April 2015

Regular readers know that I have blogged repeatedly about my opposition to the US Dodd-Frank conflict minerals rule, which aims to stop the flow of funds to rebels in the Democratic Republic of Congo. Briefly, the US law does not prohibit the use of conflict minerals, but instead requires certain companies to obtain an independent private sector third-party audit of reports of the facilities used to process the conflict minerals; conduct a reasonable country of origin inquiry; and describe the steps the company used to mitigate the risk, in order to improve its due diligence process. The business world and SEC are awaiting a First Amendment ruling from the DC Circuit Court of Appeals on the “name and shame” portion of the law, which requires companies to indicate whether their products are DRC Conflict Free.” I have argued that it is a well-intentioned but likely ineffective corporate governance disclosure that depends on consumers to pressure corporations to change their behavior.

The proposed EU regulation establishes a voluntary process through which importers of certain minerals into the EU self-certify that they do not contribute to financing in “conflict-affected” or “high risk areas.” Unlike Dodd-Frank, it is not limited to Congo.

“Laws, like sausages, cease to inspire respect in proportion as we know how they are made.” — John Godfrey Saxe

This is a brief legislative update on the progress of Tennessee’s current bills, introduced in the house (HB0767–amendment not yet filed) and senate (SB0972), to institute the benefit corporation as a distinct for-profit business corporation in the State of Tennessee.  The links provided are to the current versions of the bill, which reflect a significant amendment, as described below.

As you may know from my prior posts (including here and here), I am a benefit corporation skeptic.  Please read those posts for details.  And within the Tennessee Bar Association (TBA) Business Law Section Executive Council and Business Entity Study Committee (our state bar committee that vets changes to Tennessee business associations and other business laws), I am not alone.  We have rejected bills of this kind several times over the past few years when the matter has been put to us for review by the TBA.  This year was no different.  We opposed the benefit corporation bills that were introduced in Tennessee this year, too.

What was different this time around, was that the folks at B Lab had gotten the attention of the Chamber of Commerce and Industry in Tennessee, who appear(ed) to have some misunderstandings about the current state of Tennessee corporate governance law and came to push for adoption of the bill in committee in both houses of the legislature. Given that we were late to the party and that the members of our TBA Council and Committee are very busy lawyers, our efforts to re-educate members of the relevant committees were not as effective as we would have liked.  But we ultimately were afforded two weeks to attempt to write an amended bill–one that better reflected Tennessee law and norms.

Now, any of you who have worked on a project like this before know that two weeks is not enough time to do a professionally responsible job in spotting and tracking down all of the issues that the introduction of a new business form routinely and naturally raises.  Heck.  We couldn’t even get all the constituents around the table that we would want around the table to debate and review the legislation in two weeks!  [It seems hardest to find a plaintiff’s bar lawyer to sit in with us, but we found a great one for our recent work on the Tennessee Business Corporation Act (TBCA).]  Our requests for more time to work on the proposed legislation were, however, rejected.

So, we set out to make a better sausage . . . .

In an earlier BLPB post, I wrote about President Obama’s call for greater regulation of retirement investment brokers.  The proposed reforms focused on elevating the current standard that brokers’ investment advice must be “suitable” to something closer to an enforceable fiduciary duty to counter financial incentives for some brokers to channel investors into higher-fee investment options.  

Yesterday, the U.S. Department of Labor released new proposed rules (Proposed Rule), which would classify brokers as “fiduciaries” under ERISA but allow them to continue to receive brokerage commissions and fees (a practice that would otherwise violate ERISA conflict-of-interest rules) so long as the brokers and customers enter into a  “Best Interest Contract”.

The exemption proposed in this notice (“the Best Interest Contract Exemption”) was developed to promote the provision of investment advice that is in the best interest of retail investors such as plan participants and beneficiaries, IRA owners, and small plans.  Proposed Rule at 4.

In 1975, the DOL issued rules defining investment advice for purposes of triggering fiduciary status under ERISA and the attended duties and conflict-of-interest prohibitions.  That 1975 definition is still in use, is narrow, and excludes much of paid-for investment advice, particularly that…

Energy is big business, and there is evidence that renewables are starting to play along with the more traditional big-time players.  The Economist recently published the article, Renewable Energy: Not a Toy, which reports that renewable energy installations are continuing to increase even as subsidies fall because prices are continuing to drop. The energy sector is likely to continue to diversify, in part because diversification is good for resilience and for financial management.  The Economist article notes:

Nearly half of last year’s investment was in developing countries, notably China, whose energy concerns have more to do with the near term than with future global warming. It worries about energy security, and it wants to clean up its cities’ air, made filthy partly by coal-burning power plants.

Sometimes lost in the discussion about cleaner energy is that climate concerns are not the only reasons to consider other resources. Cleaner air, more stable prices, and locally sourced energy can all be good reasons to consider renewable energy sources along side more traditional resources. Prices, are the big one, of course, but when it’s close, other considerations can more easily be part of the analysis.  It appears we’re approaching that point…

I may be hopelessly old-fashioned, but I believe academic scholarship demands evenhanded objectivity. An academic should present all sides of an issue fairly, weigh those arguments, and reach a conclusion that, to the extent humanly possible, is not merely a reflection of the academic’s predispositions. One must openly acknowledge the weaknesses of one’s conclusions as well as the strengths of the arguments against one’s conclusions.

An advocate also needs to deal with the opponents’ arguments, but the advocate begins with a pre-determined conclusion. In writing a brief, a lawyer is trying to convince the court to rule in favor of his or her client, not to weigh both sides evenhandedly and objectively.

Many faculty candidates are practicing lawyers or work for organizations that have a particular policy position. They’re advocates. In my experience, some candidates find it difficult to make the transition from advocacy to academic analysis, and their job talks (and their early scholarship) often reflect that.

Here’s a question to test that: “Make the strongest argument you can against your position.”

If a candidate can do that in a way that would satisfy those on the other side of the issue, that candidate is probably ready for the…

In Dura Pharmaceuticals, Inc. v. Broudo, 544 US 336 (2005), the Supreme Court held that to bring a fraud-on-the-market action under Section 10(b), shareholders would have to plead and prove the element of “loss causation,” namely, that disclosure of the fraud caused the company’s stock price to drop, resulting in plaintiffs’ losses.

Since Dura was decided, there has been concern that companies might try to avoid liability by strategically disclosing information in a manner that would make it more difficult for plaintiffs to establish stock price effects.

In their new paper, Disclosure Strategies and Shareholder Litigation Risk, Michael Furchtgott and Frank Partnoy take significant steps toward establishing that these fears are well-grounded.

[More under the cut]

From the Faculty Lounge:

——-

This just in:

The Penn State Law Review is conducting an exclusive spring-cycle article review. Any article submitted to this exclusive review between now and April 19th will be evaluated by April 27th. If you have submitted an article to the Penn State Law Review previously, you must resubmit your article for consideration in the exclusive article review.

By submitting your article, you agree to accept an offer for publication, should one be extended. Any articles accepted will be published in Volume 120: Issue 1 or Issue 2 of this review—both of which are slated for publication in summer of 2015.

If you have an article that you would like to submit, please e-mail an attached copy of the article, along with your cv and cover letter, to esg5028@law.psu.edu . Please include “Exclusive Spring 2015 Article Review” in the subject line.

The following comes to us from Lee Epstein, Ethan A.H. Shepley Distinguished University Professor at Washington University in St. Louis.

The 14th annual workshop on Conducting Empirical Legal Scholarship, co-taught by Lee Epstein and Andrew D. Martin, will run from June 15-June 17 at Washington University in St. Louis. The workshop is for law school faculty, lawyers, political science faculty, and graduate students interested in learning about empirical research and how to evaluate empirical work. It provides the formal training necessary to design, conduct, and assess empirical studies, and to use statistical software (Stata) to analyze and manage data.

Participants need no background or knowledge of statistics to enroll in the workshop. Registration is here. For more information, please contact Lee Epstein.

I attended this workshop a few years ago, and thought it was excellent.

As I have previously mentioned, unlike law schools, business schools appear to hire virtually year-round.  While most of the business schools have filled their open positions by this late date, there have been some recently posted positions. 

Bentley University (full-time, non-tenure track) (posted 3/9/15)

Central State University (assistant) (posted 3/5/15)

Lincoln Memorial University (assistant, instructional faculty) (posted 4/1/15)

Quinnipiac University (full-time, non-tenure track) (posted 4/7/15)

Saint Mary’s College of California (full-time, visiting professor) (posted 4/9/15)

Sam Houston State (tenure-track assistant) (posted 5/19/15)

University of Houston-Clear Lake (tenure-track assistant) (posted 2/24/15)

University of Louisiana-Lafayette (assistant professor) (received 4/21/15)

University of Wisconsin – La Crosse (tenure-track assistant) (priority 3/23/15)

University of Wisconsin – Milwaukee (full-time, non-tenure track) (posted 3/19/15)

Western Carolina University (assistant, non-tenure track) (posted 3/6/15)