Corporations

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Earlier this week the SEC released its 2014 rulemaking agenda and excluded from the list is a proposal for public companies to disclose political spending.  In 2011, the Committee on Disclosure of Corporate Political Spending, comprised of 10 leading corporate and securities academics, petitioned the SEC to adopt a political spending disclosure rule.  This petition has received a historic number of comments—over 640,000—which can be found here.

The Washington Post reported that after the petition was filed,

A groundswell of support followed, with retail investors, union pension funds and elected officials at the state and federal levels writing to the agency in favor of such a requirement. The idea attracted more than 600,000 mostly favorable written comments from the public — a record response for the agency.

Omitting corporate political spending from the 2014 agenda has received steep criticism from the NYT editorial board in an opinion piece written yesterday declaring the decision unwise “even though the case for disclosure is undeniable.” Proponents of corporate political spending disclosure like Public Citizen are “appalled” and “shocked” by the SEC’s decision, while the Chamber of Commerce declares the SEC’s omission a coup that appropriately avoids…

Here in West Virginia, it’s exam time for our law students.  For my Business Organizations students, tomorrow is the day.  For students getting ready to take exams, and for any lawyers out there who might need a refresher, the Kentucky Supreme Court provides a good reminder that LLCs are separate from their owners, even if there is only one owner.  

Here’s a basic rundown of the case, Turner v. Andrew, 2011-SC-000614-DG, 2013 WL 6134372 (Ky. Nov. 21, 2013) (available here):   In 2007, an employee of M&W Milling was driving a feed-truck owned by his employer.  A movable auger mounted on the feed-truck swung into oncoming traffic and struck and seriously damaged a dump truck owned by Billy Andrew, the sole member of  Billy Andrew, Jr. Trucking, LLC, which owned the damaged truck.  Andrew filed suit against the employee and M & W Milling  claiming personal property damage to the truck and the loss of income derived from the use of damaged truck.  Notably, the LLC was not a named plaintiff in the lawsuit.

Hey issue spotters: check out the last line of the prior paragraph. (Also: a bit of an odd twist is the Andrew chose not to respond to discovery requests, though…

The increase in institutional ownership of corporate stock has led to questions about the role of financial intermediaries in the corporate governance process. This post focuses on the issues associated with the so-called “separation of ownership from ownership,” arising from the growth of three types of institutional investors, pensions, mutual funds, and hedge funds.

Originally, the anti-takeover law passed its court challenges because the judges accepted faulty data that showed investors could acquire at least 85 percent of the target corporation and satisfy the Williams Act, Subramanian said. But none of the cases used to support the anti-takeover law actually allowed hostile suitors to acquire a controlling 85 percent of a target company, he said, and plaintiffs using research from new studies would be able to convince a judge that the statute is unconstitutionally restrictive.

For me, the financial crisis was an eye-opening moment. I’ve long believed in free market economics and believed that the Church would do a lot of good…

On Saturday evening I leave for Geneva to attend the United Nations Forum on Business and Human Rights with 1,000 of my closest friends including NGOs, Fortune 250 Companies, government entities, academics and other stakeholders.  I plan to blog from the conference next week.  I am excited about the substance but have been dreading the expense because the last time I was in Switzerland everything from the cab fare to the fondue was obscenely expensive, and I remember thinking that everyone in the country must make a very good living. Apparently, according to the New York Times, the Swiss, whom I thought were superrich, “scorn the Superrich,” and last March a two-thirds majority voted to ban bonuses, golden handshakes and to require firms to consult with their shareholders on executive compensation. Nonetheless, last week, 65% of voters rejected a measure to limit executive pay to 12 times the lowest paid employee at their company. According to press reports many Swiss supported the measure in principle but did not agree with the government imposing caps on pay.

Meanwhile stateside, next week the SEC closes its comment period on its own pay ratio proposal under Section 953(b) of the Dodd-Frank Act. Among…

When teaching on entity formation, my students often ask why so many companies choose Delaware.  Numerous academics have attempted to answer that question, and now the Official Website of the First State [Delaware] lists reasons why it thinks businesses choose Delaware.

The listed reasons are:

  1. The statute
  2. The courts
  3. The case law
  4. The legal tradition
  5. The Delaware Secretary of State

No new claims here, but interesting to see how the state sees (or promotes) its advantages. 

The webpage also includes a blog, entitled “Delaware Corporate and Legal Services Blog,” which only has a few posts so far, but may be worth tracking. 

H/T: Francis Pileggi

I was recently asked to evaluate a corporation’s obligation to indemnify a director named in a derivative suit initiated by the corporation alleging that the director usurped corporate opportunities. The MBCA establishes a standard framework for optional and mandatory indemnification of directors and officers, sets the appropriate boundary of indemnification obligations (i.e,. no reimbursement of derivative suit settlements or intentional misconduct), establishes the procedures for indemnification and advancement of expenses, and provides mechanisms for directors to enforce their indemnification rights through court orders.  The standard procedures for indemnification require the corporation to authorize the indemnification and make a determination that the conduct at issue qualifies for indemnification.

MBCA § 8.55 Determination and Authorization of Indemnification

(a) A corporation may not indemnify a director ….[until after] a determination has been made that indemnification is permissible ..[and].. director has met the relevant standard of conduct ….

(b) The determination shall be made:

(1)…. a majority vote of all the qualified directors…., or by a majority of the members of a committee;

(2) by special legal counsel ….or

(3) by the shareholders, but shares owned by or voted under the control of a director who at the time is not a qualified director may not

…

I have posted an updated draft of my latest paper Rehabilitating Concession Theory, which is forthcoming in the Oklahoma Law Review, on SSRN.  I have made only minor changes to the the prior draft, but I thought I’d post the abstract and link to the paper here in case any blog readers haven’t seen the paper before and might be interested in the content.

In Citizens United v. FEC, a 5-4 majority of the Supreme Court ruled that, “the Government cannot restrict political speech based on the speaker’s corporate identity.” The decision remains controversial, with many arguing that the Court effectively overturned over 100 years of precedent. I have previously argued that this decision turned on competing conceptions of the corporation, with the majority adopting a contractarian view while the dissent advanced a state concession view. However, the majority was silent on the issue of corporate theory, and the dissent went so far as to expressly disavow any role for corporate theory at all. At least as far as the dissent is concerned, this avoidance of corporate theory may have been motivated at least in part by the fact that concession theory has been marginalized to the point

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“Man grows used to everything, the scoundrel!” 
― Fyodor Dostoyevsky, Crime and Punishment

This week two articles caught my eye.  The New York Times’ Room for Debate feature presented conflicting views on the need to “prosecute executives for Wall Street crime.” My former colleague at UMKC Law School, Bill Black, has been a vocal critic of the Obama administration’s failure to prosecute executives for their actions during the most recent financial crisis, and recommended bolstering regulators to build cases that they can win. Professor Ellen Podgor argued that the laws have overcriminalized behavior in a business context, and that the “line between criminal activities and acceptable business judgments can be fuzzy.” She cited the thousands of criminal statutes and regulations and compared them to what she deems to be overbroad statutes such as RICO, mail and wire fraud, and penalties for making false statements. She worried about the potential for prosecutors to abuse their powers when individuals may not understand when they are breaking the law.

Charles Ferguson, director of the film “Inside Job,” likened the activity of some major financial executives to that of mobsters and argued that they have actually done more damage to the…

We live in a world where most working individuals have some retirement savings invested in the stock market.  The stock market funds, in part, college educations, and serve as the primary wealth accumulator for post-baby boom generations.  My parents—an elementary school teacher and a furniture salesman—lived in Midwestern frugality and invested their savings from the mid-80’s until 2006 when they pulled out of the market.  They retired early, comfortably (so I believe), and largely because of consistent gains in the stock market over a 30 year period.  The question is whether this story is repeatable as a viable outcome for working investors now. 

The Wall Street Journal ran a story on Monday “Stocks Regain Appeal” documenting the number of dollars flowing into markets from retail investors as well as the anecdotal confidence of investors.  The WSJ reports that:

“U.S. stock mutual funds have attracted more cash this year than they have in any year since 2004, according to fund-tracker Lipper. Investors have sent $76 billion into U.S. stock funds in 2013. From 2006 through 2012, they withdrew $451 billion.” 

This seems indisputably good right?  Maybe.  The real question for me is why is more money flowing into the…

Today is November 12, 2013, or 11/12/13.   (It also happens to be my 43rd birthday.  Yay me.) 

In honor of the unique date, I decided to take a look at some business cases from the most recent prior 11/12/13.  I found a couple of  interesting passages.  One case, Cotten v. Tyson, 89 A. 113, 116 (Md. Nov. 12, 1913),  provides a good overview of some basic corporate principals: 

[1] The principle is elementary that a stockholder, as such,
is not an owner of any portion of the property of the corporation and, apart
from his stock, has no interest in its assets which is capable of being
assigned. [citing cases] 

[2] Where one person is the owner of all the capital stock
of a corporation, it has been held bound by his acts in reference to its
property. [citing cases]

[3] But it is entirely clear upon reason and authority that
a stockholder of a corporation, while retaining his stock ownership, cannot
assign the interest represented by his stock in any particular class of the
corporate assets. Such an attempted alienation would not only be incompatible
with the retention of title to the stock in the assignor but its enforcement
would be altogether

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