Corporations

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Before I
went to law school, I had a career in public relations and brand
management. I had the pleasure of having a client that was among the best when
it comes to brand reputation, Nintendo, where I was responsible (with our
client and a solid team) for product launches like this, this, and this (PDF, p. 3).  A few years ago,
I even wrote an article combining my interest in branding and my interest in
entity law: The North Dakota Publicly
Trade Corporations Act: A Branding Initiative Without a (North Dakota) Brand. 

Anyway, when I
recently received my version of ERN Economics of Networks eJournal, (Vol. 5 No.
68), I took note of the paper, Corporate
Reputation and Social Media: A Game Theory Approach, which is available
here.  The paper states in the abstract,
“Corporate reputation is more and more the most valuable asset for a firm. In
this day and age, corporate reputation, although an intangible asset, is and
will grow as the most essential asset to publicize and also protect.”  My first thought:  as a general matter, can that possibly be
true? 

It appears not,
though it is obvious that reputation…

I have spent the
past two days at West Virginia University attending a conference entitled “Business
and Human Rights: Moving Forward and Looking Back.” This was not a bunch of academic
do-gooders fantasizing about imposing new corporate social responsibilities on
multinationals. The conference was supported by the UN Working Group on
Business and Human Rights, and attendees and speakers included the State
Department (which has a dedicated office for business and human rights), the Department
of Labor, nongovernmental organizations, economists, ethicists, academics,
members of the extractive industry (defined as oil, gas and mining),
representatives from small and medium sized enterprises (“SMEs”), Proctor and
Gamble, and Monsanto.

Professor Jena
Martin organized the conference after the UN Working Group visited West
Virginia earlier this year to learn more about SMEs and human rights issues.
She invited participants to help determine how to ground the 2011
UN Guiding Principles on Business and Human Rights into business practices
and move away from theory to the operational level. The nonbinding Guiding
Principles outline the state duty to protect human rights, the corporate duty
to respect human rights, and both the state and corporations’ duty to provide
judicial and non-judicial remedies to aggrieved parties.  Transnational corporations…

Next week (September 29th to be exact) an
experimental free-trade zone in Shanghai will open, the first of its kind in
mainland China.  The free trade zone
boasts the possibility for relaxed trade and foreign investment standards.  Just how radical the free trade zone will be
in its implementation is unknown, and will unfold as the operations being.  Allowing telecommunications companies to
compete with state-owned providers, lifting bans on video game sales, liberalizing
interest rates, and enhancing currency convertibility are among the stated
goals of the free trade zone. 
Additionally, a Hong Kong newspaper (note: Hong Kong is itself a free
trade zone) reported yesterday that Facebook, Twitter, the New York Times and
other previously banned websites will be allowed to operate within the free
trade zone.

Enhancing currency convertibility is a broader goal of
China, which has stated its intention for the renminbi to be fully convertible
by 2015.  Currency convertibility may in
turn elevate the renminbi to reserve currency status, where the central banks
of other countries hold the renminbi. 
Reserve currencies—the leader of which is the U.S. dollar and also
includes the Swiss franc, the Japanese yen, the sterling pound and the euro—benefit
the issuing country…

The Atlanta Falcons lost to the New Orleans Saints in overtime in Sunday.  The Falcons failed in a fourth-down attempt in their own territory, leading to a lot of second guessing on the NFL post-game shows. Here’s the breakdown from Slate & Deadspin‘s NFL roundtable:

So arbitrary formulas aren’t always the thing. But pure probabilities? Everyone’s an expert today, thanks to the Falcons’ decision to go for it in overtime on fourth and inches from their own 29-yard line. They were stuffed by the Saints, who slotted home a gimme field goal for a big division win. Here is a comprehensive list of every reason why Mike Smith’s decision is being criticized: because it didn’t happen to work.

. . . . A fourth-and-a-yard succeeds 74 percent of the time, and Michael Turner was not a yard away. . . . .

Brian Burke at Advanced NFL Stats has picked the perfect day to unveil the Fourthdownulator, a handy little application that allows you to plug in the situation and decide whether going for it makes statistical sense. Before running the fourth-down play, the Falcons’ win probability stood at 47 percent (it would’ve

…

Interesting news today that North Dakota may not actually be a proper state.  It seems that the state’s constitution lacks a requirement that the state’s executive officers uphold the U.S. Constitution, thus violating Article VI.  

If the state is not really a state, then would that mean that corporations under “state” law are not really formed either? Would the fictional corporate person suddenly become a fictional, fictional person? Heady stuff.  

Add to this the fact that most of the state is violating North Dakota law by reporting that the flooding in Minot (the western part of the state) is caused by the Souris River, using the French (and Canadian) name, rather than the English (and state-mandated) name, the Mouse River.

Even if most people are getting name of the river that is causing the flooding wrong, the flooding is very, very real. Please help if you can. Here are a couple places:  http://minotfloodshirts.myminto.com/ and http://minotredcross.org/.

–JPF

Lewis Lazarus recently posted Directors Designated By Investors Owe Fiduciary Duties to the Company as a Whole and Not to the Designating Investor at the Delaware Business Litigation Report.  In his article, he explained

[The Delaware] cases teach that directors designated by particular stockholders or investors owe duties generally to the company and all of its stockholders.  Where the interests of the investor and the company and its common stockholders potentially diverge, the directors cannot favor the interests of the investor over those of the company and its common stockholders.

Professor Bainbridge weighs in (here), agreeing that the above is the general rule, but that in some cases that may not be best.  He gives a few examples, such as a struggling company granting a union nominee a board position or a time when preferred shareholders can elect a board majority because no dividends were paid for a sufficient period of time. He then notes that a director’s “sponsor might reasonably expect the directors not just to ‘advocate’ for the shareholder’s position, but to vote for it and take other action.”  Professor Bainbridge concludes that he still doesn’t “think the sponsor should be able to punish…

Chancellor Chandler issued his ruling yesterday upholding the poison pill Airgas, Inc.’s board of directors adopted in response to Air Products and Chemicals, Inc.’s $5.8 billion hostile takeover ($70/share, all cash). Chancellor Chandler determined that the Airgas board of directors “acted in good faith and in the honest belief that the Air Products offer, at $70 per share, is inadequate.”  (PDF of the case here, thanks to Francis G.X. Pileggi.)

One reason this decision bugs me is that I suspect a good number of people who don’t like insider trading restrictions would be supportive of this decision.  To me, it’s the same question:  What does the shareholder want for his or her shares?  Period.  

For some who don’t like insider trading restrictions, they argue that, at least in non-face-to-face insider trading transactions, the sharedholder did not suffer harm. (See, e.g., Henry Manne.) Sharedholders were offered a price they deemed acceptable, and sold.  Who cares who was on the other side of the transaction?  I find parts of this rationale compelling, although I also find the property rights concerns related to insider trading even more compelling. (See, e.g., Professor Bainbridge.)

For me, the anti-insider-trading rationale…

When Chancellor Chandler decided eBay v. Newmark (pdf) (aka “the craigslist case”), the case triggered all kinds of discussions, including the implications of poison pills and analogies to Dodge v. Ford. I remain interested in the Dodge v. Ford angle and the role of philanthropic goals of a corporation.

There are some who see the craigslist case as an adoption of the Sen. Al Franken version of a corporation’s obligations to shareholders: “[I]t is literally malfeasance for a corporation not to do everything it legally can to maximize its profits.” Of course, there are others who disagree. The Franken-like argument seems be that Delaware’s Revlon duty (as explained in Time, Inc. – pdf) of requiring the “board to enhance short-term shareholder value” now applies all the time, not just when the board puts the company up for sale. While that makes for good sound bites, and I suppose it is a plausible interpretation, that’s pretty clearly not what Chancellor Chandler meant.

Instead, the Chancellor stated that craigslist’s majority owners “prove[d] that they personally believe craigslist should not be about the business of stockholder wealth maximization, now or in the future.” Thus, he concluded…

Back in 2007, North Dakota passed the North Dakota Publicly Traded Corporations Act (ND Act), which became Chapter 10-35 (Publicly Traded Corporations) of the North Dakota Century Code.  The ND Act provided a shareholder friendly alternative to the state’s Business Corporations Act, Chapter 10-19.1 for companies that were so inclined.  (Find the referenced North Dakota laws here.)

Before the state could pass the law, the state constitution needed be amended, and voters approved the necessary changes in 2006 (for more on the history of the ND Act, see pdf here). A North Dakota-based publicly traded corporation is not subject to the ND Act unless it opts-in, essentially by reincorporating in the state. None of the state’s public corporations existing before the ND Act was passed have done so.  

One of the main provisions of the ND Act gave proxy access for purposes of nominating candidates for election to the board of directors for a “qualified shareholder” of the publicly held corporation subject to the law. N.D. Cent. Code 10-35-08.  A qualified shareholder is a person or group of persons holding 5% of the company’s shares authorized to vote for directors, and each person or member of the group must…

Maryland is now the first state with “benefit corporation” legislation, which requires companies formed under the act to consider stakeholder interests as part of the corporate mission. In addition, the law allows the benefit corporation to set a course to pursue specific public benefit purposes.  Examples include seeking carbon neutrality, giving 50% of profits to charity, and using only local suppliers. 

The law was supported and initially drafted by B Lab, which is “a nonprofit organization dedicated to using the power of business to solve social and environmental problems,” and William H. Clark, Jr., a partner at Drinker Biddle and Reath LLP, in Philadelphia.  Not ironically, Mr. Clark was also the primary drafter of the North Dakota Publicly Traded Corporations Act, a shareholder friendly governance option. Mr. Clark was hired in 2005 by a group of shareholder activists, including Carl Icahn, to draft the North Dakota act. 

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.