The Delaware Supreme Court just decided an interesting new case, Diep v. Trimaran Pollo Partners et al., on director independence, over the dissent of Justice Valihura. 

El Pollo Loco is a publicly-traded restaurant chain controlled by Trimaran Pollo Partners, a holding company, which itself is controlled by private equity firm Trimaran Capital Partners, founded in part and controlled in part by Dean Kehler.  The plaintiff filed a derivative action alleging that after the IPO, El Pollo Loco received unfavorable news about the effects of certain price increases, and before this news was made public, several officers and directors – and Trimaran Pollo Partners – were permitted to sell stock.  Trimaran in particular did not receive written preclearance, in violation of the company’s insider trading policy.

After a different, earlier derivative action concerning the same events was filed, Kehler invited two new independent directors to join the board, Floyd and Lynton. Kehler had prior relationships with each – especially Lynton, with whom he had longstanding social ties – and when interviewing each, he mentioned the pending litigation.

Once they were on the board, the Diep case was filed, and the earlier derivative action voluntarily dismissed.  The company and the other…

Abortion is obviously one of our most divisive political issues. Thus, when corporate leaders make decisions related to abortion laws, such as moving out of a pro-life state (see, e.g., CEO: Duolingo will move operations should Pennsylvania ban abortion), a specter of political bias is arguably raised. One normative question that then arises is whether such a decision is sufficiently conflict-prone to warrant enhanced scrutiny, as I have argued here. There is certainly a shareholder-wealth-maximization case to be made for moving out of a pro-life state — specifically, the argument that high-value employees demand such action. But this determination should be supported by something more than trending Twitter comments or the personal biases of decision-makers. Corporate fiduciaries are required to consider all material information reasonably available, and where decision-making is sufficiently prone to conflicts of interest the accountability concerns of corporate governance should trump its protection of discretion.

As a perhaps related aside, one may compare the argument against state universities having official positions on whether the Constitution should be read as protecting abortion. As Prof. Leslie Johns noted in an e-mail she sent to the UCLA Chancellor following his related public statement asserting that Dobbs “is antithetical…

In February 2021, Samuel Gregg argued (here) that: “To expect the rest of the world simply to accept whatever stakeholder-corporatist insiders have decided to be the new global consensus on any given topic seems disconcertedly utopian. It also increases the possibility of more populist backlashes on an international level.”

Yesterday, George Will published an op-ed in the Washington Post that appears to capture some more of this sentiment. You should go read the whole thing (here), but here is a brief excerpt:

The New York Times recently interviewed two advocates of ESG investing. One said, in effect, that only such investing fulfills fiduciary obligations because the welfare of those whose money is being used depends on “a planet that is livable.” Meaning: Politically enlightened ESG advocates know what unenlightened investors would want if they were as intelligent and virtuous as the advocates. The other ESG enthusiast the Times interviewed said “social justice investing” is “the deep integration of four areas: racial, gender, economic and climate justice.” And the “single-issue CEO” — the kind focused on maximizing shareholders’ value — is “not the way of the future.” This is often the progressives’ argument-ending declaration: Non-progressives are on

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Joel Slawotsky has published The Impact of Geo-Economic Rivalry on U.S. Economic Governance: Will the United States Incorporate Aspects of China’s State-Centric Governance?, 16 Va. L. & Bus. Rev. 559 (2022). An excerpt:

China’s corporate governance model emphasizes an extensive governmental role in the construction of economic markets. The paradigm consists of an economic-political syndicate of collaborative actors creating profit but whose critical core mission is to advance state objectives as defined by the ruling authority, the CCP. Economic interests thus serve political interests pursuant to a template of state direction and partnership with the private sector encompassing share ownership; industrial policies; governmental representatives embedded in the private sector; and discipline imposed for failing to comply with syndicate rules…. [S]ome in the U.S. political establishment are in favor of more governmental control to prevent corporate abuse …. To a remarkable degree, the dissatisfaction is already being manifested by attempts to engender greater government involvement in U.S. central bank policy by expanding the Federal Reserve’s (“the Fed”) mandate to encompass a wider spectrum of goals to address social justice objectives…. Moreover, efforts to expand the Fed’s mandate to encompass social goals should also be viewed in the context of proposals

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Recently, the New York Times reported that Howard Schultz wants to rescind the open bathroom policy that Starbucks adopted in 2018.   The backstory, as some may remember, is that two black men in Philadelphia were waiting to meet someone in a Starbucks and they sought to use the bathroom without buying anything.  A store employee ended up calling the cops; they were arrested; protests ensued; and the company announced that anyone would be permitted to use Starbucks bathrooms going forward.

Now, however, Schultz is reconsidering that policy.  Here’s what he said about it:

We serve 100 million people at Starbucks, and there is an issue of just safety in our stores in terms of people coming in who use our stores as a public bathroom, and we have to provide a safe environment for our people and our customers. And the mental health crisis in the country is severe, acute and getting worse.

Today, we went to a Starbucks community store in Anacostia, five miles from here, which is a community that unfortunately is emblematic of communities all across the country that are disenfranchised, left behind. And here’s Starbucks building a store for the community. Now, we had

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Today’s press release from Prof. Lawrence Cunningham states in part:

Twenty-two of the nation’s leading professors of law and finance today wrote the Securities and Exchange Commission (SEC) to renew their doubts about the agency’s authority to adopt a new far-reaching climate disclosure regime and to urge an immediate withdrawal of the proposal. Initially writing in response to the SEC’s proposed rule requiring U.S. public companies to create and disclose extensive information on greenhouse gas emissions, the professors submitted a public letter in April questioning the authority of a federal financial regulator to collect climate-related information and identifying numerous reasons the proposal may face a challenge in federal courts. Since then, the debate has been joined by a number of other professors who have submitted letters supporting the SEC’s authority. In the letter filed today, the professors weigh these arguments and explain their contrary conclusion.

The full comment letter can be found here. A relevant excerpt:

[T]he clear purpose (and certain effect) of these disclosures is to give third parties information for use in their campaigns to reduce corporate emissions, regardless of the effect on investors…. Imposing substantial costs on some companies to prepare for a “potential transition to a lower

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On the June 16, 2022, episode of the Capital Record podcast, David Bahnsen and Oren Cass have a lively and stimulating conversation about the social utility of private equity. You can find the episode here. Below is a brief description.

David is joined once again by Oren Cass of American Compass, this time to discuss the state of American financial markets. The two have a congenial conversation about private equity and venture capital, what is going wrong with the two, and what the solutions may be. There is more disagreement than agreement, but there is a mutual and sincere effort to identify issues and present thoughtful remedies. Whatever your view may be on what is right or wrong in the evolution of financial markets, you’ll find this robust discussion thoughtful, provocative, and engaging.