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Ann Lipton

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Ann M. Lipton is a Professor of Law and Laurence W. DeMuth Chair of Business Law at the University of Colorado Law School.  An experienced securities and corporate litigator who has handled class actions involving some of the world’s largest companies, she joined the Tulane Law faculty in 2015 after two years as a visiting assistant professor at Duke University School of Law.

As a scholar, Lipton explores corporate governance, the relationships between corporations and investors, and the role of corporations in society.  Read more.

Alon Brav, Matthew Cain, and Jonathan Zytnick have a fascinating new paper analyzing the voting behavior of retail shareholders (and I linked to it once before but I’m pretty sure since then it’s been updated with a lot of new data).  Bottom line: They got access to the votes cast by retail shareholders from 2015 and 2017 and made a lot of interesting findings, including:

Retail votes matter. Collectively, they have as much influence on outcomes as the Big Three (Vanguard, BlackRock, and State Street).

Expressed as a proportion of the shareholder base, retail shareholders hold a higher percentage of small firms than large ones, and their participation in voting is higher in small firms.

Retail shareholders are more sensitive to management performance than the Big Three; they are more likely to turn out, and more likely to vote against management, when companies have underperformed.  The Big Three, by contrast, are less sensitive to performance in terms of voting behavior.

Retail shareholder voting has an observable cost/benefit component.  Retail shareholders vote more often when their economic stake is greater; when management has underperformed; in controversial votes; and when they live in a zip code less associated with labor income (suggesting…

One of the biggest corporate law battles today concerns the appropriate role of institutional investors – and especially mutual funds – in corporate governance.  There has been increasing concern expressed in the academy that mutual funds – especially index funds – don’t have sufficient incentives to oversee their portfolio companies, and/or that mutual fund complexes have become so huge that they dominate the economy.  The concerns are rising to a level where the funds themselves are responding; witness, for example BlackRock’s attempted defenses here and here.  And, of course, we have the SEC’s sneak attack on institutional power via proposed regulation of proxy advisors.

Which is why I found Fatima-Zahra Filali Adib’s new paper, Passive Aggressive: How Index Funds Vote on Corporate Governance Proposals, so interesting.  She studies index fund voting behavior and contribution to corporate value by focusing on the “close call” votes, i.e., ones that narrowly pass or narrowly fail.  She finds that index fund support is associated with value enhancement, and that these votes are not dictated by the proxy advisors (rebutting arguments that institutions blindly follow advisor recommendations).  On the other hand, she also finds that ISS recommendations are not well…

I’m assuming most readers know the backstory here, but CBS and Viacom are both controlled by NAI, which in turn is controlled by Shari Redstone.  NAI owns nearly 80% of the voting stock of each company; the rest of the voting shares are publicly traded but held by a small number of institutions.  The bulk of each company’s capitalization, however, comes from no-vote shares, which are also publicly traded.

Redstone has long sought a merger of the two companies, which has been perceived as a boon to Viacom and a drag on CBS.  That’s why, when she proposed a merger in 2018, the CBS Board revolted and tried to issue new stock that would dilute NAI’s voting control.  That case resulted in a settlement whereby Redstone promised not to propose a merger for two years unless the CBS independent directors raised the issue first.  By sheerest coincidence, as luck would have it, mere months after the settlement was reached and the CBS board restructured, CBS and Viacom announced that they had reached an agreement and would merge by the end of 2019.

Of course, the immediate question among academics was whether, if the merger did proceed, Redstone would shoot…

Recently, these stories caught my eye:

Neptune Says Readying for IPO Means Readying Low-Carbon Strategy

Neptune Energy Group Ltd. said that preparing to go public, possibly within the next two years, means it has to explain to potential investors how its fossil fuel-based business model is sustainable.

The company is putting together an ESG strategy, a term encompassing environmental, social and governance issues, which it will publish along with its annual report in April. The move reflects growing concern about climate change among investors in the sector, many of whom are demanding a stronger response from oil producers amid a gradual shift toward cleaner energy….

John Browne [the former BP Plc chief] who helped create the largest privately held oil company in Europe — Wintershall DEA — has said an ESG strategy is now crucial to attracting investment.

Indeed, even oil behemoth Saudi Aramco has been touting its relatively low carbon intensity — the level of emissions per unit of energy produced — to woo investors to its initial public offering.

These Agencies Want to Check Who’s Naughty and Who’s Nice

Credit rating companies are muscling their way into the burgeoning world of responsible investing, purchasing smaller outfits that provide

…

I’ve frequently been asked to express a view on the spectacular decline of WeWork.  Is there a broader lesson here?  Or is this just a bizarre one-off?

I actually think there are a few lessons, and for this week’s post, I’ll start with the one about securities regulation and capital allocation.

One of the primary purposes of securities regulation is to ensure the efficient allocation of capital. See, e.g., John C. Coffee, Jr., Market Failure and the Economic Case for a Mandatory Disclosure System,  70 Va. L. Rev. 717 (1984); see also Benjamin Edwards, Conflicts and Capital Allocation, 78 Ohio St. L. J. 181 (2017).  SEC Chair Jay Clayton recently gave a speech in which he emphasized that the SEC is “not in the business of dictating a company’s strategic capital allocation decisions,” which is true – the SEC’s job is not to tell market actors where or how to invest – but the SEC is responsible for creating a disclosure regime that facilitates efficient capital allocation via investors’ choices.  And by that measure, the securities laws are failing.

As we all know, the securities laws – both through statutory revisions (JOBS Act) and…

In recent years, there has been a lot of discussion over the problem of “common ownership,” namely, the fact that the giant institutional investors who dominate today’s markets tend to own stock in everything, and this may be a good thing but can also be bad if it encourages collusive behavior among competing firms linked by the same set of shareholders.

What has received less attention is the effect of common ownership on shareholder voting and corporate transactions.  When a handful of large shareholders own stock in two merging partners – say, Tesla and SolarCity (not a hypothetical, incidentally) – they may vote for less-than-optimal deals on one side in order to benefit their holdings on the other side. 

There are two implications to this:  First, these cross-holdings may incentivize corporate managers to pursue nonwealth maximizing transactions when cross-holders are a significant part of the shareholder base (and may call into question the disinterestedness of large shareholders for Corwin cleansing purposes).  And second, very often, these institutional shareholders are actually mutual funds, with cross-holdings not in a single fund, but in multiple funds across a fund family.  Yet their voting patterns (or the actions of their portfolio firms) suggest…

It wasn’t terribly long ago (okay, fine, it was 23 years ago, I’m dating myself) when Friends aired this:

I’m guessing that depiction of stock trading was accurate for most people; it wasn’t that it was necessarily hard to open a brokerage account and trade, it was simply that most people didn’t quite understand the mechanics of how to go about it.  Even with online trading, you still have to go out of your way to seek opportunities to trade.  But what happens if stock trading is one of several simple options presented when people open up an app that they use every day?

That question is apparently about to be answered: Square, the payments app, recently announced that it will begin permitting free stock trades on its platform, setting itself up as a competitor to Robinhood. And the part that interests me isn’t simply the prospect of free trading, but the prospect of easy trading, accomplished with all the forethought of a candy bar purchase in the grocery check out aisle.

I suppose retail shareholders will never replace institutions for sheer size, but enough could enter the market to make some difference.  Will their uninformed trades create…

On November 8, Professor Kristin Johnson of Tulane will host Tulane Law School’s 2019 Gamm Comparative Law and Justice Symposium, focusing on The Implications of Artificial Intelligence for a Just Society. The rise of artificial intelligence introduces efficiencies and new opportunities in finance, employment, education, criminal law enforcement risk assessments, national security and the automation of the various professions, including the development of smart contracts and the automation of various skills associated with the practice of law. Recursive learning and neural networks enable machine learning algorithms to adapt beyond simple instructions and independently assess data in decision-making processes. Early evidence indicates, however, that learning algorithms may operate in a manner that leads to unfair, biased or unethical and in some cases, discriminatory outcomes.

The Gamm Symposium will explore these normative concerns and proposed solutions including proposals demanding algorithmic accountability or, more specifically, proposals encouraging explainability and transparency. Advancing the discussion beyond traditional proposals, the Symposium concludes with a panel exploring the lack of gender balance in the technology industry and capital investment in women-lead technology firms.

The event is free and open to the public, though registration is required.  More information is available here.

The Laundromat is Steven Soderbergh’s (and Netflix’s) loose adaptation of James Bernstein’s nonfiction book, Secrecy World: Inside the Panama Papers, illustrating the conduct facilitated  by shell companies and the lawyers who supply the paperwork.  Both in style and substance, it echoes Adam McKay’s The Big Short – which is why every. single. review. draws that comparison, and so will I – but sadly, I found it neither as entertaining nor as coherent.

The Laundromat takes the form of multiple vignettes regarding people whose lives are touched by the shell entities facilitated by the lawyers at Mossack Fonseca, with Gary Oldman and Antonio Banderas narrating as Mossack and Fonseca, respectively.  They break the fourth wall as they offer tuxedo-clad, cynical descriptions of the services the firm provides.

Despite shoutouts to 1209 North Orange and its 285,000 companies – as well as the confession, I assume truthful, that Soderbergh has companies at that location – the film never really offers an explanation of precisely what shell companies do for their owners.  That was one of the things I thought The Big Short attempted reasonably well: It took the complexity of the financial crisis and made a decent stab of explaining…

I watched the Netflix documentary American Factory, about the labor relationships at a Chinese-owned auto glass factory in Dayton, Ohio.  (For anyone unaware, the movie was produced by the Obamas).  It’s a fascinating film for anyone interested either in business or labor issues.

The movie begins when the old GM plant is closed in the midst of the financial crisis, throwing thousands of people out of work.  The plant is later purchased by Fuyao, a Chinese company.  They’re hiring, but at much lower wages than the old factory, and they openly state they do not want any unionization.  They are also sending over Chinese workers to work alongside the Americans.  Despite the pay cut, American workers in this economically-depressed area are happy for the job; we can see the transformation made in people’s lives.

At first, the American workers and the Chinese workers bond; the Americans invite the Chinese over to parties, enjoy introducing them to American culture, and so forth.  But the film then depicts something of a culture clash between the Americans and the Chinese. 

The Chinese expect far more obedience from their workforce, longer working hours, and they seem baffled by American regulations – everything from…