For those interested in some empirical research on the new hybrid entities (a/k/a social enterprise):
There are still relatively few of these hybrid entities being formed, but they have definitely started a lot of conversations.
Last week I had the pleasure of speaking on a panel on global human rights compliance and enterprise risk management with Mark Nordstrom of General Electric and John Sherman of Shift. The panel was part of a conference entitled New Challenges in Risk Management and Compliance at the UConn School of Law Insurance Law Center.
I spoke about the lack of direct human rights obligations under international law for multinationals, the various voluntary initiatives such as the Universal Declaration of Human Rights, the ILO Tripartite Declaration, the UN Global Compact, ISO 26000, the OECD Guidelines for Multinational Enterprises, the Global Reporting Initiative, and accusations of bluewashing. I also discussed Dodd-Frank 1502 (conflict minerals), sustainable stock exchange indices, ESG reporting, SEC proxy disclosure on risk management oversight, socially responsible investors, and the roles of the Sustainability Accounting Standards Board and the International Integrated Reporting Council in spurring transparency and integrated reporting.
Sherman focused on the UN Guiding Principles on Business and Human Rights, which were unanimously endorsed by the UN Human Rights Council in 2011 and which contain three pillars, namely the state duty to protect people from human rights abuses by third parties, including business; business’ responsibility to respect
The NBA’s handling of what the NBA concluded was Donald Sterling’s now-infamous, racist-language-laden phone call with V. Stiviano has generated a lot of commentary (including my own). As one might expect, the incident has led to some oft-repeated assertions that are not quite right. So, in taking a break from my grading, I thought I’d deal with a couple of those issues right now.
To start, if Sterling is forced to sell the Clippers, the NBA and the other team owners are not “taking” anything away from him that he has a right to keep. He is an owner subject to an agreement that, according to NBA Commissioner Adam Silver, allows the league to force Sterling to sell upon a three-fourths vote of other league owners. As such, the league has, and has always had, the power to decide if Sterling would be allowed to own a team. (Why the league owners didn’t act twenty years ago is a legitimate question, but one for another day.)
That Sterling can be forced to sell should not be news to lawyers, at any rate. This case reminds me of Lawlis v. Kightlinger & Gray, 562 N.E.2d 435 (Ind. App. 4th Dist. 1990). The case is taught in many Business Organizations courses. In that case, Lawlis was a partner the Kightlinger & Gray law firm. At some point, his alcoholism became a problem, and eventually he told the partners of his issues. Lawlis and his partners reached an agreement about how to move forward (one with a “no-second chances” provision). Lawlis got things together for a bit, then returned to drinking, and he was given a second chance. Lawlis apparently got sober and eventually insisted the firm should increase his partnership participation. Instead, the firm decided to expel him by a 7-to-1 vote (Lawlis was the sole vote against expulsion). Lawlis sued.
The court was not convinced, and I would hope any court would look the same way at a vote to remove Sterling as an NBA owner. Even if they needed cause, I would opine that the league has it, but the likely don’t need it. The Lawlis court explained:
All the parties involved in this litigation were legally competent and consenting adults well educated in the law who initially dealt at arm’s length while negotiating the . . . agreements here involved. At the time the partners negotiated their contract, it is apparent they believed . . . the “guillotine method” of involuntary severance, that is, no notice or hearing, only a severance vote to terminate a partner involuntarily need be taken, would be in the best interests of the partnership. Their intent was to provide a simple, practical, and above all, a speedy method of separating a partner from the firm, if that ever became necessary for any reason. We find no fault with that approach to severance.
Where the remaining partners in a firm deem it necessary to expel a partner under a no cause expulsion clause in a partnership agreement freely negotiated and entered into, the expelling partners act in “good faith” regardless of motivation if that act does not cause a wrongful withholding of money or property legally due the expelled partner at the time he is expelled.
Lawlis,562 N.E.2d at 442-43.
Some have lamented that Sterling will still be a rich man from this, no matter what. That is true, and the NBA has no way to change that. Sterling must be properly compensated if he were forced to sell the team. But that’s the point. In America, Sterling (like anyone else) is permitted (within the bounds of the law) to say racist and misogynist things and be a generally awful person without anyone taking away property. On the other hand, it appears Sterling agreed to buy a team in a league with an agreement that has a guillotine clause that allows the league to force him to sell. So be it.
Here are five other related points worth noting (at least, I think so), even if they are not as business-law focused. Click below for more.
My wife claims that I wasted quite a bit of time watching the Breaking Bad TV series on Netflix over the past few months, but given this recent call for papers, I may claim I was just doing professional development.
The editorial board New Mexico Law Review does not list any business law topics in their areas of particular interest, but I can think of a few. Accounting fraud and money laundering feature prominently. The IRS is involved in some episodes. Magrigal (a global conglomerate), Los Pollos Hermanos (a restaurant chain), and A1A car wash (which becomes a family-owned business) are three businesses that take center stage. There is a sale of a company (the car wash) in one episode and possible fiduciary duty issues throughout. I may even see a benefit corporation angle to explore…
This is a fun idea for a special law review issue.
Unless you have been under a rock, you’ve probably heard about the racially offensive (and morally repugnent) comments apparently made by Donald Sterling, owner of the NBA’s Los Angeles Clippers, made about African-Americans, including Magic Johnson. Just moments ago, the league announced how it would respond.
NBA Commissioner Adam Silver announced that an NBA investigation has concluded that Sterling was the voice reflecting hateful speech, views that are “deeply offensive and harmful.” (Note that the investigation was done by the Wachtell Lipton firm.)
Commissioner Silver apologized for Sterling’s comments and vowed action. The result: Effective immediately, Sterling is banned for life from games, practices, facilities, and player personnel decisions, and he is barred from executive meetings. In addition, the maximum fine of $2.5 million is levied, which will for to charities selected jointly by the NBA and the player’s association. Silver said he will do everything in his power to help force a sale of the team.
Silver said, “We stand together in condemning Mr. Sterling’s views. They have no place in the NBA.” Sterling said that a three-fourths vote of owners could force Donald Sterling to sell. He did not know how it would proceed, but Silver said he
Last week the DC Circuit Court of Appeals generally upheld the Dodd-Frank conflict minerals rule but found that the law violated the First Amendment to the extent that it requires companies to report to the SEC and state on their websites that their products are not “DRC Conflict Free.” The case was remanded back to the district court on this issue.
As regular readers of the blog know I signed on to an amicus brief opposing the law as written because of the potential for a boycott on the ground and the impact on the people of Congo, and not necessarily because it’s expensive for business (although I appreciate that argument as a former supply chain professional). I also don’t think it is having a measurable impact on the violence. In fact, because I work with an NGO that works with rape survivors and trains midwives and medical personnel in the eastern Democratic Republic of Congo, I get travel advisories from the State Department. Coinicidentally, I received one today as I was typing this post warning that “armed groups, bandits, and elements of the Congolese military [emphasis mine] remain security concerns in the eastern DRC….[they] are known to pillage, steal
In March, the Fourth Circuit held in Carnell Construction Corp. v. Danville Redevelopment & Housing Authority, that racial identity can be imputed to a corporation for purposes of standing under Title VI, citing to case precedent from the several circuits allowing 1981 claims to be raised by corporations.
“[W]e observe that several other federal appellate courts have considered this question, and have declined to bar on prudential grounds race discrimination claims brought by minority-owned corporations that meet constitutional standing requirements.”
The Fourth Circuit had to deal with the following language in Arlington Heights, 429 U.S. 252, 263 (1977): “As a corporation, MHDC has no racial identity and cannot be the direct target of the petitioners’ alleged discrimination. In the ordinary case, a party is denied standing to assert the rights of third persons.” In Arlington Heights, the Supreme Court however did not need to “decide whether the circumstances of this case would justify departure from that prudential limitation and permit MHDC to assert the constitutional rights of its prospective minority tenants. For we have at least one individual plaintiff who has demonstrated standing to assert these rights as his own.” (citations omitted). The dicta in Arlington Heights was
Earlier this semester, Belmont undergraduate students competed for a total of $8,000 in a business plan competition. The first place team, What’s Hubbin’, won $5,000. Law firm Baker Donelson was one of the sponsors.
Each competition team was required to provide: (1) an executive summary, (2) a description of the business (including mission and vision), (3) plans for marketing, operating, finances, and growth, and (4) financial statements (historical, if applicable, and projected). The finalists presented in front of a team of judges, which included local attorneys, investors, and entrepreneurs. The event also attracted a strong audience of faculty members (myself included), staff, and students.
Given the evolving legal industry, and the increasing focus on Law & Technology and Law & Entrepreneurship, I could see business plan competitions like this one being a success at law schools (perhaps in coordination with their sister business schools).
One of the three What’s Hubbin’ team members is Makenzie Stokel. She is also one of my undergraduate business law students. I asked her if she would mind answering a few, short questions about the competition and about her team’s business, which is one of the competition’s businesses that is already up and running. My
Back in August, Bloomberg reported that the legal costs for the six largest U.S. banks since 2008 totaled over $100 billion. (Yes, billion with a “B.”) Bloomberg included settlement amounts in that huge number, as well as fees to lawyers.
The financial and emotional costs of litigation, not to mention the tremendous amount of time required, amazes me. Litigation has its place, but the vast majority of disputes eventually settle and many times all parties would have been better off settling earlier using some form of alternative dispute resolution (ADR).
A former colleague recently pointed me to the University of Missouri School of Law’s listserv for ADR educators.
I know many of our readers only teach business law courses, but adding negotiations to my teaching package has made me see the various intersections between negotiations and business law. This semester, I set aside some time in my business law classes to discuss a bit of the negotiations literature, and the students seemed to appreciate it. I just signed up for the listserv, so I cannot speak to its quality yet, but I do think more business law professors should consider exploring the world of ADR.
Bringing Numbers into Basic and Advanced Business Associations Courses: How and Why to Teach Accounting, Finance, and Tax
2015 AALS Annual Meeting–Agency, Patnerships, LLCs & Unincorporated Assoc. Section
Washington, DC
Business planners and transactional lawyers know just how much the “number-crunching” disciplines overlap with business law. Even when the law does not require unincorporated business associations and closely held corporations to adopt generally accepted accounting principles, lawyers frequently deal with tax implications in choice of entity, the allocation of ownership interests, and the myriad other planning and dispute resolution circumstances in which accounting comes into play. In practice, unincorporated business association law (as contrasted with corporate law) has tended to be the domain of lawyers with tax and accounting orientation. Yet many law professors still struggle with the reality that their students (and sometimes the professors themselves) are not “numerate” enough to make these important connections. While recognizing the importance of numeracy, the basic course cannot in itself be devoted wholly to primers in accounting, tax, and finance.
The Executive Committee will devote the 2015 annual Section meeting in Washington to the critically important, but much-neglected, topic
