Corporate Personality

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To the extent you will be attending the Association of American Law Schools Annual Meeting in DC, here are a couple of panel recommendations that come with the added benefit of meeting a BLPB blogger in person:

1. Keeping it Current: Animal Law Examples Across the Curriculum (01/03/2015, 5:15-6:30 pm)

Moderator: Katherine M. Hessler, Lewis and Clark
Speaker: Susan J. Hankin, Maryland
Speaker: Joan M. Heminway, Tennessee
Speaker: Courtney G. Lee, McGeorge
Speaker: Kristen A. Stilt, Harvard

2. The Role of Corporate Personality Theory in Regulating Corporations (1/5/2015, 2:00-3:00 pm)

Moderator: Stefan Padfield, Akron
Speaker: Margaret Blair, Vanderbilt
Speaker: Elizabeth Pollman, Loyola
Speaker: Lisa Fairfax, George Washington
Speaker: David Yosifon, Santa Clara

PS–For more information on the day-long program of the AALS Section on Socio-Economics on Monday, Jan. 5, as well as the day-long Annual Meeting of the Society of Socio-Economists on Tuesday, Jan. 6, go here.

Understandably, business law professors get upset when people who should know better- judges for example- mischaracterize LLCs. I say we should be even more angry at the law clerks drafting the opinions. Many judges had no exposure to LLCs in law school but clerks graduating today certainly have. 
 
Given the ubiquity of LLCs now, I was surprised to learn that among the many outstanding CALI (Computer-Aided Legal Instruction) lessons, there are none on LLCs. (Hat tip to co-blogger Steve Bradford- my students love him now). I have volunteered to work on at least one and maybe more in the coming months. I canvassed some colleagues for their must-haves for these LLC lessons. In no particular order, here’s the current list:
 

1) Difference between LLCs, corporations and partnerships 

2) Del. and ULLCA coverage of fiduciary duties, and especially the issue of contractual waiver and default 

3) Ease of formation
 
4) Expense of formation
 
5) Ease of maintenance    
 
6) Expense of maintenance
 
7) Restrictions re. business purpose or activity
 
8) Continuity of life/limitations on existence
 
9) Label for/characteristics (incl. transferability) of ownership interests
 
10) Restrictions re. owners (number, type, or other)
 
11) Authority to

…

I used to joke that my alma mater Columbia University’s core curriculum, which required students to study the history of art, music, literature, and philosophy (among other things) was designed solely to make sure that graduates could distinguish a Manet from a Monet and not embarrass the university at cocktail parties for wealthy donors. I have since tortured my son by dragging him through museums and ruins all over the world pointing spouting what I remember about chiaroscuro and Doric columns. He’s now a freshman at San Francisco Art Institute, and I’m sure that my now-fond memories of class helped to spark a love of art in him. I must confess though that as a college freshman I was less fond of  Contemporary Civilization class, (“CC”) which took us through Plato, Aristotle, Herodotus, Hume, Hegel, and all of the usual suspects. At the time I thought it was boring and too high level for a student who planned to work in the gritty city counseling abused children and rape survivors.

Fast forward twenty years or so, and my job as a Compliance and Ethics Officer for a Fortune 500 company immersed me in many of the principles…

Maryland State Senator and American University Washington College of Law professor Jamie B. Raskin recently wrote an opinion piece for the Washington Post, A shareholder solution to ‘Citizens United’. In the piece, he explains that 

Supreme Court Justice Anthony M. Kennedy’s majority opinion in Citizens United essentially invites a shareholder solution. The premise of the decision was that government cannot block corporate political spending because a corporation is simply an association of citizens with free-speech rights, “an association that has taken on the corporate form,” as Kennedy put it. But if that is true, it follows that corporate managers should not spend citizen-shareholders’ money on political campaigns without their consent.

Senator Raskin further notes that the Congress doesn’t appear interested in moving forward with the Disclose Act, and the Securities and Exchange Commission has not pursued requiring campaign spending disclosures.  In response, the senator has a proposal:

Our best hope for change is with the state governments that regulate corporate entities throughout the year and receive regular filings from them. I am introducing legislation in January that will require managers of Maryland-registered corporations who wish to engage in political spending for their shareholders to post all political expenditures on company Web sites within 48 hours and confirm that any political spending fairly reflects the explicit preference of shareholders owning a majority interest in the company.

Further, if no “majority will” of the shareholders can form to spend money for political candidates — because most shares are owned by institutions forbidden to participate in partisan campaigns — then the corporation will be prohibited from using its resources on political campaigns.

Back in early 2010, as a guest blogger here, I wrote a post, Citizens United: States, where I noted my reaction to the case, which was that I wondered how states would react and that the case made the issue “an internal governance issue, which is a state-level issue.” (Please click below to read more.)

(Note:  This is a cross-posted multiple part series from WVU Law Prof. Josh Fershee from the Business Law Prof Blog and Prof. Elaine Waterhouse Wilson from the Nonprofit Law Prof Blog, who combined forces to evaluate benefit corporations from both the nonprofit and the for-profit sides.  The previous installments can be found here and here (NLPB) and here and here (BLPB).)

In prior posts we talked about what a benefit corporation is and is not.  In this post, we’ll cover whether the benefit corporation is really necessary at all. 

Under the Delaware General Corporation Code § 101(b), “[a] corporation may be incorporated or organized under this chapter to conduct or promote any lawful business or purposes . . . .” Certainly there is nothing there that indicates a company must maximize profits or take risks or “monetize” anything. (Delaware law warrants inclusion in any discussion of corporate law because the state’s law is so influential, even where it is not binding.) 

Back in 2010, Josh Fershee wrote a post questioning the need for such legislation shortly after Maryland passed the first benefit corporation legislation:

I am not sure what think about this benefit corporation legislation.  I can understand how expressly stating such public benefits goals might have value and provide both guidance and cover for a board of directors.  However, I am skeptical it was necessary. 

Not to overstate its binding effects today, but we learned from Dodge v. Ford that if you have a traditional corporation, formed under a traditional certificate of incorporation and bylaws, you are restricted in your ability to “share the wealth” with the general public for purposes of “philanthropic and altruistic” goals.  But that doesn’t mean current law doesn’t permit such actions in any situation, does it? 

The idea that a corporation could choose to adopt any of a wide range of corporate philosophies is supported by multiple concepts, such as director primacy in carrying out shareholder wealth maximization, the business judgment rule, and the mandate that directors be the ones to lead the entity.  Is it not reasonable for a group of directors to determine that the best way to create a long-term and profitable business is to build customer loyalty to the company via reasonable prices, high wages to employees, generous giving to charity, and thoughtful environmental stewardship?  Suppose that directors even stated in their certificate that the board of directors, in carrying out their duties, must consider the corporate purpose as part of exercising their business judgment. 

Please click below to read more.

This coming Tuesday, I am scheduled to provide a brief overview of the corporate law/theory aspects of Hobby Lobby as part of the University of Akron’s Supreme Court Roundup.  What follows are the seven key quotes from the opinion that I plan to focus on (time permitting) in order to highlight what I see as the key relevant issues raised by the opinion. Comments are appreciated.

Issue 1: Did corporate theory play a role in Hobby Lobby?

While I believe the majority made a pitch for applying a pragmatic, anti-theoretical approach (“When rights, whether constitutional or statutory, are extended to corporations, the purpose is to protect the rights of … people.” Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751, 2768 (2014)), the following quote strikes me as conveying an underlying aggregate view of corporations:

In holding that Conestoga, as a “secular, for-profit corporation,” lacks RFRA protection, the Third Circuit wrote as follows: “General business corporations do not, separate and apart from the actions or belief systems of their individual owners or employees, exercise religion. They do not pray, worship, observe sacraments or take other religiously-motivated actions separate and apart from the intention and direction of their individual actors.” 724 F.3d, at 385 (emphasis added). All of this is true—but quite beside the point. Corporations, “separate and apart from” the human beings who own, run, and are employed by them, cannot do anything at all.

134 S. Ct. at 2768.

The following paragraph is an excerpt from Micro-Symposium on Competing Theories of Corporate Governance, 62 UCLA L. Rev. Disc. 66, which can be found online (here) and is also available via Westlaw.

On Friday, April 11, and Saturday, April 12, 2014, the UCLA School of Law Lowell Milken Institute for Business Law and Policy sponsored a conference on competing theories of corporate governance…. This conference provided a venue for distinguished legal scholars to define the competing models, critique them, and explore their implications for various important legal doctrines. In addition to an oral presentation, each conference participant was invited to contribute a very brief essay of up to 750 words (inclusive of footnotes) on their topic to this micro-symposium being published by the UCLA Law Review’s online journal, Discourse. These essays provide a concise but powerful overview of the current state of corporate governance thinking….

The included essays:

  • Stephen M. Bainbridge, An Abridged Case For Director Primacy
  • George S. Georgiev, Shareholder vs. Investor Primacy in Federal Corporate Governance
  • David Millon, Team Production Theory: A Critical Appreciation
  • Usha Rodrigues, David and Director Primacy
  • Stefan J. Padfield , Citizens United, Concession Theory and Corporate Social Responsibility (CSR)

…