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This timely post comes to us from Jeremy R. McClane, Associate Professor of Law and Cornelius J. Scanlon Research Scholar at the University of Connecticut School of Law.  Jeremy can be reached at jeremy.mcclane@uconn.edu. 
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Spotify, the Swedish music streaming company known for disrupting the music market might do the same thing this week to the equity capital markets. On April 3, Spotify plans to go public but in an unusual way. Instead of issuing new stock and enlisting an underwriter to build a book of orders and provide liquidity, Spotify plans to cut out the middleman and list stock held by existing shareholders directly on the New York Stock Exchange.

This will be an interesting experiment that will test some prevailing assumptions that about how firms must raise capital from the public.

The Importance of Bookbuilding. First, we will see just how important bookbuilding is to ensuring a successful IPO. When most companies go public, they hire an underwriter to market the shares in what is known as a “firm commitment” underwriting. The investment banks commit to finding buyers for all of the shares, or purchasing any unsold shares themselves if they cannot find buyers (an occurrence which never happens in practice). The process involves visiting institutional investors and building a book of orders, which are then used to gauge demand and set a price at which to float the stock. The benefit of this process is risk management – the issuing company and its underwriters try to ensure that the offering will be a success (and the price won’t plummet or experience volatile ups and downs) by setting a price at a level that they know market demand will bear, and ensuring that there are orders for all of the shares even before they are sold into the market.

Without underwriters or bookbuilding, Spotify is taking a risk that its share price will be set at the wrong level and become unstable. In Spotify’s case, however there is already relatively active trading of shares in private transactions, which gives the company some indication of what the right price should be. Nonetheless, that indication of price is volatile, in part because the securities laws limit the market for its shares by restricting the number of pre-IPO shareholders to 2,000, at least in the US. In 2017 for example, the price of Spotify’s shares traded in private transactions ranging from $37.50 to $125.00, according to the company’s Form F-1 registration statement.

Within the past 24 hours, I’ve seen at least three news article that led me to reflect on my past blog posts. Rather than write a full post on each article, I’ve decided to note some observations.

The Tweet That Launched A Boycott (And Maybe a Buycott)

I’ve been skeptical in the past about whether boycotts work.  Perhaps times are changing. This week, Parkland shooting survivor David Hogg tweeted that advertisers on Laura Ingraham’s cable show should pull out after she tweeted,  “David Hogg Rejected By Four Colleges To Which He Applied and whines about it. (Dinged by UCLA with a 4.1 GPA…totally predictable given acceptance rates.) https://www.dailywire.com/news/28770/gun-rights-provocateur-david-hogg-rejected-four-joseph-curl …”  On March 28th, the 17-year old activist responded with “Soooo what are your biggest advertisers … Asking for a friend. .” He then provided a list of her top twelve sponsors.

As of 8:00 p.m. tonight, the following companies dumped the Fox show, eleven after the talk show host had apologized, stating “On reflection, in the spirit of Holy Week, I apologize for any upset or hurt my tweet caused him or any of the brave victims of Parkland… For the record, I believe my…

As I read recent news reports (starting a bit over a week ago and exemplified by stories here, here, here, and here–with the original story featured here) about Carl Icahn’s well-timed sale of Manitowoc Company, Inc. stock, I could not help but associate the Icahn/Manitowoc intrigue with the Stewart/ImClone affair from back in the early days of the new millennium–more than 15 years ago.  As many of you know, I spent a fair bit of time researching and writing on Martha Stewart’s legal troubles relating to her December 2001 sale of ImClone Systems, Inc. stock.  Eventually, I coauthored and edited a law teaching text focusing on some of the key issues.  A bit of my Martha Stewart work is featured in that book; much of the rest can be found on my SSRN author page.  For those who may not recall or know about the Stewart/ImClone matter, the SEC’s press release relating to its insider trading enforcement action against Stewart is here, and it supplies some relevant background.  (Btw, ImClone apparently is now a privately held subsidiary of Eli Lilly and Company organized as an LLC.)

In reading about Icahn’s Manitowoc stock sale…

I live in South Florida and have friends who live in Parkland, Florida, the site of the most recent school shooting. Like many, I’ve found solace and inspiration in the young survivors and their families who have taken to the streets and visited Washington, D.C. to demand action to prevent the next tragedy. Who knows whether they will succeed where others have failed. I certainly hope so.

I’m more surprised though, with the reactions of major companies such as WalMart, Dicks, REI, United Airlines, Hertz, Symantec and others that have cut ties with the National Rifle Association or have changed their sales practices. Skeptics have observed that corporations take “controversial” stances only when it’s cheap or easy and that this stance against the NRA isn’t even that controversial. But, it certainly hasn’t been “cheap” for Delta Airlines. Notwithstanding the fact that the airline employs 33,000 people in the state, Georgia has passed a bill to eliminate a proposed $50 million tax break because Delta announced plans to end its discount for NRA members. 

The gun control issue is the latest in a string of public policy debates that have divided corporations over the past year. CEOs have taken positions on…

I love the Kardashians. I don’t watch the reality show, but I do keep up with them because I use them in hypotheticals in class and in exams for entity selection questions. The students roll their eyes, but invariably most of them admit to knowing everything about them. When the students can relate to the topic, it makes my job easier. That’s why I used the SNAP IPO last year as our case study on basic securities law. Every year I pick a “hot” offering to go through some of the key principles and documents, and Snap was the logical choice because the vast majority of the students love(d) the Snapchat app. The company explained as its first risk factor “… the majority of our users are 18-34 years old. This demographic may be less brand loyal and more likely to follow trends than other demographics. These factors may lead users to switch to another product, which would negatively affect our user retention, growth, and engagement.” I used myself as an example to explain that risk factor in class. I have over 100 apps on my smartphone, and I have a son in the target demographic, but I  never open…

This may be obsolete by the time you read this post, but here are my thoughts on Corporate Governance, Compliance, Social Responsibility, and Enterprise Risk Management in the Trump/Pence Era. Thank you, Joan Heminway and the wonderful law review editors of Transactions: The Tennessee Journal of Business Law. The abstract is below:

With Republicans controlling Congress, a Republican CEO as President, a “czar” appointed to oversee deregulation, and billionaires leading key Cabinet posts, corporate America had reason for optimism following President Trump’s unexpected election in 2016. However, the first year of the Trump Administration has not yielded the kinds of results that many business people had originally anticipated. This Essay will thus outline how general counsel, boards, compliance officers, and institutional investors should think about risk during this increasingly volatile administration. 

Specifically, I will discuss key corporate governance, compliance, and social responsibility issues facing U.S. public companies, although some of the remarks will also apply to the smaller companies that serve as their vendors, suppliers, and customers. In Part I, I will discuss the importance of enterprise risk management and some of the prevailing standards that govern it. In Part II, I will focus on the changing role…

I suspect click-bait headline tactics don’t work for business law topics, but I guess now we will see. This post is really just to announce that I have a new paper out in Transactions: The Tennessee Journal of Business Law related to our First Annual (I hope) Business Law Prof Blog Conference co-blogger Joan Heminway discussed here. The paper, The End of Responsible Growth and Governance?: The Risks Posed by Social Enterprise Enabling Statutes and the Demise of Director Primacy, is now available here.

To be clear, my argument is not that I don’t like social enterprise. My argument is that as well-intentioned as social enterprise entity types are, they are not likely to facilitate social enterprise, and they may actually get in the way of social-enterprise goals.  I have been blogging about this specifically since at least 2014 (and more generally before that), and last year I made this very argument on a much smaller scale.  Anyway, I hope you’ll forgive the self-promotion and give the paper a look.  Here’s the abstract: 

Social benefit entities, such as benefit corporations and low-profit limited liability companies (or L3Cs) were designed to support and encourage socially responsible business. Unfortunately, instead

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Perhaps I’m a cynic, but I have to admit that I was stunned when the news of hotelier  Steve Wynn’s harassment allegations at the end of January caused a double-digit drop in stock price.  What began as an unseemly story of a $7.5 million settlement to a manicurist at one his of his resorts later morphed into a story about his resignation as head of the finance chair of the Republican National Committee. Not only did he lose that job, he also lost at least $412 million (the company at one point lost over $3 billion in value). His actions have also led regulators in two states to scrutinize his business dealings and settlements to determine whether he has violated “suitability standards.”  Nonetheless, Wynn has asked his 25,000 employees to stand by him and think of him as their father. The question is, will the board stand by him as it faces potential liability for breach of fiduciary duty?

The Wynn board members should take a close look at what happened with the Humane Society yesterday. That board chose to retain the CEO after ending an investigation into harassment allegations. A swift backlash ensued. Major donors threatened…

At The University of Tennessee College of Law, we have a four-credit-hour, four-module course called Representing Enterprises that is one of three capstone course offerings in our Concentration in Business Transactions.  In Representing Enterprises, each course module focuses on a different aspect of transactional business law, often a specific transaction or task.  We try to both ask the enrolled students to apply law that they have learned in other courses (doctrinal and experiential) and also introduce the students to applied practice in areas of law to which they have not or may not yet have been exposed.

I have been teaching the first module over the past few weeks.  We finish up tomorrow.  My module focuses on disclosure regulation.  I have five class meetings, two hours for each meeting, to cover this topic.  Each class engages students with a hypothetical that raises disclosure questions.

The first class focused on general rule identification regarding the applicable laws governing disclosure in connection with the purchase of limited liability membership interests.  Specifically, our client had bought out his fellow members of a member-managed Tennessee limited liability company at a nominal price and without giving them full information about a reality television opportunity our…

Indiana University legal studies professor Abbey Stemler sent along this description of an article she co-wrote with Harvard Business School Professor Ben Edelman. They recently posted the article to SSRN and would love any feedback you may have, in the comments or via e-mail. 

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Perhaps the most beloved twenty-six words in tech law, Section 230 of the Communications Decency Act of 1996 has been heralded as a “masterpiece” and the “law that gave us the modern Internet.” While it was originally designed to protect online companies from defamation claims for third-party speech (think message boards and AOL chat rooms), over the years Section 230 has been used to protect online firms from all kinds of regulation—including civil rights and consumer protection laws.  As a result, it is now the first line of defense used by online marketplaces to shield them from state and local regulation.

In our article recently posted to SSRN, From the Digital to the Physical: Federal Limitations on Regulating Online Marketplaces, we challenge existing interpretations of Section 230 and highlight how it and other federal laws interfere with state and local government’s ability to regulate online marketplaces—particularly those that dramatically shape…