October 2015

Corporate social responsibility is a perennial topic of interest here at BLPB, and, in particular, the question whether corporations – especially publicly-traded ones – can in fact credibly commit to a non-profit-seeking goal.

Which is why I found this Financial Times column so hilarious.  Lucy Kellaway gathered the “values” statements from 24 different British companies – you know, statements like “We stand for innovation and integrity!” – read them aloud at a conference of the companies’ managers, and asked the managers to identify the statements from their own companies.  Only 5 were able to identify their own company, and in 3 cases, it was because they’d been the ones to draft them in the first place.  The remaining nineteen managers picked the wrong one.

From this, Kellaway concludes that values statements are useless – and she notes that among FTSE100 companies, not having a values-statement is correlated with higher share prices. 

I’d reframe it, though, and say that a values statement – or any corporate declaration of commitment to values – is useless unless it’s backed by real content.  It has to be operationalized in specific terms that are credibly communicated to employees.  The problem with the values…

Posted in CSR

Jill Fisch (Penn) recently posted an essay entitled The Mess at Morgan: Risk, Incentives and Shareholder Empowerment.

The entire essay is worth reading, but I think her argument can be summed up with this quote: 

This essay argues that the effort to employ shareholders as agents of public values and, thereby, to inculcate corporate decisions with an increased public responsibility is misguided. The incorporation of publicness into corporate governance mistakenly assumes that shareholders’ interests are aligned with those of non-shareholder stakeholders. Because this alignment is imperfect, corporate governance is a poor tool for addressing the role of the corporation as a public actor. (pg. 651)

Jill Fisch argues that economic regulation may be a better solution to the problem of protecting the public than shareholder empowerment. (pg. 684).

While I acknowledge the essay’s mentioned limitations on shareholder empowerment, I don’t think economic regulation is the only alternative solution to the problem of protecting public values. As Jill Fisch notes “shareholder empowerment might be defended on the basis that it is less intrusive than direct regulation.” Corporate governance mechanisms other than shareholder empowerment may be both less intrusive and more effective than direct regulation. For example, (non-shareholder) stakeholder empowerment may…

I recently received information about this social enterprise & nonprofit clinical teaching fellowship position at Georgetown University Law Center. My friend, Georgetown law professor Alicia Plerhoples, is the director of the clinic, and the fellowship sounds like an excellent opportunity.

——

Georgetown Law Graduate Clinical Teaching Fellowship

Description of the Clinic 

The Social Enterprise & Nonprofit Law Clinic at Georgetown University Law Center offers pro bono corporate and transactional legal services to social enterprises, nonprofit organizations, and select small businesses headquartered in Washington, D.C. and working locally or internationally. Through the Clinic, law students learn to translate theory into practice by engaging in the supervised practice of law for educational credit. The Clinic’s goals are consistent with Georgetown University’s long tradition of public service. The Clinic’s goals are to:

  • Teach law students the materials, expectations, strategies, and methods of transactional lawyering, as well as an appreciation for how transactional law can be used in the public interest.
  • Represent social enterprises and nonprofit organizations in corporate and transactional legal matters.
  • Facilitate the growth of social enterprise in the D.C. area.

The clinic’s local focus not only allows the Clinic to give back to the community it calls home, but also…

Kent Greenfield, Professor of Law and Dean’s Research Scholar at Boston College Law School, recently posted a provocative piece on the CLS Blue Sky Blog (here) in which he argues, among other things, that progressives have “flipped” from supporting “corporate citizenship” pre-Citizens United, to supporting “shareholder primacy” post-Citizens United.  (Kent has stressed to me that he does not believe this characterization extends to progressive corporate law scholars.) The piece is short, so I recommend you go read it before continuing on to my comments below, because I will simply be taking some short excerpts from his post and providing some responses, which will likely benefit from the reader having reviewed Kent’s post first. As just one disclaimer, Kent’s post is based on his article, “Corporate Citizenship: Goal or Fear?” – and I have not yet read that paper. Also, I consider the following to be very much an in-progress, thinking-out-loud type of project, and thus welcome all comments.

1. In 2010, the Supreme Court decided Citizens United v Federal Election Commission, ruling that corporations had a First Amendment right to spend money from general treasury funds in support of political candidates.

. . . are you sure I qualify?

From a spam email I recently received:

Dear Steve,

On behalf of The International Women’s Leadership Association, it is my distinct pleasure to notify you that, in consideration of your contribution to family career, and community, you have been selected as a woman of outstanding leadership.

I had the honor of being invited to speak at the annual symposium for the Wayne Law Review two weeks ago.  The event, which focused on Corporate Counsel as Gatekeepers, was well organized and attended–and also very stimulating.  Speakers included Tony West as a keynote, a few of us academics, and a bunch of current and former practitioners–prosecutors, in-house counsel, and outside counsel.

My presentation focused on a story that bugs me–a story built on an experience I had in practice.  In the story (which modifies the true facts), an executive flagrantly violates a securities trading compliance plan that I drafted in connection with a subsequent transaction that I worked on for the executive’s firm.  Specifically, the executive informs a friend about the transaction the day before it is announced, believing that the friend will never trade on the information.  The friend trades.  The incident results in a stock exchange and Securities and Exchange Commission (SEC) inquiries.  No enforcement is undertaken against the firm.  However, the executive signs a consent decree with–and pays a cash penalty to–the SEC and, together with the firm, suffers public humiliation via a front-page article in the local newspaper (since the SEC would not agree to forego a press release).  This fact pattern gnaws at me because I wonder whether there is anything more legal counsel can do to prevent an executive from violating a compliance policy to the detriment of himself and the firm . . . .

Earlier this month BLPB editor Ann Lipton wrote about the Delaware Supreme Court opinion in Sanchez regarding director independence (Delaware Supreme Court Discovers the Powers of Friendship).  On the same day as the Del. Sup. Ct. decided Sanchez, it affirmed the dismissal of KKR Financial Holdings shareholders’ challenge to directors’ approval of a buyout.  The transaction was a stock-for-stock merger between KKR & Co. L.P. (“KKR”) and KKR Financial Holdings LLC (“Financial Holdings”). Plaintiffs alleged that the entire fairness standard should apply because KKR was a controlling parent in Financial Holdings.  The controlling parent argument hinged on the facts that:

Financial Holdings’s primary business was financing KKR’s leveraged buyout activities, and instead of having employees manage the company’s day-to-day operations, Financial Holdings was managed by KKR Financial Advisors, an affiliate of KKR, under a contractual management agreement that could only be terminated by Financial Holdings if it paid a termination fee.

Chief Justice Strine, writing an en banc opinion for the Court,  upheld Chancellor Bouchard’s finding that KKR could not be considered a controlling parent where “KKR owned less than 1% of Financial Holdings’s stock, had no right to appoint any directors, and had no contractual right to veto any…

So, my rants about the problem of courts (and others) conflating LLCs and corporations are not new.  Unfortunately for the proper evolution of the law, but good fodder for my posts, I continue to get examples.  We now have a new one that raises the bar a bit.

 A recent case from the United States District Court for the Western District of Pennsylvania continues the trend. The beauty, if one can call it that, of the case is that there are failures to recognize the difference between LLCs and corporations at multiple levels. 

 First, though, let’s recap what LLCs are.  LLCs are limited liability companies, and they are creatures of statute. See, e.g., 6 Del. C. § 18-101, et seq.  As such, they are not corporations, which are creatures of other statutes. Cf., e.g., 8 Del. Code § 101, et. seq. In contrast, LLCs, like corporations and other associations, can be people.  See, e.g.,  Dictionary Act, 1 U.S. Code § 1 (“[The wor[d] ‘person’ . . . include[s] corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals.”).

Back to our newest example, which I think of as a…

This hit my mailbox this morning.  If the report is correct, we’ll know in a few days whether we have a path to unregistered, broad-based securities crowdfunding in the United States.  More as news is reported . . . .

[Additional information:  Based on the link to the SEC’s notice of meeting in Steve Bradford’s comment to this post, it also appears that the SEC is considering amendments to Rules 147 (intrastate offerings) and 504 (limited offerings under Regulation D of up to $1,000,000).]