December 2013

There’s an interesting slide show available on Forbes, 10 Terms You Must Know Before Raising Venture Capital.

It’s interesting, but it overlooks the most important thing entrepreneurs should know before raising venture capital: the need to hire an experienced lawyer. Learning the terminology won’t substitute for representation by someone who knows what he or she is doing.

Behavioral economist Dan Ariely (Duke) spoke on Belmont’s campus yesterday on his book Predictably Irrational.  His talk was similar to his TED talk from a few years ago (with a few additions), and I thought some of our readers might find it interesting.  At the very least, he is an entertaining speaker, and I do think his underlying research (mentioned in more detail in the book) might be useful for those of us interested in business law.  Predictably Irrational is an easy read; I read all 325 pages last night and this morning.  The book was published the same year as Nudge and is similar in many respects.  A colleague of mine prefers Professor Ariely’s more recent book, The (Honest) Truth About Dishonesty, which I have not read yet.    

Yesterday was the last day of a fantastic three-day conference at the UN in Geneva on business and human rights, and I will blog about it next week after I fully absorb all that I have heard. As I type this (Wednesday), I am sitting in a session on corporate governance and the UN Guiding Principles on Business and Human Rights moderated by a representative from Rio Tinto. The multi-stakeholder panel consists of representatives from Caux Roundtable Japan  (focused on moral capitalism), the Norwegian National Contact Point (the governmental entity responsible for responding to claims between aggrieved parties and companies), Aviva Public Limited (insurance, pensions UK), Cividep (a civil society organization in India), and Petrobas (energy company in Brazil).

If you want to learn more about the conference, I have been tweeting for the past two days at @mlnarine, and you can follow the others who have been posting at #UNForumWatch #unforumwatch or #businessforum. 1700 businesspeople, lawyers, academics, NGOs, state delegates and members of civil society are here.  Economist Joseph Stiglitz presented a fiery keynote address. Some of the biggest names in business such as Microsoft, Unilever, Total, Vale and others have represented corporate interests.  

Depending on where you…

After meeting Colin Mayer (Oxford) and hearing him present at Vanderbilt’s 2013 Law and Business Conference, I purchased and read his recent book, Firm Commitment: Why the Corporation is Failing Us and How to Restore Trust in it.  The book is organized in three parts: (1) how the corporation is failing us; (2) why it is happening; (3) what we should do about it.  While the first two parts contain some helpful background and interesting case studies, I found the third part the most useful.  In the third part, Professor Mayer suggests:

These three straightforward adaptations of current arrangements – establishing corporate values, permitting the creation of a board of trustees to act as their custodians, and allowing for time dependent shares – together solve the fundamental problems of breaches of trust in relation to current and future generations. (pg. 247) 

In discussing corporate values, Professor Mayer writes:

Corporate social responsibility was rightly dismissed as empty rhetoric and jettisoned when recession forced a return to more traditional shareholder value.  Why should I trust an organization that is owned and controlled by anonymous, opportunistic, self-interested wealth seekers?  Without commitment, there is no reason why there should be any trust

…

Earlier this week the SEC released its 2014 rulemaking agenda and excluded from the list is a proposal for public companies to disclose political spending.  In 2011, the Committee on Disclosure of Corporate Political Spending, comprised of 10 leading corporate and securities academics, petitioned the SEC to adopt a political spending disclosure rule.  This petition has received a historic number of comments—over 640,000—which can be found here.

The Washington Post reported that after the petition was filed,

A groundswell of support followed, with retail investors, union pension funds and elected officials at the state and federal levels writing to the agency in favor of such a requirement. The idea attracted more than 600,000 mostly favorable written comments from the public — a record response for the agency.

Omitting corporate political spending from the 2014 agenda has received steep criticism from the NYT editorial board in an opinion piece written yesterday declaring the decision unwise “even though the case for disclosure is undeniable.” Proponents of corporate political spending disclosure like Public Citizen are “appalled” and “shocked” by the SEC’s decision, while the Chamber of Commerce declares the SEC’s omission a coup that appropriately avoids…

Here in West Virginia, it’s exam time for our law students.  For my Business Organizations students, tomorrow is the day.  For students getting ready to take exams, and for any lawyers out there who might need a refresher, the Kentucky Supreme Court provides a good reminder that LLCs are separate from their owners, even if there is only one owner.  

Here’s a basic rundown of the case, Turner v. Andrew, 2011-SC-000614-DG, 2013 WL 6134372 (Ky. Nov. 21, 2013) (available here):   In 2007, an employee of M&W Milling was driving a feed-truck owned by his employer.  A movable auger mounted on the feed-truck swung into oncoming traffic and struck and seriously damaged a dump truck owned by Billy Andrew, the sole member of  Billy Andrew, Jr. Trucking, LLC, which owned the damaged truck.  Andrew filed suit against the employee and M & W Milling  claiming personal property damage to the truck and the loss of income derived from the use of damaged truck.  Notably, the LLC was not a named plaintiff in the lawsuit.

Hey issue spotters: check out the last line of the prior paragraph. (Also: a bit of an odd twist is the Andrew chose not to respond to discovery requests, though…

For a long time, law, business, and economics professors have used “widgets” in their hypotheticals and examples. A widget is a purely hypothetical manufactured product; there’s no such thing.

The advantage of using widgets instead of real products is that the product and the market may have whatever characteristics the professor attributes to them. The professor doesn’t have to fit the example to any real-world attributes or worry that some student will say, “That’s not how the market for widgets actually works.”

I’m not sure where the term came from, but it’s been used for a long time. The Oxford English Dictionary includes a reference from 1931. “Widget” is commonly used; in a recent Westlaw search, I found 3,569 law review articles using the term.

Now, of course, a widget is a real thing. A widget is software used on cellphones, tablets, and computers. When a professor today says “widget,” students don’t automatically think of a manufactured article; they think of software—a real product with real attributes.

Given that real-world association, I think it’s time to stop using the term “widget” to describe a hypothetical manufactured object. (The alternative, for law professors to actually know enough about real businesses and…

The increase in institutional ownership of corporate stock has led to questions about the role of financial intermediaries in the corporate governance process. This post focuses on the issues associated with the so-called “separation of ownership from ownership,” arising from the growth of three types of institutional investors, pensions, mutual funds, and hedge funds.

Originally, the anti-takeover law passed its court challenges because the judges accepted faulty data that showed investors could acquire at least 85 percent of the target corporation and satisfy the Williams Act, Subramanian said. But none of the cases used to support the anti-takeover law actually allowed hostile suitors to acquire a controlling 85 percent of a target company, he said, and plaintiffs using research from new studies would be able to convince a judge that the statute is unconstitutionally restrictive.

For me, the financial crisis was an eye-opening moment. I’ve long believed in free market economics and believed that the Church would do a lot of good…