Corporate Governance

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Some law professors may remember when Justices Roberts and Kennedy opined on the value legal scholarship. Justice Roberts indicated in an interview that law professors spend too much time writing long law review articles about “obscure” topics.  Justice Kennedy discussed the value he derives from reading blog posts by professors who write about certs granted and opinions issued. I have no doubt that most law students don’t look at law review articles unless they absolutely have to and I know that when I was a practicing lawyer both as outside counsel and as in house counsel, I almost never relied upon them. If I was dealing with a cutting-edge issue, I looked to bar journals, blog posts and case law unless I had to review legislative history.

As a new academic, I enjoy reading law review articles regularly and I read blog posts all the time. I know that outside counsel  read blogs too, in part because now they’re also blogging and because sometimes counsel will email me to ask about a blog post. I encourage my students to follow bloggers and to learn the skill because one day they may need to blog for their own firms or for…

What happens if short sellers of stock are unable to cover because no one has any shares to sell? That’s one of the many interesting issues in the new book, Harriman vs. Hill: Wall Street’s Great Railroad War, by Larry Haeg (University of Minnesota Press 2013). Haeg details the fight between Edward Henry Harriman, supported by Jacob Schiff of the Kuhn, Loeb firm, and James J. Hill, supported by J.P. Morgan (no biographical detail needed), for control of the Northern Pacific railroad. Harriman controlled the Union Pacific railroad and Hill controlled the Great Northern and Northern Pacific railroads. When Hill and Harriman both became interested in the Burlington Northern system and Burlington Northern refused to deal with Harriman, Harriman raised the stakes a level by pursuing control of Hill’s own Northern Pacific.

I’m embarrassed to admit that I wasn’t aware of either the Northern Pacific affair or the stock market panic it caused. I had heard of the Northern Securities antitrust case that grew out of the affair; I undoubtedly encountered it in my antitrust class in law school. (Everything the late, great antitrust scholar Phil Areeda said in that class is still burned into my brain.)

I’m happy…

As previously noted on this blog, 44 law professors filed an amicus brief in Sebelius v. Hobby Lobby Stores, Inc., outlining several corporate law issues in the arts-and-craft store chain’s request for a religious exemption from complying with contraceptive requirements in the Affordable Care Act.  That brief prompted several responses and sparked a corporate law debate, which is being recapped and weighed in on at Business Law Prof Blog (see earlier thoughtful posts: here, here, and here by Stefan Padfield and Haskell Murray).   

So what is at stake in this case? Religious exemptions for corporations. The role of benefit corporations and other hybrid, triple bottom line entities.  The classic entity theory vs. aggregate theory debate of how do we treat the legal fiction of individuals acting through businesses and businesses acting, in part, on behalf of people.  The role and future of Corporate Social Responsibility generally. Corporate personhood.  Corporate constitutional rights. And existential questions like can corporations pray? You know, easy stuff. 

CSR. Our laws set the floor; they establish the minimum that social actors must do and that other members in our society can expect to receive.  Corporate social responsibility asks companies…

Yesterday, Carl Icahn sent a letter to eBay shareholders, which starts like this:

Dear Fellow eBay Stockholders,

We have recently accumulated a significant position in eBay’s common stock because we believe there is great long-term value in the business. However, after diligently researching this company we have discovered multiple lapses in corporate governance. These include certain material conflicts of interest, which we believe could put the future of our company in peril. We have found ourselves in many troubling situations over the years, but the complete disregard for accountability at eBay is the most blatant we have ever seen. Indeed, for the first time in our long history, we have encountered a situation where we believe we should not even have to run a proxy fight to change the board composition. Rather, we believe that in any sane business environment these directors would simply resign immediately from the eBay Board, either out of pure decency or sheer embarrassment at the public exposure of the extent of their self-serving activities.

Wow. You could almost drop the mic there.  Icahn does not, though. He goes on to outline a series of transactions from board members and the CEO that raise reasonable questions about the independence of certain board members.  (click below for more)

My co-blogger Haskell Murray recently posted “Religion, Corporate Social Responsibility, and Hobby Lobby” and asked me to respond, which I am happy to do. I will admit that I am still developing my thoughts on the issues raised by Haskell’s post, so what follows is a bit jumbled but still gives a sense of why I currently oppose for-profit corporations being permitted to evade regulation by pleading religious freedom (if you have not read Haskell’s post, please do so before proceeding):

1. Corporate power threatens democracy. Corporations and other limited liability entities have been controversial since their creation because, among other things, the combination of limited liability, immortality, asset partitioning, etc., makes them incredible wealth and power accumulation devices. Of course, on the one hand, this is precisely why we have them – so that investors are willing to contribute capital they would never contribute if they risked being personally liable as partners, and thus unique economic growth is spurred, a rising tide then lifts all ships, and so on. On the other hand, because of their unique ability to consolidate power, corporations are aptly considered by many to be one of Madison’s feared factions that threaten to undermine the very democracy that supports their creation and growth:

Besides the danger of a direct mixture of religion and civil government, there is an evil which ought to be guarded against in the indefinite accumulation of property from the capacity of holding it in perpetuity by ecclesiastical corporations. The establishment of the chaplainship in Congress is a palpable violation of equal rights as well as of Constitutional principles. The danger of silent accumulations and encroachments by ecclesiastical bodies has not sufficiently engaged attention in the U.S.

[More after the break.]

Professor Stephen Bainbridge made me aware of Keith Paul Bishop’s post entitled:

44 Law Professors Make A Case Against Corporate Social Responsibility

Bishop writes:

I was shocked because the [law professor] brief constitutes a frontal assault on corporate social responsibility.  For example, the law professors make the following apocalyptic claim: “If this Court were to agree that, as a matter of federal law, shareholders holding a control bloc of shares in a corporation may essentially transfer their [social responsibility] beliefs to the corporation, the results could be overwhelming.”  Ok, I substituted “social responsibility” for “religious”.  However, if the transfer of stockholder religious beliefs to the corporation would be “overwhelming”, why wouldn’t the same be true of beliefs regarding climate change, the environment, or other beliefs animating the corporate social responsibility movement?

Two of my co-bloggers signed the law professor brief in the Hobby Lobby case that Bishop discusses, so they are probably better suited to respond, but I will provide a few thoughts. 

One distinction, between the Hobby Lobby case and CSR, that may be quickly raised is addressed in section II.C of the law professor brief.  Hobby Lobby is attempting to use religion to avoid legal obligations.  There may be…

Our BLPB group has had a number of email discussions recently about the use of social media including blogs, Facebook, LinkedIn and Twitter for professional purposes. My home institution has discussed the same topic and even held a “training” session on technology in and outside of the classroom.  Because I am a heavy user, I volunteered to blog about how I use social media as a lawyer and academic in the hopes of spurring discussion or at least encouraging others to take a dip in the vast pool of social media.

Although I have been on Facebook for years, I don’t use that professionally at all. I also don’t allow my students to friend me, although I do know a number of professors who do. I often see lawyer friends discussing their clients or cases in a way that borders on violations of the rules of professional conduct, and I made sure to discuss those pitfalls when I was teaching PR last year.

I have also used LinkedIn for several years, mainly for professional purposes to see what others in my profession (at the time compliance and privacy work) were thinking about.  I still belong to a number of LinkedIn…

Holly Gregory has a useful post entitled Governance Priorities in 2014 on the Harvard Law School Forum on Corporate Goverance and Financial Regulation.  (As a side note, I was surprised to learn that Holly Gregory, who had been a partner at one of my former firms (Weil Gotshal), had left for Sidley Austin.  This is a huge loss for Weil as she is widely regarded as one of the country’s top corporate governance attorneys).

Go to the link above for the entire post, but the opening few paragraphs are posted below:

As the fallout from the financial crisis recedes and both institutional investors and corporate boards gain experience with expanded corporate governance regulation, the coming year holds some promise of decreased tensions in board-shareholder relations. With governance settling in to a “new normal,” influential shareholders and boards should refocus their attention on the fundamental aspects of their roles as they relate to the creation of long-term value.

Institutional investors and their beneficiaries, and society at large, have a decided interest in the long-term health of the corporation and in the effectiveness of its governing body. Corporate governance is likely to work best in supporting the creation of value when

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Tamara Belinfanti recently posted “Shareholder Cultivation and New Governance” on SSRN.  Here is the abstract:

Several formal proposals have been made to address shareholder short-termism and speculative behavior. These include the imposition of a financial transaction tax, changes to the U.S. capital gains tax rate, and the adoption of an Investor Stewardship Code in the United Kingdom. This Article reverses the focus from looking to top-down solutions to looking at bottom-up grass root solutions that corporations can employ, and in some cases do already employ to achieve substantially the same effect of rewarding certain types of shareholder behavior while dissuading others — a process I refer to as “Shareholder Cultivation.” While many of the techniques and strategies discussed in this Article are not new and in fact many have been used by companies and investor relation professionals for years, the Article is the first to conceptualize a prescriptive framework for assessing which techniques and strategies should be allowed. Additionally, the Article utilizes new governance theory to examine the concept of Shareholder Cultivation with a fresh lens: as a corporate governance benefit.

Last week, I had an enjoyable conversation with Joseph Yockey (Iowa) about his new article:  “Does Social Enterprise Law Matter?”  I am glad to see more people entering the social enterprise law conversation and have included the abstract of his interesting new article below: 

Social enterprise laws are sweeping through the nation. Entrepreneurs can now organize under one of several new legal forms, including the “benefit corporation” form. In theory, these options will make it easier for socially minded firms to pursue a double bottom line of profit and public benefit — that is, to do well while doing good.

This Article tests that theory. In asking whether social enterprise laws matter, I find that the answer is yes, but not for the reasons most people think. The traditional rationale for social enterprise laws is that they free managers from the “duty” to put profits ahead of social objectives. But that’s wrong; existing corporate law is already flexible enough to permit most social/economic tradeoffs. However, by drawing on insights from new governance theories of regulation, I argue that social enterprise laws add value in other ways. Specifically, they provide a catalyst for entrepreneurs, investors, and stakeholders to develop the

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