Jason Brennan has posted Diversity for Justice vs. Diversity for Performance: Philosophical and Empirical Tensions on SSRN (here).  The abstract:

Many business ethicists, activists, analysts, and corporate leaders claim that businesses are obligated to promote diversity for the sake of justice. Many also say—good news!—that diversity promotes the bottom line. We … need not choose between social justice and profits. This paper splashes some cold water on the attempt to mate these two claims. On the contrary, I argue, there is philosophical tension between arguments which say diversity is a matter of justice and (empirically sound) arguments which say diversity promotes performance. Further, the kinds of interventions these distinct arguments suggest are different. Things get worse when we examine the theory and empirical evidence about how diversity affects group performance. The kind of diversity which promotes justice and the kind which promotes the bottom line are distinct—and the two can be at odds.

Hi, so first, if you’re reading this, you probably already noticed, but for what it’s worth, it appears that email notifications of new posts have entirely stopped.  So, if you’ve been following us via email up until now, please be aware you’ll need to switch to another method – I personally use Feedly to keep track of blog updates.

With that out of the way, obviously, my specialty is corporate and securities law, and one of the odder things about this space is that while it has incredibly well-developed standards for evaluating and litigating fraud claims, those standards are very different from the standards for fraud claims in other areas of law.

I was reminded of this when I read the decision denying a motion to dismiss in Fishon v. Peloton Interactive, 2022 U.S. Dist. LEXIS 143930 (S.D.N.Y. Aug. 11, 2022).  Fishon is a consumer fraud action brought under New York law against Peloton for misrepresenting the breadth of its song catalog.  Defendants argued, among other things, that the plaintiffs could not prove they had heard any misrepresentations, and therefore they had not been injured. The court rejected that argument, holding:

a plaintiff can also plead both injury and causation

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Delaware recently amended its General Corporation Law to permit corporations to adopt charter provisions that would exculpate top officers, as well as directors, from damages liability associated with care violations.

The catch is, unlike with directors, officer liability can only be eliminated for direct shareholder claims – not claims brought by the corporation, including derivative claims.  In other words, the amendments aren’t there to prevent officer liability; they’re there to prevent officer liability as dictated by shareholders.  When directors decide officers should be liable – or shareholders can show directors are incapable of deciding – then officer liability may follow.

So this is a little different than the theory behind director exculpation.  Director exculpation is a protection against the threat of frivolous lawsuits, to some extent, but it also functions so directors can substantively do their jobs without fear that they will be subject to ruinous liability for well meaning mistakes.  That fear, it was posited, would deter people from wanting to be directors in the first place.

Officers, though, they aren’t exactly being protected from ruinous liability over their mistakes – the corporation/directors can still sue them for those.  Which means there’s a lot less concern that…

FINRA has returned to the SEC with a new proposed rule change to address problems with its expungement system.  Although the proposal continues to use arbitration to facilitate stockbroker expungements, the new proposal makes some significant changes over prior proposals.

A bit of history may help put this in context.  Two years ago, FINRA released a proposal to reform its expungement process. I wrote two comment letters in response to that proposal, prompting FINRA to amend the proposal twice.   The twice-revised proposal was ultimately withdrawn so FINRA could study the issue before returning with another proposal.  That new proposal is now here.  I put together this chart to track some of my recommendations to see what has been adopted and what has not.

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I’m currently working on a piece on anti-ESG legislation for our upcoming BLPB Symposium. According to The Heartland Institute (here), as of April 5, 2022, twenty-eight states have initiated some form of “anti-ESG action.” So, recent news of Florida Governor Ron DeSantis pushing for further action in this area caught my eye. Here is an excerpt from relevant coverage by WFSU (go read the full piece here):

DeSantis plans to have the State Board of Administration, which oversees investments, direct pension-fund managers against “using political factors when investing the state’s money.” So-called ESG policies have drawn criticism from Republicans across the country…. Renner, who will become House speaker after the November elections, called the corporate practices a national-security issue and a pocketbook issue. “What we have is these large corporations and banks that are pursuing a woke agenda that is artificially driving up our costs in energy,” Renner said. “There’s a reason why we haven’t built new refineries. There’s a reason why we’re not drilling for oil even though we have more reserves in this country than any other place in the world, it’s because the banks and this woke agenda is choking off their ability to

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As the world watches this unfold, I figured I’d blog this week to make a point I’ve expressed in other spaces (Twitter, etc), but I haven’t articulated here.

Where we are in this saga:  Musk sent a letter to Twitter on July 8, publicly filed with the SEC, purporting to terminate the merger agreement due to what he claimed were three contract breaches by Twitter.  First, Twitter falsely represented the amount of spam/bots on the platform; second, Twitter failed to provide information to Musk that was necessary to consummate the transaction (i.e., information about the amount of spam on the platform); third, Twitter failed to operate in the ordinary course by instituting a hiring freeze and laying off some employees. 

Twitter filed a lawsuit against Musk on July 12 seeking specific performance, arguing that it had not breached the agreement and that Musk, himself, was in breach, by failing to use his best efforts to consummate the deal as he promised to do.  (Links to case filings, by the way, are taken from this handy archive set up by Andrew Jennings.)

Musk filed an answer with counterclaims yesterday, but it’s under seal, so we’ll have to wait for a…