Corporate Personality

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The list is here:  https://papers.ssrn.com/sol3/topten/topTenResults.cfm?groupingId=1566963&netorjrnl=ntwk

The paper can be downloaded here:  https://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2957820

A portion of the abstract:

[T]his Essay and my other works introduce a new theory of the firm, collaboration theory. This theory views the corporation as a collaborative effort among a state government and those individuals organizing, operating, and owning the business entity to pursue economic development and economic gain. This theory is superior to the prevailing essentialist theories of the corporation because it explains both how and why the corporation exists.

Under this theory, corporations are obligated to seek profit based on the deal struck among the state and individuals owning, operating, and organizing the corporation, but the co-adventurers in the corporation are obligated to treat each other in good faith whenever possible. This means corporations should only engage in socially irresponsible ways in which the financial benefit to the corporation is clear. Because of the uncertainty of life, this is only going to be the rarest of circumstances. In these rare circumstances, to control bad behavior on the part of the corporation, the government must engage in affirmative lawmaking and regulation to alter the cost–benefit analysis to force corporations to be ethical.

In 2016, a number of news outlets focused on Wal-Mart’s reputation crisis and outdated management style. Many, including union leaders, doubted the sincerity behind the company’s motivation in raising wages last year. I’ve blogged about Wal-Mart before, but today, there appears to be a different story to tell. Wal-Mart, the bogeyman of many NGOs and workers’ rights groups, actually believes that “serving the customers and society is the same thing… [and] putting the customer first means delivering for them in ways that protect and preserve the communities they live in and the world they will pass on to future generations.” This comes from the company’s 148-page 2016 Global Responsibility Report. Target’s report is a paltry 43 pages in comparison.

What accounts for the difference? Both use the Global Reporting Initiative framework, which aims to standardize sustainability reporting using materiality factors and items in the 10-K. Key GRI disclosures include: a CEO statement; key impacts, risks, and opportunities; markets; collective bargaining agreements; supply chain description; organizational changes; internal and external CSR standards (such as conflict mineral policy, LEED etc); membership associations; governance structure; high-level accountability for sustainability; consultation between stakeholders and the board; board composition; board knowledge of…

On June 8, I will answer this and other questions during an interactive session for a group of social entrepreneurs at Venture Cafe in Miami. Fortunately, I will have an accountant with me to talk through some of the tax issues. I was invited by the director of Radical Partners, a social impact accelerator. We estimate that 75% of the audience members will work for a nonprofit and the rest will work in traditional for profit entities with a social mission.

Many entrepreneurs in South Florida have an interest in benefit corporations, but don’t really know much about them. Our job is to provide some guidance on entity selection and demystify these relatively new entities. Some of the issues I plan to address in my 20 minutes are:

1) the differences between nonprofits, for profits, and benefit corporations

2) the differences between benefit and social purpose corporations (focusing on Florida law)

3) the biggest myths about benefit corporations (such as perceived tax benefits)

4) tax issues (for the accountant)

5) director duties

6) funding- changing funding model from donors to investors; going public

7) reporting, auditing, and certification requirements

8) benefit enforcement proceedings

9) the role of B Lab and the…

Last weekend, retired NFL receiver Calvin Johnson made news when he revealed that he was not pleased with the Detroit Lions and how they handled his retirement. Johnson is apparently frustrated that the Lions required him to pay back about 10% of the  unearned $3.2 million remaining on his $16 million signing bonus from his 2012 contract. This is apparently a thing for the Lions, who sought all of the unearned signing bonus money remaining on Barry Sanders’ contract when he abruptly retired in 1999.

This is in contrast to Tony Romo’s retirement, in which the Dallas Cowboys released him, making the $5 million remaining on the signing bonus Romo’s.  Cowboys owner Jerry Jones said he was following the “Do Right Rule” when he allowed the team to release him.  The Seattle Seahawks made a similar decision with Marshawn Lynch.  

Some have argued that Johnson is being “pettier” than the Lions in this spat.  Mike Florio, a sports writer and graduate of WVU College of Law, where I teach, argued that “while Johnson has every right to be miffed at the Lions, Johnson also should be miffed at himself. Or at whoever advised him to retire instead of biding his time until…

I try to watch at least one Ted Talk a day. I learn new substantive topics and I also learn from listening to the speakers break down complex topics in an engaging way–a key skill for the classroom. I don’t know that any of the videos in a recent article written for business people really transformed my thinking about business, but I did find some parts interesting and inspiring.

Here they are for your viewing pleasure:

I write often about how courts often incorrectly treat LLCs as corporations.  Last week, I reported on a case about a court that misstated, in my view, the state of the law regarding LLCs and veil piercing.  When I do so, I often get comments about how veil piercing should go away. Prof. Bainbridge replies similarly here. 

I am on record as being open to the elimination of veil piercing (I am actually, at least in theory, working on an article tentatively called Abolishing Veil Piercing Without Abolishing Equity), and I am especially open to the idea of abolishing veil piercing with regard to contract-based claims.  (Texas largely does this by requiring “actual fraud” for cases arising out of contract. For a great explanation of Texas law on the subject, please see Elizabeth Miller’s detailed description here.)

Several courts over the years, most notably the Wyoming court in Flahive, have extended the concept of veil piercing to LLCs, even where a statute did not explicitly provide the concept of veil piercing. Although I think these courts got it wrong, now that concept of veil piercing is well established for corporations and LLCs in virtually all (if not all)…

Donald Trump has had a busy two weeks. Even before his first official day on the job, then President-elect Trump assembled an economic advisory board. On Monday, January 23rd, President Trump held the first of his quarterly meetings with a number of CEOs to discuss economic policy. On January 27th, the President issued what some colloquially call a “Muslim ban” via Executive Order, and within days, people took to the streets in protest both here and abroad.

These protests employed the use of hashtag activism, which draws awareness to social causes via Twitter and other social media avenues. The first “campaign,” labeled #deleteuber, shamed the company because people believed (1) that the ride-sharing app took advantage of a work stoppage by protesting drivers at JFK airport, and (2) because they believed the CEO had not adequately condemned the Executive Order. Uber competitor Lyft responded via Twitter and through an email to users that it would donate $1 million to the ACLU over four years to “defend our Constitution.” Uber, which is battling its drivers in courts around the country, then established a $3 million fund for drivers affected by the Executive Order. An…

Bernard Sharfman, a prolific author on corporate governance, has written his fourth article on the business judgment rule. The piece provides a thought-provoking look at a subject that all business law professors teach. He also received feedback from Myron Steele, former Chief Justice of the Delaware Supreme Court, and William Chandler III, former Chancellor of the Delaware Court of Chancery during the drafting process. I don’t think I will assign the article to my students, but I may take some of the insight when I get to this critical topic this semester. Sharfman has stated that he aims to change the way professors teach the BJR.

The abstract is below:

Anyone who has had the opportunity to teach corporate law understands how difficult it is to provide a compelling explanation of why the business judgment rule (Rule) is so important. To provide a better explanation of why this is so, this Article takes the approach that the Aronson formulation of the Rule is not the proper starting place. Instead, this Article begins by starting with a close read of two cases that initiated the application of the Rule under Delaware law, the Chancery and Supreme Court opinions in Bodell v.

Today is my annual check-up on the use of “limited liability corporation” in place of the correct “limited liability company.”  I did a similar review last year about this time, and revisiting the same search led to remarkable consistency. This is disappointing in that I am hoping for improvement, but at least it is not getting notably worse. 

Since January 1, 2016, Westlaw reports the following using the phrase “limited liability corporation”:

  • Cases: 363 (last year was 381)
  • Trial Court Orders: 99 (last year was 93)
  • Administrative Decisions & Guidance: 172 (last year was 169)
  • Secondary Sources: 1116 (last year was 1071)
  • Proposed & Enacted Legislation: 148 (last year was 169)

As was the case last year, I am most distressed by the legislative uses of the phrase, because codifying the use of “limited liability corporation” makes this situation far murkier than a court making the mistake in a particular application. 

New York, for example, passed the following legislation:

Section 1. Subject to the provisions of this act, the commissioner of parks and recreation of the city of New York is hereby authorized to enter into an agreement with the Kids’ Powerhouse Discovery Center Limited Liability Corporation for the maintenance

…

UC Irvine law professor, David Min, has a new article titled, Corporate Political Activity and Non-Shareholder Agency Costs, in theYale Journal on Regulation.  Professor Min examines corporate constitutional law  in recent examples such as Citizens United, through the lens of nonshareholder dissenters.  

The courts have never considered the problem of dissenting nonshareholders in assessing regulatory restrictions on corporate political activity. This Article argues that they should. It is the first to explore the potential agency costs that corporate political activity creates for nonshareholders, and in so doing, it lays out two main arguments. First, these agency costs may be significant, as I illustrate through several case studies. Second, neither corporate law nor private ordering provides solutions to this agency problem. Indeed, because the theoretical arguments for shareholder primacy in corporate law are largely inapplicable for corporate political activity, corporate law may actually serve to exacerbate the agency problems that such activity creates for non-shareholders. Private ordering, which could take the form of contractual covenants restricting corporate political activity, also seems unlikely to solve this problem, due to the large economic frictions facing such covenants. These findings have potentially significant ramifications for the Court’s corporate political speech

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