April 2018

Last week, I blogged blogged about lawsuits against chocolate makers alleging unfair and deceptive trade practices for failure to disclose that the companies may have used child slaves to harvest their products. Today, I want to discuss steps that the Business Law Section of the American Bar Association is taking to provide more transparency in supply chain practices.

In 2014, the ABA House of Delegates adopted Model Principles on Labor Trafficking and Child Labor developed by over 50 judges, in-house counsel, outside counsel, academics, and NGOs. The Model Principles address the UN Guiding Principles on Business and Human Rights and other hard and soft law regimes. At last week’s ABA Business Law Spring Meeting, academics David Snyder and Jennifer Martin presented on human rights issues in supply chains alongside practicing lawyers and in-house executives. Many of them (and several others) had formed a Working Group to Draft Human Rights Protections in Supply Contracts. The Group aims to provide contract clauses that are “legally effective” and “operationally likely.”

As a former Deputy GC for a supply chain management company, I can attest that the ABA’s focus is timely as companies answer questions from customers, regulators, shareholders, and other stakeholders. Human rights…

I tell my students that corporate waste technically may be a mechanism for defeating the business judgment rule in the absence of any other evidence of lack of compliance with fiduciary duty, but – as one Delaware decision put it – it’s really more theoretical than real.  See Steiner v. Meyerson, 1995 Del. Ch. LEXIS 95.  When my students ask for some kind of real world example of waste, I tell them the facts of Fidanque v. American Maracaibo Co., 92 A.2d 311 (Del. Ch. 1952), where a corporation paid “consulting fees” to a 70-year-old former executive who had recently suffered a stroke that left him sufficiently incapacitated to be noticeable during his deposition.

I assumed that case was sui generis, but it turns out history has a way of repeating, this time in the form of Sumner Redstone’s contract with CBS.  As described in a recent opinion by Chancellor Bouchard, plaintiff stockholders of CBS adequately alleged that the Board made wasteful payments by refusing to terminate Redstone’s $1.75 million contract as Executive Chair once his declining health left him unable to eat or speak, and by designating him Chairman Emeritus – at a $1 million salary –…

Yesterday, the SEC announced three different proposals related to financial advice for retail customers.  The SEC’s press release summarized the proposals:

Under proposed Regulation Best Interest, a broker-dealer would be required to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer.  Regulation Best Interest is designed to make it clear that a broker-dealer may not put its financial interests ahead of the interests of a retail customer in making recommendations.

In addition to the proposed enhancements to the standard of conduct for broker-dealers in Regulation Best Interest, the Commission proposed an interpretation to reaffirm and, in some cases, clarify the Commission’s views of the fiduciary duty that investment advisers owe to their clients.  By highlighting principles relevant to the fiduciary duty, investment advisers and their clients would have greater clarity about advisers’ legal obligations.

Next, the Commission proposed to help address investor confusion about the nature of their relationships with investment professionals through a new short-form disclosure document — a customer or client relationship summary.  Form CRS would provide retail investors with simple, easy-to-understand information about the nature of their relationship with their

…

…

Oh boy. A 2010 case just came through on my “limited liability corporation” WESTLAW alert (that I get every day).  This one is a mess. Recall that LLCs are limited liability companies, which are a separate entity from partnership and corporations, despite often having some similar characteristics to each of those. 

CBOE, along with the six other exchanges, has an interest in OPRA but OPRA was not incorporated as a separate legal entity until January 1, 2010, when it incorporated as a limited liability corporation. Id. (describing the restructuring of OPRA following its incorporation). At the time this lawsuit was filed, however, there remains a question as to whether there were any formalities in place to separate OPRA from CBOE operations. In short, the parties dispute whether, at the time the suit was filed, OPRA operated independently or was operated jointly with CBOE.
*2 To this end, Realtime asserts that the lack of any corporate governance at OPRA [an LLC], such as Articles of Association or a partnership agreement, renders OPRA “simply a label with no formal business structure.” RESPONSE at 2, 4 (citing SEC RELEASE at 2) (“OPRA was not organized as an association pursuant to Articles of

…

I learned earlier this afternoon that Lynn Stout, author of The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations and the Public (2012), lost her battle with cancer today.  Appropriate words are hard to come by.  She was among the nation’s scholarly leaders in the legal aspects of corporate governance.  Regardless of whether you agree with her on the substance, you would likely find her work enlightening and her presence powerful.  She was persistent in argument, yet generous with mentoring and other professional support.

I know we each will miss her in our own way.  She and I had a bit of an unfinished conversation last June at the National Business Law Scholars Conference about my Washington & Lee Law Review article, “Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and Organic Documents.”  I am sorry we never completed that chat.

Her vast body of work is among her great legacies.  I have my Advanced Business Associations students read “A Team Production Theory of Corporate Law” (coauthored with Margaret Blair) every year.  Other articles that I have enjoyed and used in teaching or research include: “Why We Should Stop…

As most readers are likely aware, Donald Trump has no love for the Washington Post, which frequently publishes articles that cast him in a negative light.  The Washington Post is owned by Jeff Bezos, who also is the founder, Chair, CEO, and largest shareholder of Amazon.  Trump’s rage at the Washington Post in general and Bezos as its owner has led him to threaten Amazon, both publicly and privately, with suggestions that – for example – it should pay the Post Office more for shipping, that its taxes should be increased, and perhaps even that it should not have access to certain critical government contracts.  Most recently, he even ordered a review of USPS finances, apparently as a mechanism for targeting Amazon.  As a result, Amazon’s stock price has suffered.

Egan-Jones Proxy Services recently posted a comment on this state of affairs, ultimately arguing that Bezos’s responsibilities to Amazon’s investors include limiting the Washington Post’s coverage.  As Egan-Jones put it, “Unless Mr. Bezos decides and is able to tone down, or better yet eliminate the content which is upsetting the President and his supporters he will continue to find he has created the most…

Greetings from the ABA Business Law Meeting in sunny Orlando, Florida. Today, I attended an excellent program on Protecting Human Rights in Supply Chains; Moving from Policy to Action. I plan to blog more about the meeting next week, highlighting the work surrounding draft human rights clauses for supplier contracts. The project was spearheaded by David Snyder of American University and corporate lawyer Susan Maslow. In this post, I want to address one of the topics Susan Maslow discussed– the recent spate of lawsuits brought by consumers who allege unfair trade practices based on what companies say (or don’t say) about their human rights records.

I’ve blogged (incessantly for the past five years) and written longer articles about the various ESG disclosure regimes. I’ve argued that in theory, disclosure is a good thing. But without meaningful financial penalties from regulators for violations, many corporations won’t do anything more than the bare minimum for human rights, even with the threat of (often short-lived) consumer boycotts. Further, most consumers suffer from disclosure overload or don’t understand or remember what they read.

The disclosure issue has now reached the courts. In 2015, a law firm filed cases in California under unfair competition and…

One new book worth picking up is David Webber’s The Rise of the Working-Class Shareholder: Labor’s Last Best Weapon.  When I heard this book was coming out, I jumped to order it immediately. David Webber is a uniquely talented writer. In the book, he takes the stories of ordinary workers and labor activists and uses them to help explain sophisticated corporate governance concepts. Along the way, he keeps his objectivity intact and resists the urge to mythologize the gritty labor activists that help him present key concepts. For example, he writes that one: “was no saint. He was highly confrontational and abrasive, with a tendency to overplay his hand. I don’t write about him to hold him up as a paragon. I write about him because he . . . punched [his] way to a new set of tactics that must be refined and widely adopted if labor is going to reassert itself in the twenty-first century.”

The balance he brings in his portrayal of labor leaders continues with his discussion of key legal concepts. You’ll find yourself appreciating how much a nuanced understanding of ERISA can improve options. Although it’s nearly impossible to make ERISA engaging, Webber’s writing holds…