Corporate Governance

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Regular readers know that I write a lot about business and human rights and that I have posted about a number of lawsuits brought in California alleging violations of consumer protection statutes and false advertising claiming that companies fail to disclose the use of child slavery on their packaging. The complaints allege that consumers are deceived into “supporting” the child slave labor trade. The latest class action has been filed against Hershey, Mars, and Nestle. Back in 2001, these companies and several others signed the Engel-Harkin Protocol (drafted by Congressman Engel) in an effort to avoid actual FDA legislation regarding “slave-free” labeling. Nestle has touted its work with some of the world’s biggest NGOs to help clean up its supply chain for all of its human rights issues, not just in the cocoa industry. Nestle denies the allegations and actually has an extensive action plan related to child labor. Mars and Hershey also denied the allegations.

I am curious as to whether shareholders demand action from the boards of these companies or if the steady stream of litigation being filed in California causes companies to invest more in supply chain due diligence or to change where and how they source their…

Fellow BLPB editor Haskell Murray highlighted Laureate Education’s IPO (here on BLPB) last week as the first publicly traded benefit corporation.  Steven Davidoff Solomon, the “Deal Professor” on Dealbook at NYT, focused on the interesting issues that can be raised by public benefit corporations in his article, Idealism That May Leave Shareholders Wishing for Pragmatism, which appeared yesterday.  Among the concerns he raised were the  vagueness of the “benefit”provided by the company, the potential laxity or at least untested waters of benefit auditing, and the potential for management rent seeking at the expense of shareholder profit in the new form.  Davidoff Solomon, who (deliciously and derisively) dubs benefit corporations the “hipster alternative to today’s modern company, which is seen as voracious in its appetite for profits,” is certainly skeptical. But the concerns are valid and will have to be worked out successfully for this hybrid form to carve out a place in the securities market.  What I found particularly interesting was his focus on the role of institutional investors, who as fiduciaries for their individual investors, have fiduciary obligations to pursue profits which may be in conflict with or at least require greater monitoring when investing in…

Between the US Supreme Court’s decision to let Newman stand and the Delaware Supreme Court’s Sanchez decision, the intersection of friendship and corporate governance has been a hot topic this past week.  While the commentary has been enlightening, it’s always good to reflect on the primary sources.  To that end, I have collected below a series of what I perceive to be interesting quotes from the relevant opinions as follows (I also included an excerpt from a law review article referencing Reg FD, which has something to say about the extent to which we need to protect insider communications with analysts):

1.  Dirks v. S.E.C., 

2.  United States v. Newman, 

3.  United States v. Salman, 

4.  Delaware Cnty. Employees Ret. Fund v. Sanchez, 

5.  Dirks v. S.E.C. (dissent, excerpt 1),

6.  Dirks v. S.E.C. (dissent, excerpt 2), and 

7.  Donna M. Nagy & Richard W. Painter, Selective Disclosure by Federal Officials and the Case for an Fgd (Fairer Government Disclosure) Regime.

Obviously, Sanchez may be viewed as an outlier here, but perhaps this will spur some creative work on how the standard for director independence might inform the standard for improper tipping or vice versa.

Like many of you, I have been discussing the Volkswagen emission scandal in my business law classes.

Yesterday, Michael Horn, President and CEO of Volkswagen Group of America testified before the House Committee on Energy and Commerce Subcommittee on Oversight and Investigations. Horn’s testimony is here. 

West Virginia University, home of co-blogger Joshua Fershee, is featured on the first page of the testimony as flagging possible non-compliance issues in the spring of 2014.

The testimony includes multiple apologies, acceptance of full responsibility, and the statement that these “events are fundamentally contrary to Volkswagen’s core principles of providing value to our customers, innovation, and responsibility to our communities and the environment.”

I plan to follow this story in my classes as the events continue to unfold. 

My wife and I both have many close family members in South Carolina, so the recent flood has been on our minds recently.

My first thoughts are with all of those affected by the flood.  

Relevant to this blog, the flood also reminds me of one of the opening passages in Conscious Capitalism by Whole Food’s co-CEO John Mackey. In that passage, Mackey recalls the massive flood in Austin, TX in 1981. At that time, Whole Foods only had one store, and the flood filled that store with eight feet of water. Whole Foods had loses of $400,000 and no savings and no insurance.

Mackey notes that “there was no way for [Whole Foods] to recover with [its] own resources” and then:

  • “[a] wonderfully unexpected thing happened: dozens of our customers and neighbors started showing up at the store….Over the next few weeks, dozens and dozens of our customers kept coming in to help us clean up and fix the store…It wasn’t just our customers who helped us. There was an avalanche of support from our other stakeholders as well [such as suppliers extending credit and deferring payment]. . . . It is humbling to think about what would

…

As some of you may know, I have been focused on crowdfunding intermediation in my research of late.  My articles in the U.C. Davis Business Law Journal and the Kentucky Law Journal both touch on that topic, and a forthcoming chapter in an international crowdfunding book and several articles in process follow along that trail.  (I also have the opportunity to look into gatekeeper intermediary issues outside the crowdfunding context at an upcoming symposium at Wayne State University Law School, about which I will say more in a subsequent post.)  The underlying literature on financial intermediation is super-interesting, and it continues to grow in breadth and depth as I research and write.

Given my interest in this area, I was delighted to see that Larry Cunningham is contributing to the debate, following on his already-rich work relating to Warren Buffett and Berkshire Hathaway.  As you may recall, Larry was our guest here at the Business Law Prof Blog back in 2014.  You can read my Q&A with him here and his posts here and here.

Larry recently posted an essay responding to Kathryn Judge‘s Intermediary Influence, 82 U Chi L Rev 573 (2015).  In her article, Professor…

Alicia Plerhoples (Georgetown) has the details about the first benefit corporation IPO: Laureate Education.*

She promises more analysis on SocEntLaw (where I am also a co-editor) in the near future.

The link to Laureate Education’s S-1 is here. Laureate Education has chosen the Delaware public benefit corporation statute to organize under, rather than one of the states that more closely follows the Model Benefit Corporation Legislation. I wrote about the differences between Delaware and the Model here.

Plum Organics (also a Delaware public benefit corporation) is a wholly-owned subsidiary of the publicly-traded Campbell’s Soup, but it appears that Laureate Education will be the first stand-alone publicly traded benefit corporation.

*Remember that there are differences between certified B corporations and benefit corporations. Etsy, which IPO’d recently, is currently only a certified B corporation. Even Etsy’s own PR folks confused the two terms in their initial announcement of their certification.

Today I will present on a panel with colleagues that spent a week with me this summer in Guatemala meeting with indigenous peoples, village elders, NGOs, union leaders, the local arm of the Chamber of Commerce, a major law firm, government officials, human rights defenders, and those who had been victimized by mining companies. My talk concerns the role of corporate social responsibility in Guatemala, but I will also discuss the complex symbiotic relationship between state and non-state actors in weak states that are rich in resources but poor in governance. I plan to use two companies as case studies. 

The first corporate citizen, REPSA (part of the Olmeca firm), is a Guatemalan company that produces African palm oil. This oil is used in health and beauty products, ice cream, and biofuels, and because it causes massive deforestation and displacement of indigenous peoples it is also itself the subject of labeling legislation in the EU. REPSA is a signatory of the UN Global Compact, the world’s largest CSR initiative. Despite its CSR credentials, some have linked REPSA with the assassination last month of a professor and activist who had publicly protested against the company’s alleged pollution of rivers with…

Stephen Choi (NYU), Jill Fisch (Penn), Marcel Kahan (NYU), and Ed Rock (Penn) have posted an interesting new paper entitled Does Majority Voting Improve Board Accountability?

The authors report the dramatic increase in majority voting provisions. In 2006, only 16% of the S&P 500 companies used majority voting, but by January of 2014, over 90% of the S&P 500 companies had adopted some form of majority voting. (pg. 6). As of 2012, 52% of mid-cap companies and 19% of small-cap companies had adopted majority voting provisions. (pg. 7)

For the most part, the spread of majority voting has not led to significant reduction in election of nominated directors. In over 24,000 director nominations from 2007 to 2013, at companies with majority voting provisions, “only eight (0.033%) [nominees] failed to receive a majority of ‘for’ votes.” (pg.4)

The authors claim that their “most dramatic finding is”:

a substantial difference between early and later adopters of majority voting. The early adopters of majority voting appear to be more shareholder-responsive than other firms. These firms seem to have adopted majority voting voluntarily, and the adoption of majority voting has made little difference in shareholder-responsiveness going forward. By contrast, later adopters, as a group, seem

…

Last week I blogged about the Yates Memorandum, in which the DOJ announced that any company that expected leniency in corporate deals would need to sacrfice a corporate executive for prosecution. VW has been unusually public in its mea culpas apologizing for its wrongdoing in its emission scandal this week. VW’s German CEO has resigned, the US CEO is expected to resign tomorrow, and other executives are expected to follow.

It will be interesting to see whether any VW executives will serve as the first test case under the new less kind, less gentle DOJ. Selfishly, I’m hoping for a juicy shareholder derivatives suit by the time I get to that chapter to share with my business associations students. That may not be too far fetched given the number of suits the company already faces.