My paper, Crony Stakeholder Capitalism, 111 Ky. L.J. 441, 442 (2023), is now available on Westlaw, and I have posted the final version on SSRN here. Below is the abstract.

Capitalism in the context of corporate governance may be understood as an economic system that equates efficiency with corporate managers only pursuing projects that they reasonably expect will have a positive impact on the value of the corporation’s shares (accounting for opportunity costs). Such projects may be referred to as positive net-present-value (NPV) projects. Stakeholder capitalism, on the other hand, may be understood a number of different ways, including: (1) an improved form of calculating NPV; (2) a conscious choice to sacrifice some NPV in order to advance broader social objectives; (3) a form of rent-seeking; (4) a form of green-washing; (5) a manifestation of the agency problem whereby managers prioritize their personal political preferences over NPV; (6) a manifestation of the agency problem whereby managers prioritize their personal financial wealth over NPV; (7) a form of crony capitalism. Of these, an argument can be made that only the first is both legal and efficient, at least in the case of Delaware corporations operating under the relevant default

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I’m intrigued by the Caremark claims that were just filed against Fox Corp.

If you’re online enough to be reading this blog post, you probably already know that Fox Corporation and its subsidiary, Fox News, have been sued by Dominion Voting Systems for promoting lies about how its equipment was used to steal the presidency from Donald Trump.  The trial is set to begin and what evidence we have suggests that Dominion has a strong case.  Namely, it appears that Fox News internally was very aware that it was airing unsubstantiated (and lunatic) conspiracy theories, but intentionally stifled criticism out of a concern that its viewership would abandon the channel if it reported truthfully. 

Anyway, somewhat predictably, this week a stockholder filed a Caremark claim against Fox Corp, and there’s every reason to believe more plaintiffs will file similar actions.  The allegations in the current complaint are that Fox Corporation’s board knowingly allowed the Fox News subsidiary to air false claims of election fraud.

Now, it’s too soon to know exactly how the defamation case will play out – though the judge decided that Fox’s statements were false on summary judgment, and further held that Fox…

From America First Legal (here) on April 5, 2023:

Today, as part of its initiative under the Center for Legal Equality, America First Legal (AFL) asked the U.S. Equal Employment Opportunity Commission (EEOC) to open a civil rights investigation into McDonald’s Corporation for engaging in unlawful, discriminatory hiring practices. Federal law forbids discrimination based on race, color, religion, sex, or national origin by an employer against an employee or potential employee. Yet, McDonald’s publicly admits to intentionally violating this law. McDonald’s even created a “Diversity Snapshot” that breaks down its staffing goals by race …. As part of its “Allyship through Accountability” program, McDonald’s actively uses hiring practices focusing on immutable characteristics rather than skillsets…. The odious and illegal practice of hiring based on immutable characteristics like race is a flagrant attack on civil rights that harms all Americans. Under the guise of “equity,” companies like McDonald’s openly discriminate against individuals without facing any repercussions or pushback. America First Legal is determined to stop the destructive hiring practices of woke companies across the country and will continue to fight for equal opportunity for all Americans.

Gene Hamilton, America First Legal Vice President and General Counsel, added the following:

So

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I blogged a few times about 10(b) cases raising the question of when shareholders of a publicly traded parent company can sue its wholly-owned subsidiary for the subsidiary’s false statements.  The latest, In re CarLotz Inc. Securities Litigation, 2023 WL 2744064 (S.D.N.Y. Mar. 31, 2023), denied such claims by shareholders of a pre-merger SPAC seeking to hold the pre-merger target liable for misleading investor presentations about its business.  The case was the natural result of the Second Circuit’s decision in Menora Mivtachim Insurance Ltd. v. Frutarom Industries Ltd., 54 F.4th 82 (2d Cir. 2022), which I blogged about here.

CarLotz was in the business of facilitating used car sales from their original owners to retail customers.  Acamar, a SPAC, went public in February 2019, and struck a deal to merge with CarLotz in October 2020.  A prospectus and registration statement were filed in December 2020 to register the new Acamar shares that would be issued as merger consideration, and Acamar shareholders approved the deal in January 2021.

After the announcement of the deal but before the merger, CarLotz’s officers were alleged to have made a false statements about CarLotz’s business.  The truth was revealed after the merger…

Imagine a group of state university faculty sitting around a table discussing their upcoming five-year plan. They decide that one of their priorities will be to promote some or all of the following eight concepts in their classes (the hypo also works if you imagine a board of directors contemplating priorities for mandatory employee training):

1. Black people are morally superior to White people.
2. White people are inherently racist.
3. All White people are privileged, and all Black people are oppressed.
4. Assertions of color-blindness are racist.
5. White people should be discriminated against because of actions committed in the past by other White people.
6. White people should be discriminated against to achieve diversity, equity, and inclusion.
7. All White people bear personal responsibility for and must feel guilt, anguish, or other forms of psychological distress because of actions committed in the past by other White people.
8. Such virtues as merit, excellence, hard work, fairness, neutrality, and objectivity are racist and were created by White people to oppress Black people.

If you think that should be illegal (or if you think that would be the best of all possible worlds), then you might be interested in a recent Federalist Society litigation update on the Stop…

On March 13, 2023, Magistrate Judge Wicks dismissed a claim for disgorgement of short-swing profits against a 10% beneficial owner of 1-800 Flowers, on the grounds that the plaintiffs lacked Article III standing.  See Packer on Behalf of 1-800 Flowers.com v. Raging Capital Mgmt LLC, 2023 WL 2484442 (E.D.N.Y. Mar. 13, 2023).  The decision is currently on appeal.

Section 16(b) of the Exchange Act provides:

For the purpose of preventing the unfair use of information which may have been obtained by [a] beneficial owner, director, or officer by reason of his relationship to the issuer, any profit realized by him from any purchase and sale, or any sale and purchase, of any equity security of such issuer … within any period of less than six months, … shall inure to and be recoverable by the issuer, irrespective of any intention on the part of such beneficial owner, director, or officer in entering into such transaction …

The statute was enacted in 1934 to prevent insider trading; Congress believed that corporate insiders regularly misused information they obtained in their capacity as fiduciaries, and that the only feasible way to prevent such misuse was to bar insiders from earning profits…

The following is from the ADF press release, which you can find here.

The U.S. Securities and Exchange Commission has ruled against JPMorgan Chase’s attempt to exclude a shareholder resolution on viewpoint diversity from its ballot for its annual shareholder meeting…. Submitted by the Bahnsen Family Trust, the proposal directs Chase’s board of directors to evaluate and issue a report on the bank’s disturbing trend of politicized debanking…. In the past two years, Chase has denied payments or canceled accounts associated with people and organizations who hold mainstream American values, such as former Ambassador Sam Brownback, the Arkansas Family Council, and Defense of Liberty…. The SEC ruling comes amid a rising wave of opposition to Chase’s engagement in cancel culture through politicized debanking. Chase was featured prominently in the “Statement on Debanking and Free Speech,” signed in November of last year by a group of nearly 60 financial professionals. Last week, Nebraska State Treasurer John Murante led a group of 14 colleagues in a letter to Chase CEO Jamie Dimon calling on him to address and correct the issue by adopting policies recommended by ADF’s Viewpoint Diversity Score 2022 Business Index and providing necessary

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