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In my ongoing work for the Tennessee Bar Association, I was alerted to a recent Delaware Chancery Court decision of note.  The decision is embodied in a December 22, 2020 letter to counsel written by Chancellor Andre G. Bouchard in the case captioned In re WeWork Litigation (Consol. Civil Action No. 2020-0258-AGB).  It offers an illustration of the attorney-client privilege challenges that may exist in business associations that operate within networks consisting of affiliated or associated business firms.

The In re WeWork Litigation letter opinion involves a document production dispute.  The controversy relates to communications engaged in by discovery custodians employed at Sprint, Inc. but working on behalf of SoftBank Group Corp.  Specifically, the Sprint employees assisted SoftBank with document discovery relating to its involvement with The We Company (“WeWork”), a plaintiff in the case.  (Sprint is not involved in any substantive way in the litigation.  However, at times relevant to the chancellor’s opinion, SoftBank owned 84% of Sprint.)  The controversy centers around the conduct of Sprint CEO Michael Combes and a Sprint employee, Christina Sternberg.  Each provided SoftBank’s chief operating officer with document discovery assistance.  As Chancellor Bouchard aptly noted, these Sprint employees “wore multiple hats.”  (This comment in…

In my previous post on the “Study on Directors’ Duties and Sustainable Corporate Governance” (“Study on Directors’ Duties”) that Ernst & Young prepared for the European Commission (Commission), I focused on the transformative power of corporate governance. I said that stakeholder capitalism would have a practical value if supported by corporate governance rules based on appropriate standards such as the ones provided by the Sustainable Development Goals (SDGs).

Some of my pointers for the Commission were the creation of a regulatory framework that enables the representation and protection of stakeholders, the representation of “stakewatchers,” that is, non-governmental organizations and other pressure groups through the attribution of voting and veto rights and their members’ nomination to the management board (similar to German co-determination). I also suggested expanding directors’ fiduciary duties to include the protection of stakeholders’ interests, accountability of corporate managers, consultation rights, and additional disclosure requirements.

In my last guest post in this series dedicated to the Study on Directors’ Duties, I ask the following questions. Do investors have a moral duty to internalize externalities such as climate change and income inequality, for example? Do firm ownership and investor commitment matter? Should investors’ money be “moral” money? …

In my first post on the “Study on Directors’ Duties and Sustainable Corporate Governance” (“Study on Directors’ Duties”) prepared by Ernst & Young for the European Commission, I said that corporate boards are free to apply a purposive approach to profit generation. I added that:

[a]pplying such a purposive approach will depend on moral leadership, CEOs’ and corporate boards’ long-term vision, clear measurement of the companies’ interests and communication of those interests to shareholders, and rethinking executive compensation to encourage board members to take on other priorities than shareholder value maximization. Corporate governance has a significant transformative role to play in this context. 

This week, I focus on corporate governance’s enabling power. Therefore, “T” is for transformative corporate governance. Market-led developments can and do precede and inspire legal rules. Corporate governance rules are not an exception in this regard. To illustrate these rules’ transformative potential, I dwell on the ongoing debate around stakeholder capitalism.

First question. What is stakeholder capitalism? In a recent debate with Lucian Bebchuk about the topic, Alex Edmans explained that “stakeholder capitalism seeks to create shareholder welfare only through creating stakeholder welfare.” The definition suggests that the way to create value for both shareholders and stakeholders…

This is my second post in a series of blog posts on the “Study on Directors’ Duties and Sustainable Corporate Governance (“Study on Directors’ Duties”) prepared by Ernst & Young for the European Commission.

In 2015, the world gathered at the United Nations Sustainable Development Summit for the adoption of the Post-2015 development agenda. That Summit was convened as a high-level plenary meeting of the United Nations General Assembly. At this meeting, Resolution A/70/L.1, Transforming our World: The 2030 Agenda for Sustainable Development, was adopted by the General Assembly. In 2016, the Paris Agreement was signed. In my last post, I called both the United Nations 2030 Agenda and the Paris Agreement trendsetters because they kicked-off a global discussion on sustainable development at so many levels, including at the financial level.

During the 2015 United Nations Sustainable Development Summit, I recall that the Civil Society representatives called for a UN resolution on sustainable capital markets to tackle the absence of concrete actions regarding global financial sustainability following the 2008 Great Recession.

At the end of 2016, the European Commission (Commission) created the High-Level Expert Group on Sustainable Finance (HLEG). In early 2018, the HLEG published its report…

The post below is the first in Lécia Vicente’s December series that I heralded in my post on Friday.  Due to a Typepad login issue, I am posting for her today.  We hope to get the issue corrected for her post for next week. 

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My series of blog posts cover the recent “Study on Directors’ Duties and Sustainable Corporate Governance” (“Study on Directors’ Duties”) prepared by Ernst & Young for the European Commission. This study promises to set the tone of the EU’s policymaking in the fields of corporate law and corporate governance. The study explains that the “evidence collected over 1992-2018 period shows there is a trend for publicly listed companies within the EU to focus on short-term benefits of shareholders rather than on the long-term interests of the company.” The main objective of the study is to identify the causes of this short-termism in corporate governance and determine European Union (EU) level solutions that permit the achievement of the United Nations (UN) Sustainable Development Goals (SDGs) and the objectives of the Paris Agreement.

Both the United Nations 2030 Agenda and the Paris Agreement are trendsetters, for they have elevated the discussion on sustainable development and climate change mitigation to the global level. That discussion has been captured not only by governments and international environmental institutions but also by corporations. Several questions come to mind.

What is sustainability? This one is critical considering that the global level discussion is often monotone, with the blatant disregard of countries’ idiosyncrasies, the different historical contexts, regulatory frameworks, and political will to implement reforms. The UN defined sustainability as the ability of humanity “to meet the needs of the present without compromising the ability of future generations to meet their own needs.”

The other question that comes to mind is: what is development? Is GDP the right benchmark, or should we be focusing on other factors? There is disagreement among economists on the merit of using GDP as a development measure. Some economists like Abhijit Banerjee & Esther Duflo say, “it makes no sense to get too emotionally involved with individual GDP numbers.” Those numbers do not give us the whole picture of a country’s development.

The Study on Directors’ Duties maintains as a general objective the development of more sustainable corporate governance and corporate directors’ accountability for the company’s sustainable value creation. This general objective would be specifically implemented either through soft law (non-legislative measures) or hard law (legislative measures) that redesign the role of directors (this includes the creation of a new board position, the Chief Value Officer) and directors’ fiduciary duties. This takes me to a third question.

What is the purpose of the company? In other words, what is it that directors should be prioritizing? In a recent blog post, Steve Bainbridge says

I don’t “disagree with the assertion that the law does not mandate that a corporation have as its purpose shareholder wealth maximization” but only because I don’t think it’s useful to ask the question of “what purpose does the law mandate the corporation pursue?

[…] Purpose is always associated with the intellect. In order to have a purpose or aim, it is necessary to come to a decision; and that is the function of the intellect. But just as the corporation has neither a soul to damn nor a body to kick, the corporation has no intellect.

Bainbridge prefers “to operationalize this discussion as a question of the fiduciary duties of corporate officers and directors rather than as a corporate purpose.”

In September of 2015, I did a Westlaw search, which returned 4575 cases referring to a “limited liability corporation,” rather than the proper “limited liability company” or LLC.   That search followed one that I had done on May 2011, and the 2015 search showed a jump of 1802 new cases.  Today’s search returned 5,211 such cases, an increase of 636 cases in five and a half years. That’s still more than 100 cases per year, but it’s a reduction of about half the rate we were seeing between 2011 and 2015.  (I concede this is not especially scientific, but it’s still instructive.) 

It appears, then, that we’re making progress, but two steps forward, one step back. Even Jeopardy — Jeopardy! — recently got this wrong.  I thank Professor Samantha Prince at Penn State Dickinson Law for bringing this to my attention, upsetting as it is.   

In addition, a recent tax court opinion followed suit: “All limited liability corporations, or LLCs, mentioned in this opinion are entities treated as partnerships for federal tax purposes.” …

In his forthcoming article, “Shareholder Wealth Maximization: A Schelling Point,” my MC-Law colleague, Professor Martin Edwards, offers a new contribution to the long-standing debate concerning shareholder wealth maximization and corporate purpose. (See, e.g., here, here, here, and here.) Professor Edwards is not simply offering a rehearsal of the principled justifications for shareholder wealth maximization as the preeminent corporate purpose. Instead, he proposes a descriptive explanation for why it happened to become the received norm. Though Professor Edwards notes that reformers have offered compelling arguments for why shareholder wealth maximization may be suboptimal, he suggests that, as a Schelling point, it continues to function as a value-creating equilibrium term in the corporate bargain. The article will appear in Volume 74 of the St. John’s Law Review (forthcoming, 2021). Here’s the abstract:

Legal scholars have long debated the nature, meaning, efficacy, and even the very existence of the shareholder wealth maximization norm.  Those who model the corporation in terms of its economic efficiency tend to defend it, while those skeptical of it have made a formidable case that corporate governance might be better if managers and directors focused more on worker wealth, environmental sustainability, and various other matters…

On Friday night, I finished five days of group oral midterm exam appointments with my Business Associations students.  (I wrote a law review article on these group oral midterms five years ago, in case you are interested in background and general information.)  It is an exhausting week: twenty-one 90-minute meetings with groups of three students based on a specific set of facts.  And this year, of course, the examinations were hosted on Zoom, like everything else.  Especially given social distancing, mask-wearing, and the overall hybrid instructional method for the course (about which I wrote here), I admit that I headed into the week a bit concerned about how it all would go . . . .

The examination is conducted as a simulated meeting of lawyers in the same law office–three junior lawyers assisting in preparing a senior colleague for a meeting with a new client.  The student teams are graded on their identification and use of the applicable substantive law. I was pleased to find that the teams scored at least as well overall and individually as they typically do.  That was a major relief.  I had truly wondered whether students would be less well prepared in…

BLPB(CircusPhoto)Photo Credit: Pixabay

With almost six weeks of hybrid Business Associations classes now under my belt (and many more to go), I wanted to share a bit more about my experience teaching in the hybrid classroom.  This follows and builds on my post from the beginning of the semester offering initial impressions (based on my Professional MBA teaching experience).  As I noted in that post, technology can differ from classroom to classroom.  As a result, my observations here (which are based on a hybrid course with an in-class projection system featuring a camera  and document camera and an online component hosted on Zoom), may not hold in other teaching environments.  Hopefully, however, some of what I have to say here may be useful to some of you . . . .

Teaching a hybrid course is a bit like managing a three-ring circus.  Ring #1 is your in-class student population, #2 is your online students population, and #3 is your technology.  It is a lot to pay attention to.  I find it more than a bit exhausting.

I have 63 students in total in Business Associations this fall.  That is a bit low but within a normal range for that…

I have written here in the past about laboring on Labor Day.  Most recently.  I wrote about the relationship between work and mindfulness in this space last year.  But it seems I also have picked up this theme here (in 2018) and here (at the end of my Labor Day post in 2017).  Being the routine “Monday blogger” for the BLPB does give me the opportunity to focus on our Monday holidays!

This year, however, Labor Day–like so many other days in 2020–is markedly different in one aspect: I am required to teach today.  When I logged in to the campus app on my phone this morning to do my routine daily health screening, I was greeted by this (in clicking through from the main event schedule page):

This is the first day in my 20 years of teaching, and maybe in my 35 years of post-law school work, that I have been required to work on Labor Day.  My daughter, a Starbucks night shift manager, is required to work every year on Labor Day.  But this is new to me . . . .

Of course, the ongoing pandemic is the reason for this change.  By compacting the semester…