (here), George R. La Noue argues that: "Training sessions based on critical race theory run contrary to an employer’s responsibility to avoid creating a hostile work environment." Here is an excerpt:
Asking one set of employees to confess to the sins of their racial ancestors or their individual current white privilege runs contrary to an employer’s responsibility to avoid creating a hostile work environment.
Laws about hostile or toxic work environments are based in both Title VII and Title IX of the Civil Rights Act. The U.S. Equal Employment Opportunity Commission defines a hostile or toxic work environment as one that involves “unwelcome conduct that is based on race, color, religion, national origins, age, disability, or genetic information.” That conduct “may include, but is not limited to offensive jokes, slurs, epithets or name calling, physical assaults or threats, intimidation, ridicule or mockery, insults or put downs, offensive objects or pictures and interference with work performance.” CRT certainly can involve “slurs, epithets or name calling,” as well as “ridicule or mockery, insults or put downs.”
EEOC cautions against making petty slights, annoyances, or isolated incidents illegal, but calling out one racial group as privileged or fragile in official training sessions or institutional statements surely does create a work environment that is “intimidating, hostile or offensive to reasonable people.” It is impossible to have a civil fact-based discussion about race when the discussion is centered on stereotyping people on the basis of race.
Friday, October 23, 2020
It’s hard to believe that the US will have an election in less than two weeks. Three years ago, a month after President Trump took office, I posted about CEOs commenting on his executive order barring people from certain countries from entering the United States. Some branded the executive order a “Muslim travel ban” and others questioned whether the CEOs should have entered into the political fray at all. Some opined that speaking out on these issues detracted from the CEOs’ mission of maximizing shareholder value. But I saw it as a business decision - - these CEOs, particularly in the tech sector, depended on the skills and expertise of foreign workers.
That was 2017. In 2018, Larry Fink, CEO of BlackRock, told the largest companies in the world that “to prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society…Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders.” Fink’s annual letter to CEOs carries weight; BlackRock had almost six trillion dollars in assets under management in 2018, and when Fink talks, Wall Street listens. Perhaps emboldened by the BlackRock letter, one year later, 181 CEOs signed on to the Business Roundtable's Statement on the Purpose of a Corporation, which “modernized” its position on the shareholder maximization norm. The BRT CEOs promised to invest in employees, deal ethically and fairly with suppliers, and embrace sustainable business practices. Many observers, however, believed that the Business Roundtable statement was all talk and no action. To see how some of the signatories have done on their commitments as of last week, see here.
Then came 2020, a year like no other. The United States is now facing a global pandemic, mass unemployment, a climate change crisis, social unrest, and of course an election. During the Summer of 2020, several CEOs made public statements on behalf of themselves and their companies about racial unrest, with some going as far as to proclaim, “Black Lives Matter.” I questioned these motives in a post I called “"Wokewashing and the Board." While I admired companies that made a sincere public statement about racial justice and had a real commitment to look inward, I was skeptical about firms that merely made statements for publicity points. I wondered, in that post, about companies rushing to implement diversity training, retain consultants, and appoint board members to either curry favor with the public or avoid the shareholder derivative suits facing Oracle, Facebook, and Qualcomm. How well had they thought it out? Meanwhile, I noted that my colleagues who have conducted diversity training and employee engagement projects for years were so busy that they were farming out work to each other. Now the phones aren’t ringing as much, and when they are ringing, it’s often to cancel or postpone training.
Why? Last month, President Trump issued the Executive Order on Combatting Race and Sex Stereotyping. As the President explained:
today . . . many people are pushing a different vision of America that is grounded in hierarchies based on collective social and political identities rather than in the inherent and equal dignity of every person as an individual. This ideology is rooted in the pernicious and false belief that America is an irredeemably racist and sexist country; that some people, simply on account of their race or sex, are oppressors; and that racial and sexual identities are more important than our common status as human beings and Americans ... Therefore, it shall be the policy of the United States not to promote race or sex stereotyping or scapegoating in the Federal workforce or in the Uniformed Services, and not to allow grant funds to be used for these purposes. In addition, Federal contractors will not be permitted to inculcate such views in their employees.
The Order then provides a hotline process for employees to raise concerns about their training. Whether you agree with the statements in the Order or not -- and I recommend that you read it -- it had a huge and immediate effect. The federal government is the largest procurer of goods and services in the world. This Order applies to federal contractors and subcontractors. Some of those same companies have mandates from state law to actually conduct training on sexual harassment. Often companies need to show proof of policies and training to mount an affirmative defense to discrimination claims. More important, while reasonable people can disagree about the types and content of diversity training, there is no doubt that employees often need training on how to deal with each other respectfully in the workplace. (For a thought-provoking take on a board’s duty to monitor diversity training by co-blogger Stefan Padfield, click here.)
Perhaps because of the federal government’s buying power, the U.S. Chamber of Commerce felt compelled to act. On October 15th, the Chamber and 150 organizations wrote a letter to the President stating:
As currently written, we believe the E.O. will create confusion and uncertainty, lead to non-meritorious investigations, and hinder the ability of employers to implement critical programs to promote diversity and combat discrimination in the workplace. We urge you to withdraw the Executive Order and work with the business and nonprofit communities on an approach that would support appropriate workplace training programs ... there is a great deal of subjectivity around how certain content would be perceived by different individuals. For example, the definition of “divisive concepts” creates many gray areas and will likely result in multiple different interpretations. Because the ultimate threat of debarment is a possible consequence, we have heard from some companies that they are suspending all D&I training. This outcome is contrary to the E.O.’s stated purpose, but an understandable reaction given companies’ lack of clear guidance. Thus, the E.O. is already having a broadly chilling effect on legitimate and valuable D&I training companies use to foster inclusive workplaces, help with talent recruitment, and remain competitive in a country with a wide range of different cultures. … Such an approach effectively creates two sets of rules, one for those companies that do business with the government and another for those that do not. Federal contractors should be left to manage their workforces and workplaces with a minimum amount of interference so long as they are compliant with the law.
It’s rare for the Chamber to make such a statement, but it was bold and appropriate. Many of the Business Roundtable signatories are also members of the U.S. Chamber, and on the same day, the BRT issued its own statement committing to programs to advance racial equity and justice. BRT Chair and WalMart CEO Doug McMillon observed, “the racial inequities that exist for many Black Americans and people of color are real and deeply rooted . . These longstanding systemic challenges have too often prevented access to the benefits of economic growth and mobility for too many, and a broad and diverse group of Americans is demanding change. It is our employees, customers and communities who are calling for change, and we are listening – and most importantly – we are taking action.” Now that's a stakeholder maximization statement if I ever heard one.
Those who thought that some CEOs went too far in protesting the Muslim ban, may be even more shocked by the BRT’s statements about the police. The BRT also has a subcommittee to address racial justice issues and noted that “For Business Roundtable CEOs, this agenda is an important step in addressing barriers to equity and justice . . . This summer we took on the urgent need for policing reform. We called on Congress to adopt higher federal standards for policing, to track whether police departments and officers have histories of misconduct, and to adopt measures to hold abusive officers accountable. Now, with announcement of this broader agenda, CEOs are supporting policies and undertaking initiatives to address several other systems that contribute to large and growing disparities.”
Now that stakeholders have seen so many of these social statements, they have asked for more. Last week, a group of executives from the Leadership Now Project issued a statement supporting free and fair elections. However, as Bennett Freeman, former Calvert executive and Clinton cabinet member noted, no Fortune 500 CEOs have signed on to that statement. Yesterday, the Interfaith Center on Corporate Responsibility (ICCR) sent a letter to 200 CEOs, including some members of the BRT asking for their support. ICCR asked that they endorse:
- Active support for free and fair elections
- A call for a thorough and complete counting of all ballots
- A call for all states to ensure a fair election
- A condemnation of any tactics that could be construed as voter intimidation
- Assurance that, should the incumbent Administration lose the election, there will be a peaceful transfer of power
- Ensure that lobbying activities and political donations support the above
Is this a pipe dream? Do CEOs really want to stick their necks out in a tacit criticism of the current president’s equivocal statements about his post-election plans? Now that JPMorgan Chase CEO Jamie Dimon has spoken about the importance of respect for the democratic process and the peaceful transfer of power, perhaps more executives will make public statements. But should they? On the one hand, the markets need stability. Perhaps Dimon was actually really focused on shareholder maximization after all. Nonetheless, Freeman and others have called for a Twitter campaign to urge more CEOs to speak out. My next post will be up on the Friday after the election and I’ll report back about the success of the hashtag activism effort. In the meantime, stay tuned and stay safe.
October 23, 2020 in Contracts, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Employment Law, Ethics, Financial Markets, Human Rights, Legislation, Management, Marcia Narine Weldon, Nonprofits, Stefan J. Padfield | Permalink | Comments (1)
Monday, October 19, 2020
Lots of virtual events that should be of interest to our readers, including the "Showcase Discussion" on Thursday 11/12 from 11:00 a.m. – 12:15 p.m.: A Discussion with Professors Robert George and Cornel West on Freedom of Speech, Freedom of Thought, the Black Lives Matter Movement, and the Cancel Culture. You can find the full schedule and register here.
I have posted an essay over at Law & Liberty (here) that uses the Marchand case as a jumping off point for inquiring into a duty to monitor diversity training. The essay is an early summary of an on-going project. Comments are welcome.
Wednesday, October 14, 2020
Roe & Shapira on the stories we tell ourselves to insulate corporate executives from stock-market accountability.
Mark Roe & Roy Shapira have posted The Power of the Narrative in Corporate Lawmaking on SSRN (here). Here is the abstract:
The notion of stock-market-driven short-termism relentlessly whittling away at the American economy’s foundations is widely accepted and highly salient. Presidential candidates state as much. Senators introduce bills assuming as much. Corporate interests argue as much to the Securities and Exchange Commission and the corporate law courts. Yet the academic evidence as to the problem’s severity is no more than mixed. What explains this gap between widespread belief and weak evidence?
This Article explores the role of narrative power. Some ideas are better at being popular than others. The concept of pernicious stock market short-termism has three strong qualities that make its narrative power formidable: (1) connotation — the words themselves tell us what is good (reliable long-term commitment) and what is not (unreliable short-termism); (2) category confusion — disparate types of corporate misbehavior, such as environmental degradation and employee mistreatment, are mislabeled as being truly and primarily short-termism phenomena emanating from truncated corporate time horizons (when they in fact emanate from other misalignments), thereby making us view short-termism as even more rampant and pernicious than it is; and (3) confirmation — the idea is regularly repeated, because it is easy to communicate, and often boosted by powerful agenda-setters who benefit from its repetition.
The Article then highlights the real-world implications of narrative power — powerful narratives can be more certain than the underlying evidence, thereby leading policymakers astray. For example, a favorite remedy for stock-market-driven short-termism is to insulate executives from stock market pressure. If lawmakers believe that short-termism is a primary cause of environmental degradation, anemic research and development, employee mistreatment, and financial crises — as many do — then they are likely to focus on further insulating corporate executives from stock-market accountability. Doing so may, however, do little to alleviate the underlying problems, which would be better handled by, say, stronger environmental regulation and more astute financial regulation. Powerful narratives can drive out good policymaking.
Monday, October 5, 2020
The fourth annual Business Law Prof Blog symposium, Connecting the Threads, is happening, despite the pandemic. We are proceeding in a virtual format, hosted on Zoom on Friday, October 16. More information is available here.
The line-up includes an impressive majority of our bloggers speaking on a wide range of topics from shareholder proposals to social enterprise, opting out of partnership, and much more. Most papers will have a faculty and student discussant. My submission, “Business Law and Lawyering in the Wake of COVID-19,” is coauthored with two students and carries one hour of Tennessee ethics credit. While I wish we could host everyone in person in Knoxville, it always is an amazing day when we all get together. I look forward to learning more about what everyone is working on and hearing what everyone has to say.
Tuesday, September 1, 2020
Sergio Gramitto, co-author (with Lynn Stout and Tamara Belinfanti) of Citizen Capitalism: How a Universal Fund Can Provide Influence and Income to All just published Artificial Agents in Corporate Boardrooms in the Cornell Law Review. Here is the abstract:
Thousands of years ago, Roman businessmen often ran joint businesses through commonly owned, highly intelligent slaves. Roman slaves did not have full legal capacity and were considered property of their co-owners. Now business corporations are looking to delegate decision-making to uberintelligent machines through the use of artificial intelligence in boardrooms. Artificial intelligence in boardrooms could assist, integrate, or even replace human directors. However, the concept of using artificial intelligence in boardrooms is largely unexplored and raises several issues. This Article sheds light on legal and policy challenges concerning artificial agents in boardrooms. The arguments revolve around two fundamental questions: (1) what role can artificial intelligence play in boardrooms? and (2) what ramifications would the deployment of artificial agents in boardrooms entail?
Friday, August 14, 2020
As an academic and consultant on environmental, social, and governance (ESG) matters, I’ve used a lot of loaded terms -- greenwashing, where companies tout an environmentally friendly record but act otherwise; pinkwashing, where companies commoditize breast cancer awareness or LGBTQ issues; and bluewashing, where companies rally around UN corporate social responsibility initiatives such as the UN Global Compact.
In light of recent events, I’ve added a new term to my arsenal—wokewashing. Wokewashing occurs when a company attempts to show solidarity with certain causes in order to gain public favor. Wokewashing isn’t a new term. It’s been around for years, but it gained more mainstream traction last year when Unilever’s CEO warned that companies were eroding public trust and industry credibility, stating:
Woke-washing is beginning to infect our industry. It’s polluting purpose. It’s putting in peril the very thing which offers us the opportunity to help tackle many of the world’s issues. What’s more, it threatens to further destroy trust in our industry, when it’s already in short supply… There are too many examples of brands undermining purposeful marketing by launching campaigns which aren’t backing up what their brand says with what their brand does. Purpose-led brand communications is not just a matter of ‘make them cry, make them buy’. It’s about action in the world.
The Black Lives Matter and anti-racism movements have brought wokewashing front and center again. My colleague Stefan Padfield has written about the need for heightened scrutiny of politicized decisions and corporate responses to the BLM movement here, here, and here, and Ann Lipton has added to the discussion here. How does a board decide what to do when faced with pressure from stakeholders? How much is too much and how little is too little?
The students in my summer Regulatory Compliance, Corporate Governance, and Sustainability course were torn when they acted as board members deciding whether to make a public statement on Black Lives Matter and the murder of George Floyd. As fiduciaries of a consumer goods company, the “board members” felt that they had to say “something,” but in the days before class they had seen the explosion of current and former employees exposing companies with strong social justice messaging by pointing to hypocrisy in their treatment of employees and stakeholders. They had witnessed the controversy over changing the name of the Redskins based on pressure from FedEx and other sponsors (and not the Native Americans and others who had asked for the change for years). They had heard about the name change of popular syrup, Aunt Jemima. I intentionally didn’t force my students to draft a statement. They merely had to decide whether to speak at all, and this was difficult when looking at the external realities. Most of the students voted to make some sort of statement even as every day on social media, another “woke” company had to defend itself in the court of public opinion. Others, like Nike, have received praise for taking a strong stand in the face of public pressure long before it was cool and profitable to be “woke.”
Now it’s time for companies to defend themselves in actual court (assuming plaintiffs can get past various procedural hurdles). Notwithstanding Facebook and Oracle’s Delaware forum selection bylaws, the same lawyers who filed the shareholder derivative action against Google after its extraordinary sexual harassment settlement have filed shareholder derivative suits in California against Facebook, Oracle, and Qualcomm. Among other things, these suits generally allege breach of the Caremark duty, false statements in proxy materials purporting to have a commitment to diversity, breach of fiduciary duty relating to a diverse slate of candidates for board positions, and unjust enrichment. Plaintiffs have labeled these cases civil rights suits, targeting Facebook for allowing hate speech and discriminatory advertising, Qualcomm for underpaying women and minorities by $400 million, and Oracle for having no Black board members or executives. Oracle also faces a separate class action lawsuit based on unequal pay and gender.
Why these companies? According to the complaints, “[i]f Oracle simply disclosed that it does not want any Black individuals on its Board, it would be racist but honest…” and “[a]t Facebook, apparently Zuckerberg wants Blacks to be seen but not heard.” Counsel Bottini explained, “when you actually go back and look at these proxy statements and what they’ve filed with the SEC, they’re actually lying to shareholders.”
I’m not going to discuss the merits of these cases. Instead, for great analysis, please see here written by attorneys at my old law firm Cleary Gottlieb. I’ll do some actual legal analysis during my CLE presentation at the University of Tennessee Transactions conference on October 16th.
Instead, I’m going to make this a little more personal. I’m used to being the only Black person and definitely the only Black woman in the room. It’s happened in school, at work, on academic panels, and in organizations. When I testified before Congress on a provision of Dodd-Frank, a Black Congressman who grilled me mercilessly during my testimony came up to me afterwards to tell me how rare it was to see a Black woman testify about anything, much less corporate issues. He expressed his pride. For these reasons, as a Black woman in the corporate world, I’m conflicted about these lawsuits. Do corporations need to do more? Absolutely. Is litigation the right mechanism? I don’t know.
What will actually change? Whether or not these cases ever get past motions to dismiss, the defendant companies are likely to take some action. They will add the obligatory Black board members and executives. They will donate to various “woke” causes. They will hire diversity consultants. Indeed, many of my colleagues who have done diversity, equity, and inclusion work for years are busier than they have ever been with speaking gigs and training engagements. But what will actually change in the long term for Black employees, consumers, suppliers, and communities?
When a person is hired or appointed as the “token,” especially after a lawsuit, colleagues often believe that the person is under or unqualified. The new hire or appointee starts under a cloud of suspicion and sometimes resentment. Many eventually resign or get pushed out. Ironically, I personally know several diversity officers who have left their positions with prestigious companies because they were hired as window dressing. Although I don’t know Morgan Stanley’s first Chief Diversity Officer, Marilyn Booker, her story is familiar to me, and she has now filed suit against her own company alleging racial bias.
So I’ll keep an eye on what these defendants and other companies do. Actions speak louder than words. I don’t think that shareholder derivative suits are necessarily the answer, but at least they may prompt more companies to have meaningful conversations that go beyond hashtag activism.
August 14, 2020 in Ann Lipton, Compliance, Consulting, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Delaware, Financial Markets, Management, Marcia Narine Weldon, Shareholders, Stefan J. Padfield | Permalink | Comments (0)
Tuesday, August 4, 2020
Cynthia Dahl: "any corporate lawyer with technology clients must understand standard essential patents"
Cynthia Dahl has posted "When Standards Collide with Intellectual Property: Teaching About Standard Setting Organizations, Technology, and Microsoft v. Motorola" on SSRN (here). The paper provides "a Teaching Guide to a plug and play module designed to easily allow professors to insert teaching about SEPs into their IP or other commercial courses." I have provided the abstract below.
Technology lawyers, intellectual property (IP) lawyers, or even any corporate lawyer with technology clients must understand standard essential patents (SEPs) and how their licensing works to effectively counsel their clients. Whether the client’s technology is adopted into a voluntary standard or not may be the most important factor in determining whether the company succeeds or is left behind in the market. Yet even though understanding SEPs is critical to a technology or IP practice, voluntary standards and specifically SEPs are generally not taught in law school.
This article aims to address this deficiency and create more practice-ready law school graduates. The article is a Teaching Guide to a plug and play module designed to easily allow professors to insert teaching about SEPs into their IP or other commercial courses. It is particularly designed for professors who are unfamiliar with (or even intimidated by) the technical subject matter of SEPs. The Teaching Guide unlocks a number of helpful resources, available at the Penn Program on Regulation website (direct link on page 4). The resources together encompass a complete plan for the professor, using the recent seminal case of Microsoft v. Motorola - where licensing some SEPs went horribly wrong - to illustrate themes. Besides the Teaching Guide, the resources include a business school-style Case Study for students to read on the Microsoft case, recorded video interviews with the lead counsel for each party, the federal court judge for the case and his clerk, and other supporting materials. The Teaching Guide provides contextual background for the professor to explain SEPs and particularly this case, suggests a class discussion outline, lists discussion points and proposed “answers,” includes prompts to spark public policy debates, and offers an extensive resources library for further study, including cases as well as articles. It even helps the professor accommodate longer or shorter sessions, calibrate to more or less outgoing classes, and adapt the module for use in many different kinds of classes, including IP classes, but also classes in remedies, contracts, federal courts and licensing, among others. By offering guidance but much flexibility, the Teaching Guide aspires to make incorporating this critical SEP subject matter into the law school curriculum straightforward and accessible.
Monday, July 27, 2020
Herbert Hovenkamp has posted "Antitrust and Platform Monopoly" on SSRN. The abstract is below. I was particularly struck by: "The history of antitrust law is replete with firms that are organized as single entities under corporate law, but that function as competitors and [are] treated that way by antitrust law."
This article first considers an often-discussed question about large internet platforms that deal directly with consumers: Are they “winner take all,” or natural monopoly, firms? That question is complex and does not produce the same answer for every platform. The closer one looks at digital platforms they less they seem to be winner-take-all. As a result, we can assume that competition can be made to work in most of them.
Second, assuming that an antitrust violation is found, what should be the appropriate remedy? Breaking up large firms subject to extensive scale economies or positive network effects is generally thought to be unwise. The resulting entities will be unable to behave competitively. Inevitably, they will either merge or collude, or else one will drive the others out of business. Even if a platform is not a natural monopoly but does experience significant economies of scale in production or consumption, a breakup can be socially costly. In the past, structural relief of this type has led to higher prices or business firm failure. If breakup is not the answer, then what are the best antitrust remedies? One possibility is to break up ownership and management rather than assets. The history of antitrust law is replete with firms that are organized as single entities under corporate law, but that function as competitors and treated that way by antitrust law. This permits productive assets to remain intact, but forces decision makers to behave competitively.
Finally, this paper takes a look at the problem of platform acquisition of nascent firms, where the biggest threat is not from horizontal mergers but rather from acquisitions of complements or differentiated technologies. For these, the tools we currently use in merger law are poorly suited. Here I offer some suggestions.
Saturday, July 25, 2020
Jeffrey Lipshaw has posted "The False Dichotomy of Corporate Governance Platitudes" on SSRN. I have set forth the abstract below. I had the pleasure of reading an early draft, and I highly recommend the paper. Among other things, Jeff brings a level of practical experience to the topic ("more than a quarter century as a real world corporate lawyer and senior officer of a public corporation") that makes his views a must-read. Having said that, my own view is that the “shareholder vs. stakeholder” debate is meaningful even if it only really matters in "idiosyncratic cases in which corporate leaders have managed to be either bullheaded or ill-advised."
In 2019, the Business Roundtable amended its principles of corporate governance, deleting references to the primary purpose of the corporation being to serve the shareholders. In doing so, it renewed the “shareholder vs. stakeholder” debate among academic theorists and politicians. The thesis here is that the zero-sum positions of the contending positions are a false dichotomy, failing to capture the complexity of the corporate management game as it is actually played. Sweeping and absolutist statements of the primary purpose of the corporation are based on arid thought experiments and idiosyncratic cases in which corporate leaders have managed to be either bullheaded or ill-advised. In the real world, management regularly commits itself to multiple competing constituencies, including the shareholders.
There are three arguments. The first is from reality, borne out by a survey of pre-amendment CEO annual report letters to shareholders (2017) and post-amendment responses (2020) to the COVID-19 pandemic. The second is from economics. Neo-classical economic theory supporting the doctrine is misplaced; transaction cost analysis under the New Institution Economics does a far better job of explaining the primacy of wide corporate discretion in allocating surplus among the corporate constituencies. The third is from jurisprudence. Doctrinal dicta like “corporations exist primary to maximize shareholder wealth” are not so much right or wrong as meaningless. Rather, the business judgment rule, which justifies almost any allocation of corporate surplus having an articulable connection to the best interest of the enterprise, subsumes all other platitudes posing as rules of law.
Tuesday, July 21, 2020
One of my Westlaw alerts contained a link to a recently published article I thought BLPB readers might find of interest. Here is the abstract:
The reigning antitrust paradigm has turned the notion of competition into a talisman, even as antitrust law in reality has functioned as a sorting mechanism to elevate one species of economic coordination and undermine others. Thus, the ideal state idea of competition and its companion, allocative efficiency, have been deployed to attack disfavored forms of economic coordination, both within antitrust and beyond. These include horizontal coordination beyond firm boundaries, democratic market coordination, and labor unions. Meanwhile, a very specific exception to the competitive order has been written into the law for one type of coordination, and one type only: that embodied by the traditionally organized, top-down business firm.
This Article traces the appearance of this legal preference and reveals its logical content. It also explains why antitrust's firm exemption is a specific policy choice that cannot be derived from corporate law, contracts, or property. Indeed, because antitrust has effectively established a state monopoly on the allocation of coordination rights, we ought to view coordination rights as a public resource, to be allocated and regulated in the public interest rather than for the pursuit of only private ends. Intrafirm coordination is conventionally viewed as entirely private, buoyed up by the contractarian theory of the firm. But the contractarian view of the firm cannot explain antitrust's firm exemption and is inconsistent with the conventional justifications for it. This Article also briefly sketches policy choices that flow from the recognition that coordination rights are a public resource, focusing upon expanding the right to engage in horizontal coordination beyond firm boundaries.
Sanjukta Paul, Antitrust As Allocator of Coordination Rights, 67 UCLA L. Rev. 378 (2020). A version of the paper is available via SSRN here.
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.