Corporate Governance

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We are very excited to welcome Haskell Murray to the BLPB as a contributing editor.  Many of our readers will already be familiar with Haskell’s work, particularly in the area of benefit corporations, but just in case, you can view his profile here, his SSRN page here, and some related past blog posts here and here.  As a contributing editor, Haskell is not committed to posting on any particular day (or, for that matter, to post at all)–but given what I’ve seen from him in the past, I doubt we’ll have to wait too long for one of his excellent contributions.  So, from all of us here at the BLPB–welcome, Haskell, and thanks for coming on board!

Grant M. Hayden & Matthew T. Bodie have posted “Larry
from the Left: An Appreciation” on SSRN. 
Here is the abstract:

This essay approaches the scholarship of the late Professor
Larry Ribstein from a progressive vantage point. It argues that Ribstein’s
revolutionary work upended the “nexus of contracts” theory in
corporate law and provided a potential alternative to the regulatory state for
those who believe in worker empowerment and anti-cronyism. Progressive
corporate law scholars should look to Ribstein’s scholarship not as a hurdle to
overcome, but as a resource to be tapped for insights about constructing a more
egalitarian and dynamic economy.

Although I blog
on business issues, I spent most of my professional life as a litigator and
this semester I teach civil procedure. A few weeks ago I asked my students to
draft a forum selection clause and then discussed the Boilermakers v. Chevron forum selection bylaw case, which at the
time was up on appeal to the Delaware Supreme Court.  The bylaws at issue required Delaware to be
the exclusive venue for matters related to derivative actions brought on behalf of the corporation;
actions alleging a breach of fiduciary duties by directors or officers of the
corporation; actions asserting claims pursuant to the Delaware General
Corporation Law; and actions implicating the internal affairs of the
corporation.  

While I was not
surprised that some institutional investors I had spoken to objected to
Chevron’s actions, I was stunned by the vitriolic reactions I received from my
students. I explained that Chevron and FedEx, who was also sued, were trying to
avoid various types of multijurisdictional litigation, which could be
expensive, and I even used it as a teachable moment to review what we had
learned about the domiciles of corporations, but the students weren’t buying
it.

Perhaps in
anticipation of…

I have a new article, Retirement Revolution: Unmitigated Risks in the Defined Contribution Society, which describes citizen shareholders–individual investors who enter the stock market through defined contribution plans–and examines the overlapping corporate and ERISA laws that govern their investments. 

If I haven’t lost you with the mention of ERISA, here’s an excerpt from the article:

A revolution in the retirement landscape over the last several decades shifted the predominant savings vehicle from traditional pensions (a defined benefit plan) to self-directed accounts like the 401(k) (a defined contribution plan) and has drastically changed how people invest in the stock market and why. The prevalence of self-directed, defined contribution plans has created our defined contribution society and a new class of investors — the citizen shareholders — who enter private securities market through self-directed retirement plans, invest for long-term savings goals and are predominantly indirect shareholders. With 90 million Americans invested in mutual funds, and nearly 75 million who do so through defined contribution plans, citizen shareholders are the fastest growing group of investors. Yet, citizen shareholders have the least protections despite conventional wisdom that corporate law and ERISA protections safeguard both these investors and their investments. As explained in an

…

Bill Black takes down claims of a “victory for the
government in its aggressive effort to hold banks accountable for their role in
the housing crisis.”  (HT: naked
capitalism.)  The full piece is available here, and
I highly recommend you go read the whole thing. 
What follows is a brief excerpt:

The author of the most brilliantly comedic statement ever
written about the crisis is Landon Thomas, Jr…. 
Everything worth reading is in the first sentence, and it should trigger
belly laughs nationwide. “Bank of America, one of the nation’s largest banks,
was found liable on Wednesday of having sold defective mortgages, a jury
decision that will be seen as a victory for the government in its aggressive
effort to hold banks accountable for their role in the housing crisis.” … Yes,
we have not seen such an aggressive effort since Captain Renault told Rick in
the movie Casablanca that he was “shocked” to discover that there was gambling
going on (just before being handed his gambling “winnings” which were really a
bribe)…. The jurors found that BoA (through its officers) committed an orgy of
fraud in order to enrich those

…

CEOs and executives just can’t get a break in the news
lately.  A jury found both former Countrywide
executive Rebecca Mairone and Bank of America liable for fraud for
Countrywide’s “Hustle” loans in 2007 and 2008 (see
here). Martha Stewart has had to renegotiate her merchandising agreement
with JC Penney to avoid hearing what a judge will say about that side deal in
the lawsuit brought against her by Macy’s, with whom she purportedly had an
exclusive merchandising deal (see
here).  JP Morgan Chase is in talks
to pay $13 billion to settle with the Department of Justice over various
compliance-related failures, but the company still faces billions in claims
from angry shareholders. The company isn’t out of the woods yet in terms of potential
criminal liability (see
here). CEO Jamie Dimon isn’t personally accused of any wrongdoing, and in
fact has been instrumental in achieving the proposed settlements. But in the
past he has faced questions from institutional shareholders about his dual
roles as chair of the board and CEO. Those questions may come up again in the
2014 proxy season.

The Bank of America verdict and the recent JP Morgan Chase
settlement may herald a…

Sarah C. Haan has posted “Opaque Transparency: Outside
Spending and Disclosure by Privately-Held Business Entities in 2012 and Beyond”
on SSRN.  Here is a portion of the
abstract:

In this Article, I analyze data on outside spending from the
treasuries of for-profit business entities in the 2012 federal election – the
very spending unleashed by Citizens United v. FEC. I find that the majority of
reported outside spending came from privately-held, not publicly-held
companies, including a significant proportion of unincorporated business
entities such as LLCs, and that more than forty percent of spending by
privately-held businesses was characterized by opaque transparency: Though
fully disclosed under existing campaign finance disclosure laws, something
about the origin of the money was obscured. This happened when political
expenditures were spread among affiliated business-donors, typically donating
similar amounts to the same recipient(s) on similar dates, and when for-profit
business entities were used as shadow money conduits. I also argue that, due to
differences between access-oriented and replacement-oriented electoral
strategies, for-profit businesses engaged in outside spending in a federal
election are likely to be experiencing insider expropriation. The expropriation
of a business entity’s political voice by a controlling person is another
potential

…

Really great piece by Justin Fox on “What We’ve Learned from
the Financial Crisis” over at the Harvard Business Review.  What follows is a brief excerpt, but you’ll want to go read the whole thing.

Five years ago the global financial system seemed on the
verge of collapse. So did prevailing notions about how the economic and
financial worlds are supposed to function. The basic idea that had governed
economic thinking for decades was that markets work…. In the summer of 2007,
though, the markets for some mortgage securities stopped functioning…. [T]he
economic downturn was definitely worse than any other since the Great
Depression, and the world economy is still struggling to recover…. Five years
after the crash of 2008 is still early to be trying to determine its
intellectual consequences. Still, one can see signs of change…. To me, three
shifts in thinking stand out: (1) Macroeconomists are realizing that it was a
mistake to pay so little attention to finance. (2) Financial economists are
beginning to wrestle with some of the broader consequences of what they’ve
learned over the years about market misbehavior. (3) Economists’ extremely
influential grip on a key component of the economic

…

1. Russell
G. Pearce & Brendan M. Wilson on Business Ethics

 

This Essay
makes three contributions to the field of business ethics …. First, the Essay
identifies the dominant approaches to business ethics as profit maximization,
social duty, and ordinary ethics, and summarizes the claims made by proponents
of each perspective. We intend this categorization as a way to refine the
distinctions between and among various views of business ethics and to address
the conundrum that John Paul Rollert has described as the “academic anarchy
that is business ethics…. Second, the Essay explores the strengths and
weaknesses of these three approaches. It suggests that their emphasis on
viewing business persons and organizations as existing autonomously, rather
than within webs of relationships, helps explain why the field of business
ethics has had minimal influence on business conduct, as does the false
dichotomy between economic and ethical conduct that proponents of these
approaches often embrace…. Third, the Essay proposes an alternative approach
that would locate business ethics at the center of business conduct. This approach
embraces the relational character of business behavior. It offers a conception
of self-interest that recognizes the relational dimension of self-interest and
identifies mutual benefit as the…

On October 16th, the US Chamber of Commerce’s
Center for Capital Markets Competitiveness will host a half-day event to
examine trends from the 2013 proxy season and look ahead to 2014.  The day
will start with a presentation from the Manhattan Institute about the 2013 season
and then I will be on a panel with Tony Horan, the Corporate Secretary of
JP Morgan Chase, Vineeta Anand from the Office of Investment of the AFL-CIO,
and Darla Stuckey of the Society of Corporate Secretaries and Governance
Professionals. Our panel will look  back at the 2013 proxy season and discuss hot
topics in corporate governance in general.  Later in the day, Harvey Pitt
and other panelists will talk about future trends and reform proposals, and
depending on the state of the government shutdown, we expect a
member of Congress to be the keynote speaker. The event will be webcast for
those who cannot make it to DC.  Click here
to register.