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It seems like almost everyone, including the President of the United States, has been offering grandiose ideas to reform legal education. Rather than add to that cacophony, I’m thinking on a micro-level, wondering how I might change my favorite course, Securities Regulation. I think we may be teaching securities registration exemptions backwards.

A very quick overview for those not versed in federal securities law: A company raising money by selling securities must register its offering with the SEC unless it has an exemption from the registration requirement. A number of exemptions are available and companies would prefer an exemption, ceteris paribus, because registration is very expensive.

In securities law practice, the analysis typically proceeds in this order:

Offering Details–Universe of Possible Exemptions–Modification of Offering–Particular Exemption.

The client presents the lawyer with a proposed offering. The client has typically already given some thought to the amount of money needed, the proposed offerees, and perhaps even the manner of offering to those people. The lawyer considers those constraints, considers the universe of possible exemptions and, perhaps after a modification to what the client wants, chooses a particular exemption.

This is also how securities professors like me often test their students…

This is a “thinking out loud” post, which means I’m not sure
I’ve got the analysis correct, but feel it’s worth floating by readers in
draft form in an attempt to generate some discussion (which may include the
comment: “you are obviously wrong, and here’s why”).  I realize not all academic bloggers agree
this is an appropriate use of the blogosphere, but you now know my current
position on that issue.  (By the way, if
you do post a comment, please consider also emailing me directly at
spadfie@uakron.edu because I’m not clear on what sort of comment alerts we get
when comments are posted and I’d hate to miss one.)  So, with disclaimers firmly in place:

A few weeks ago, The CLS Blue Sky Blog posted a piece by
Pepper Hamilton on Round Two of Shareholder Say-on-Pay Litigation. Here is a relevant excerpt:

The third proxy season of the Dodd-Frank Act’s mandatory shareholder
“say-on-pay” advisory votes is well underway, and “round two” of shareholder
say-on-pay litigation is in full swing. Unlike the first round of say-on-pay
lawsuits, which were based on negative advisory votes that had already
occurred, this second wave of shareholder litigation, which began

…

As I mentioned in my opening post, I’m a big fan of Jay
Brown.  So, I plan on routinely passing
on what he’s blogging about.  This week,
I’ve got two items:

In Corporate Governance, the SEC, and the Declining
Importance of Delaware Law, Jay suggests that “the SEC, rather than Delaware,
may increasingly be the driving force behind the development of substantive
duties for directors.”  Here’s an
excerpt:

[In] In re Alderman … the Commission settled an action
against directors of a mutual fund.  The
Commission first found a duty — 
“Under the Investment Company Act, directors had an obligation to
make good faith efforts to ensure that certain below-investment grade debt
securities for which market quotations were not readily available were valued at fair
value.”  The Commission then
concluded that this duty had not been fulfilled…. Likewise, the Commission has
sanctioned companies and boards for failing to adequately disclose the process
used in reaching a decision…. Unlike the law in Delaware where less board
involvement usually reduces the risk of liability (and encourages the ostrich
approach to governance), these cases suggest that greater involvement by
directors will in fact reduce the risk

…

Ronald Coase died this past Monday, and Stephen Bainbridge posted some related commentary here, as well as an excerpt of his review of Coase’s book The Firm, the Market, and the Law (here).  What follows are two of my favorite Coase quotes, taken from pages 3-4 of that book:

  • The rational utility maximizer of economic theory bears no resemblance
    to the man on the Clapham bus or, indeed, to any man (or woman) on any
    bus. There is no reason to suppose that most human beings are engaged in
    maximizing anything unless it be unhappiness, and even this with
    incomplete success.
  • In mainstream economic theory, the firm and the market are, for the most part, assumed to exist and are not themselves the subject of investigation.  One result has been that the crucial role of the law in determining the activities carried out by the firm and in the market has been largely ignored.

For those who have followed
the shareholder activism debate between Harvard Professor Lucian Bebchuk
(see a recent op-ed
piece here), corporate lawyer Martin Lipton from Wachtell, Professor
Stephen Bainbridge of UCLA  (see here for
example) and others, a new article provides some additional data
points.  In their article,
Professors Paul Rose of Ohio State and Bernard Sharfman of Case Western use the
work of Kenneth Arrow as a basis to discuss offensive shareholder activism. The
abstract is below:

Under an Arrowian
framework, centralized authority and management provides for optimal decision
making in large organizations. However, Arrow also recognized that other
elements within the organization, outside the central authority, occasionally
may have superior information or decision making skills. In such cases, such
elements may act as a corrective mechanism within the organization. In the
context of public companies, this article finds that such a corrective
mechanism comes in the form of hedge fund activism, or more accurately,
offensive shareholder activism. 

Offensive shareholder activism exists in the market for corporate influence,
not control. Consistent with a theoretical framework where the value of
centralized authority must be protected and a legal framework in which
fiduciary responsibility rests with the board…

I’m the newest member to the Business Law Prof Blog and also
the newest member of the team to academia. 
In my past life, I spent several years as outside counsel doing
commercial litigation and labor and employment work and then twelve years as
in-house counsel, leaving corporate life as a deputy general counsel, chief
privacy officer, and compliance and ethics officer.  That experience guides my scholarly and
teaching interests, which include corporate governance, regulatory compliance,
corporate social responsibility, business and human rights, legal ethics, legal
issues related to social enterprises and social entrepreneurship; and how
legislation affects and motivates corporate behavior.

To that end I have written on (1)  the need for
an affirmative defense to corporate criminal liability for an effective
compliance program, using the FCPA as a pilot;  (2) the potential
unintended consequences of the Dodd-Frank conflict minerals provision,
which requires US issuers to disclose whether they source minerals from the
Democratic Republic of Congo and relies on the SEC for execution of this human
rights law; and (3) how the government can incentivize corporations to move beyond
voluntary initiatives and industry standards for human rights due diligence in
the wake of  the 2011…

Greetings Business Law Prof Blog Readers.   By way of quick introduction, I am a business law professor
at Georgia State University, College of Law in Atlanta, Georgia.  I teach Corporations, Contracts, and
Unincorporated Business Associations, which is a hybrid doctrinal and
experiential class where students learn default rules and negotiate and draft
three agreements.  My research broadly
focuses on the roles, rights, and responsibilities of corporations.  What does that
mean?  It means that I am interested in the
spaces where corporate law bumps up against the rights of individuals or intersects
with society more broadly.  For example,
I wrote about corporate director oversight liability in the middle of the financial
crisis.  I wrote a few pieces on
corporate political spending and speech rights in the wake of Citizens United.  My latest projects have looked at the
millions of Americans who invest in the stock market through defined
contribution plans for retirement savings, becoming what I call citizen
shareholders, and challenge some of the fundamental assumptions about corporate
power balancing mechanisms, shareholder rights and the roles of corporate,
securities and ERISA laws.

In my experience, if I am not writing, I am not reading or thinking about issues the…

The future leadership of the Federal Reserve, at a time when
the Fed has indicated an inclination to change policy and lessen quantitative
easing, is uncertain with the anticipated retirement of Chairman Ben Bernanke
at the end of this year.  At the center
of the debate is whether President Obama should pick Lawrence
Summers or Janet
Yellen, the two front-runners, to replace Bernanke.  The topic has been surprisingly controversial
and received significant play in the mainstream press fueled in no small part
by the spotlight the contenders shine on gender issues.  Lawrence Summers, ended his term as Harvard’s
president amid controversy for his remarks
attributing the gap between male and female advancement in hard sciences to
inherent differences between the sexes. 
(The legacy of his presidency was also marred by a billion
dollar endowment loss due to poor investments under his leadership.)  Janet Yellen is not just a counter point to
Summers; she serves as her own figurehead in this debate.  If appointed, Yellen would be the first
female to lead the Federal Reserve, an important milestone for women. It could
also be a potentially important litmus test for the Obama administration, which
has come under scrutiny for…

I intended to begin with a brief introduction, but I beat myself to the gun. 

I’m happy to be blogging on the Business Law Prof Blog once again. I enjoyed it the first time but got too busy to continue and, quite frankly, ran out of interesting things to say. (People who know me well may doubt that.) I’ll try to keep the posts interesting. If I can’t, I’ll quit. You all have enough drivel to read without me adding to the load.

For those of you who don’t know me, I’m a professor at the University of Nebraska College of Law. I teach Business Associations;  Mergers and Acquisitions; Accounting for Lawyers; Securities Regulation; and Mutual Funds, Investment Advisers, and Brokers. My primary area of research is Securities Act exemptions, particularly small business exemptions. If you read the prior blog, you know I have a strong interest in crowdfunding, and I’m sure I will be blogging more about that as time passes.

I hope you all enjoy the blog. If you have any suggestions for improvement, don’t hesitate to contact one of us.