Business Associations

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The AALS Section on Business Associations and Law is honoring 13 exemplary mentors for their contributions to scholarship, teaching and the development of new business law scholars.  Those honored were nominated by fellow members of the AALS Section.  The mentors will be recognized at the conclusion of the AALS BA Section meeting on January 8th (1:30-3:15) at the Annual AALS meeting in New York.  Please join me in congratulating our colleagues and thanking them for their contributions to our field.

-Anne Tucker

Kent Greenfield recently published a provocative article with Democracy on ending Delaware’s dominance over corporate law.  As is Greenfield’s way, he makes a familiar story sound fresh and raises an interesting question.  Is it democratic for a state with less than 1% of the country’s population to have its laws control more than half of the Fortune 500 companies?  Greenfield says no.

Power without accountability has no democratic legitimacy. If companies could choose which state’s environmental, employment, or anti-discrimination law applied to them, we’d be outraged. We should be similarly outraged about Delaware’s dominance in corporate law.

Greenfield suggests two alternative paths for ending Delaware’s dominance.  First:  states could amend their business organization statutes so that the law of the state of incorporation (Delaware) doesn’t govern the corporation, rather the law of the principal place of business would.   Second, and perhaps more radically, nationalize corporate law.  

The undemocratic critique is an astute observation. It takes the debate outside of the “race to the bottom” standard trope and into territory with perhaps more broad public appeal.  Leaving aside the state competition for headquarters, tax base and jobs with solution one and potential political friction with solution two, both solutions address

On Saturday, January 9, 2016, I will be spending the day at the AALS Section on Socio-Economics Annual Meeting at the Sheraton New York Times Square Hotel.  Among other things, I will be part of a panel discussion from 9:50 – 10:50 AM, Death of the Firm: Vulnerabilities and the Changing Structure of Employment.  My co-panelists will be June Carbone and Katherine Stone (I am very tempted to give up my 15 minutes and just sit back and listen to these two great scholars, but please don’t use the comments section to encourage me to do that).  As I understand it, the gist of the discussion will be that while firms once supported a significant part of the safety net that provided employee health and retirement benefits, they have recently abdicated more and more of these responsibilities.  At the same time, however, what may be described as subsidies granted by the state to firms — particularly corporations — as part of a social contract whereby these firms provided the aforementioned benefits, have not been correspondingly reduced.  In fact, the rights of corporations have been expanded by, for example, cases like Citizens United and Hobby Lobby — suggesting a possible windfall…

This is the time of year when many people make New Year’s resolutions, and I suppose that law professors do so as well. I’m taking a break from teaching business associations next semester. Instead, I will teach Business and Human Rights as well as Civil Procedure II. I love Civ Pro II because my twenty years of litigation experience comes in handy when we go through discovery. I focus a lot on ethical issues in civil procedure even though my 1Ls haven’t taken professional responsibility because I know that they get a lot of their context from TV shows like Suits, in which a young “lawyer” (who never went to law school) has a photographic memory and is mentored by a very aggressive senior partner whose ethics generally kick in just in the nick of time. It will also be easy to talk about ethical issues in business and human rights. What are the ethical, moral, financial, and societal implications of operating in countries with no regard for human rights and how should that impact a board’s decision to maximize shareholder value? Can socially-responsible investors really make a difference and when and how should they use their influence? Those…

OK.  No more complaining about grading–at least for another few months.  Whew!  I think I am getting too old for this crazy few weeks in December that involve holiday preparations and reading for the purpose of assessment.

This week, as I promised last week, I do want to say a bit more about the exams themselves, however.  I noticed certain patterns of wrong answers this year (some of them common to ones noted in prior years that I have tried in various ways–unsuccessfully–to address in my teaching).  I sent a message to my students that captured those common mistakes.  An edited list of the observations I shared with them about those errors is included below.

  • Management/Control vs. Agency.  Management and control as an entity attribute is not the same as agency. The former involves internal governance–who among the internal constituents of the firm has the power to exercise the firm’s rights and keep it operating, from a legal (and practical) point of view. The latter relates to the firm’s liability to third parties. These two matters are set forth in different rules in each statute we covered in our course last semester. In the corporation, for example–the most complicated firm we studied,

…

The Pep Boys – Manny, Moe & Jack (NYSE:  PBY) merger triangle with Bridgestone Retail Operations LLC and Icahn Enterprises LP is proving to be an exciting bidding war.  The price and the pace of competing bids has been escalating since the proposed Pep Boys/Bridgestone agreement was announced on October 16, 2015.  Pep Boys stock had been trading around $12/share. Pursuant to the agreement, Bridgestone commenced a tender offer in November for all outstanding shares at $15.  

Icahn Enterprises controls Auto Plus, a competitor of Pep Boys, the nation’s leading automotive aftermarket service and retail chain.  Icahn disclosed an approximately 12% stake in Pep Boys earlier in December and entered into a bidding war with Bridgestone over Pep Boys.  The price climbed to $15.50 on December 11th, then $17.00 on December 24th. Icahn Enterprises holds the current winning bid at $18.50/share, which the Pep Boys Board of Directors determined is a superior offer.  In the SEC filings, Icahn Enterprises indicated a willingness to increase the bid, but not if Pep Boys agreed to Bridgestone’s increased termination fee (from $35M to 39.5M) triggered by actions such as perior proposals by third parties.  Icahn challenged such a fee as a serious threat to…

Still grading, and (in the process) reflecting on the line in Marcia Narine’s post from last week on the references to “creepy tender offers” and “limited liability corporations” in her students’  final exam submissions . . . .  I thought I might share today a few of my own favorite outtakes from my students’ Business Associations exams.  I know that the time crunch and the nature of the exam software contribute mightily to the typing errors in student submissions, but on the reading end, some of the answers submitted are just . . . well . . . funny.  As you’ll no doubt note, today’s post focuses mostly on closely held corporations (with one typo relating to limited partnerships).

First , there are, of course, the transposed letters.  Most of these don’t warrant more than a brief mention.  The limited partnership act references to UPLA and RUPLA, instead of ULPA and RULPA fit into this category.  Similar are the inevitable variants of case names (Donahue becoming Danahue, Donahur, and Donaue, etc.). 

Then, there are the many misspelling of fiduciary(ies)–which I have come to believe may just be a hard word to type.  (Or maybe no one actually knows how to spell it.)  Un…

I’m knee deep in grading my business associations exams and so far, I’m pretty pleased. Maybe it’s my in-house background, but I spend a lot of time with my students getting them to focus on providing strategic advice to their fictional clients because that’s what my former clients demanded. My operations and executive colleagues complained that lawyers didn’t understand business or their pressure points and offered legal advice without thinking of the big picture or strategic considerations. With that in mind, my students work in law firms and do a variety of exercises from Michelle Harner’s skills book. When they answer questions in class based on cases or drafting exercises, I force them to think like a client rather than just the lawyer. I drill into them the importance of speaking to their clients in plain English, and I tell them if they can’t break the concepts down in their own words, then they don’t really understand them. Their final exam required them to advise a number of different clients based on the same fact pattern, and I am enjoying reading the different strategies that my 69 students devised based upon the same set of facts.

I get a…

A few days ago, co-blogger Steve Bradford posted on law professor complaints about grading under the title Warning: Law Professor Whine Season.  OK.  I typically am one of those whiners.  But today, rather than noting that grading is the only part of the semester I actually need to be paid for (and all that yada yada), I want to briefly extoll one virtue of exam season:  the positive things one sees in students as they consciously and appropriately struggle to synthesize the material in a 14-week jam-packed semester.

My Business Associations final exam was administered on Tuesday.  Like many other law professors, I gave my students sample questions (with the answers), held a review session, and responded to questions posted to the discussion board on our class course management site.  Sometimes, I dread any and all of that post-class madness.  This year, I admit that there were few of the thinly veiled (and, by me, expressly discouraged and disdained) “is this on the exam?” or “please re-teach this part of the course . . .” types of questions or requests in any of the forums that I offered for post-class review and learning.  That was a relief.

The students’ final work product for my Corporate Finance planning and drafting seminar was due Monday.  I met with a number of students in the course about that drafting assignment and about the predecessor project in the final weeks before each was due.  I watched them work through issues and begin to make decisions, uncomfortable as they might be in doing so, that solve real client problems.  Satisfying times . . . .

In fact, there have been a number of moments over the past week in which I was exceedingly proud of the learning that had gone on and was continuing to go on during the post-class exam-and-project-preparation phase of the semester.  I  offer a few examples here to illustrate my point.  They come from both my Business Associations course, for which students take a comprehensive written final examination, and my Corporate Finance planning and drafting seminar, for which students solve a corporate finance problem through planning and drafting and write a review of a fellow student’s planning and drafting project.

I so often find Keith Bishop‘s blog, California Corporate & Securities Law, both informative and entertaining.  Monday’s post in that forum is no exception.  In that post, Keith describes three important principles of Delaware corporate law that are not codified in the General Corporation Law of the State of Delaware (commonly and fondly known as the Delaware General Corporation Law or DGCL).  No surprise, but the three principles he identifies and describes are:

  • the business judgment rule;
  • derivative suit pleading requirements; and
  • the intermediate standard of review applicable in certain limited fiduciary duty actions.

Great list.  And I agree with what he says.

Of course, anyone who teaches corporate law has had to consider (and, to sone degree, call out) the areas of that body of law that derive from decisional, rather than statutory, law.  I often have been heard to say, in the basic Business Associations course, that if students forget–or need to leave behind–one of the two required texts (a casebook and a statutory resource book) when they come to class, most days, they should forget/leave behind the casebook, since it is more important for them to have the statutory law in front of them to answer most Business Associations law questions.  I note, however, that there are two large areas of exception:  veil piercing and fiduciary duty.  For those two doctrinal areas, I inform them that they won’t need the statutory resource book as much as the casebook.