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Bloomberg had a story this week on some new anti-ESG shareholder proposals put forth by the National Legal and Policy Center. The proposals ask McDonald’s and other companies to de-link executive pay from diversity goals, on the grounds that, among other things, DEI programs are now the subject of various lawsuits (I will leave it to the reader to imagine a picture of a guy in a hot dog suit).

I had a very mixed reaction to this news. My priors are, there are a lot of legitimate criticisms of DEI programs – they’re ineffective, they’re greenwashing, and the compensation measures are weak – but I worry that many of the current attacks are not grounded in concern that DEI programs are ineffective, but in concerns that they are effective in making workplaces and other spaces more welcoming to underrepresented groups, a position that I find morally objectionable.

Historically, though, anti-ESG proposals tend to fare very poorly at the ballot box, and even though activists like Robby Starbuck have been successful in intimidating companies into backing away from DEI efforts, it is not at all clear this is something shareholders support. Therefore, my original thinking was, I’m…

Earlier this year, the SEC released a rule treating significant market participants as “dealers” or “government security dealers.” The fact sheet explains the rationale was to update existing rules to capture modern electronic trading activity. The rule would apply to businesses that are:

  • Regularly expressing trading interest that is at or near the best available prices on both sides of the market for the same security and that is communicated and represented in a way that makes it accessible to other market participants; or
  • Earning revenue primarily from capturing bid-ask spreads, by buying at the bid and selling at the offer, or from capturing any incentives offered by trading venues to liquidity supplying trading interest.

At the time, I didn’t see the rule as particularly controversial. Market-makers have long been regulated. As trading technology changed, market participants began acting like market-makers without operating under the same regulatory standards. Firms subject to the rule would be required to register and possibly join an SRO if appropriate. The proposal generated a significant comment file and predictable litigation followed.

Two cases challenging the rule were filed in Texas. District Court Judge Reed O’Connor vacated the rule in both cases, one filed by the…

Well, the Fifth Circuit reached its decision in National Center for Public Policy Research et al. v. SEC, which I previously blogged about here and here. As I predicted, the panel chose to leave the SEC’s 14a-8 review process in place, but also as I suspected, Judge Jones – the only GOP appointee on the panel – dissented.

So I presume we’ll see a petition for rehearing en banc, and it wouldn’t surprise me at all if the full court took up the case, meaning, this may not the final word.

Recall, the claim was that the SEC engages in viewpoint discrimination when it issues no-action letters regarding companies’ attempts to exclude shareholder proposals from their proxy statements.  NCPPR claimed the SEC favors liberal proposals and disfavors conservative ones.  Separately, the National Association of Manufacturers intervened to argue that the entire 14a-8 system is unauthorized by the Exchange Act and is unconstitutional.

The SEC’s main argument was that no-action letters are not final orders subject to challenge.  The Democratic appointees on the panel agreed, but assuming Judge Jones’s dissent is a template for how the full Fifth Circuit would view the matter, it threatens to scramble the 14a-8…

Elon Musk is using his new quasi-official role with the federal government to threaten to preempt Delaware law with federal corporate governance standards, if the Delaware Supreme Court does not restore his Tesla pay package.

And another thing, on this week’s Shareholder Primacy podcast, Mike Levin talks with Matt Moscardi of Free Float Analytics about what shareholders should and do look for in director candidates, and how to use advanced data and modeling to identify good and bad directors. Available on Spotify, Apple, and Youtube.

  • Administrative agencies may focus on repealing existing rules over crafting new ones to address problems.  We saw this with the last Trump Administration and I’d expect to see more of the same.
  • The Trump Administration will likely move to exert more political control over civil servants.  At the end of the last Trump Administration, President Trump issued an Executive Order aiming to exclude many more federal employees as outside the ordinary civil service rules. President Biden revoked it on taking office.  If reinstated, Schedule F would cover “[p]ositions of a confidential, policy-determining, policy-making, or policy-advocating character not normally subject to change as a result of a Presidential transition[.]”   Essentially, the Trump Administration may seek to take political control over any federal employees involved in policy work.  This would cover a huge swath of federal employees.
  • The independence of the SEC will be tested.  There are two ways I can see this happening.  First, Chair Gensler could decline to resign and simply serve out his term.  President-elect Trump has promised to fire him.  But
…

Many readers know Bill Carney, Professor Emeritus at Emory Law. Bill’s scholarly and instructional work in business finance has enlightened so many of us. That, alone, is a great legacy of his many years of research, writing, and teaching.

But now we have another reason to celebrate Bill and the mark he is leaving on our world. Last week, Emory announce a major gift from Bill, creating the William and Jane Carney Center for Business and Transactional Law at Emory Law. Many know about Emory Law’s historical leadership in business law through its Center for Transactional Law and Practice (which is encompassed in the Carney Center). Bill has been a strong component and proponent of that leadership. This gift will undoubtedly ensure a continued academic and instructional focus on business law at Emory Law for the foreseeable future.

I am thrilled for Emory Law and my friends there. And we all can be grateful to Bill for so much–including this. Business law education needs more of this kind of support.

One issue that I keep coming back to concerns the conflicts inherent in asset management.  Namely, mutual fund companies control lots of funds; each fund is its own entity, and presumably has its own interests; and yet historically, they’ve tended to be managed as a group, with – for example – all funds voting relatively in tandem, even if different funds might have different sets of interests (not always; sometimes there are legal reasons to separate them).

Anyway, it’s a subject I’ve written about in the past, and I’m always fascinated when a new empirical paper pops up illustrating the coordinated management of funds. Recently there have been a couple of interesting ones on the subject of ESG.  Previously, I blogged about this paper by Roni Michaely, Guillem Ordonez-Calafi, and Silvina Rubio, which finds that mutual fund families let their ESG funds vote separately in support of ESG issues only when those votes are unlikely to be the pivotal ones, because the proposal is widely supported or widely opposed.  When it’s a close vote, their ESG funds are reined in to the house view.

And now there’s ESG Favoritism in Mutual Fund Families, by Anna Zsofia Csiky…

I know this is late notice, but I have a small role in an online symposium on benefit corporations being held today at 3:30 pm Eastern (12:30 pm Pacific). The symposium features essays on Professor Michael Dorff’s recent book on benefit corporations, Becoming a Benefit Corporation. The essays will be published in a forthcoming issue of the Southwestern University Law Review. I am writing a foreword for the issue. If you have time and want to register to attend, the flyer is included above. You also can just register here.