Teaching Fellow – Corporate Governance and Practice LLM, Stanford Law School

Stanford Law School offers multiple specialized LLM programs to international students who have practiced law outside the U.S. The Corporate Governance and Practice LLM program admits approximately 20 students annually. Working under the supervision of Professor Michael Klausner, the Faculty Director of the program, the Teaching Fellow will assume significant academic, advising, and administrative responsibilities for these students. Applicants for this fellowship are sought for a two-year commitment, starting in summer 2021.

The Teaching Fellow will be responsible for teaching two courses: one on corporate law from an economics perspective; and another on corporate law practice. The latter course will include outside speakers from practice. The fellow will also organize other academic and social events, and will be responsible for managing the Corporate Governance and Practice LLM program on a day-to-day basis, advising LLM students on academic and career issues, responding to inquiries from prospective LLM applicants, screening and admitting applicants, and interacting with faculty in support of the LLM program goals and needs. The fellow will have the support of and work with the Associate Dean for Graduate Programs, the Associate Dean for Student Affairs, the Executive Director of the International Law Programs, and the Associate Dean for Admissions. Although this is a full-time position, the fellow should be able to spend approximately half their time conducting their own research, and will have ready access to faculty for that purpose.

  • Candidates for this position are expected to have strong academic records and references.
  • Professional experience in corporate practice is required, with three or more years of such experience preferred.  
  • JD from a US school is preferred but candidates with an LLM or JSD will also be considered.
  • In the past, people who have held this position have used it as a step toward a tenure track position at a law school. We have a preference for candidates with an academic career in mind but this is not a requirement.

 

How to Apply:

  1. Submit your application online via the Stanford Careers (http://m.rfer.us/STANFORDFupD0v).
  2. Send the following materials via email to Andrew Jennings at andrew.jennings@stanford.edu: a cover letter (addressed to Professor Klausner), an official law school transcript, a resume/CV, copies of any publications, and the names and contact information for at least three professional references (at least two law professors).

 

Application deadline: Until position is filled

 

Stanford Law School seeks to hire the best talent and to promote a safe and secure environment for all members of the university community and its property. To that end, new staff hires must successfully pass a background check prior to starting work at Stanford University.

* – Consistent with its obligations under the law, the University will provide reasonable accommodation to any employee with a disability who requires accommodation to perform the essential functions of his or her job.

Additional Information:

This is a two-year fixed-term position starting in summer 2021 with the possibility of a third year by mutual consent and approval.

Stanford University is an Equal Opportunity Employer.

Stanford Law School seeks to hire the best talent and to promote a safe and secure environment for all members of the university community and its property. To that end, new staff hires must successfully pass a background check prior to starting work at Stanford University.

BLPB Readers:

The University of Oklahoma (OU) invites nominations and applications for the next Dean of the College of Law. Building upon the successful tenures of the last two deans over 26 years, OU seeks an inspiring leader who can help craft and execute an innovative and inspiring vision for legal education at OU. The Dean of the College of Law is the chief executive officer of the College of Law and reports directly to the Senior Vice President and Provost of The University of Oklahoma. 

The complete announcement can be viewed here.

 

As our legal academy readers know, this week features the annual conference of the Association of American Law Schools (“AALS”), the professional association for law schools and their faculty and staff.  I am sure many of us will publish posts now and later about the conference and its varied programs.  I focus today on the Section on Leadership, of which my Dean (Doug Blaze) is the current chair.  Doug has been among the national leaders in the movement to teach leadership in law schools.  Among other things, he was a founder of the section and of the Institute for Professional Leadership at UT Law (of which I am the current Interim Director).

I highlight two things in this post.

First, the Fall 2020 section newsletter deserves attention.  The entire issue focuses on racism.  It includes a number of short articles written by a variety of contributors, including (but not limited to) law professors.  Tony Thompson, Professor of Clinical Law at NYU Law, introduces the issue, referencing the events that catapulted racism and racial injustice into the legal news and public eye in meaningful ways earlier this year.  He writes: “T]he public protests have . . . sparked . . . a relentless insistence that we acknowledge the stark reality that racism infects every system in this country. We as lawyers, as law teachers, as people who care about justice must actively work toward a genuine reckoning on race and racism in this country.”  Among the contributions are articles written by Berkeley Law Dean Erwin Chemerinsky, a prep school student from Newark, New Jersey, and our Visiting Leadership Fellow at UT Law, David Gibbs.  The issue makes for thought-provoking end-of-year reading and inspires leadership on race issues in and through law teaching (among many other things).

Second, I want to promote the four programs sponsored or co-sponsored by the AALS Section on Leadership.  They are listed below.

  • Calling Out and Leaning In to Racial and Class Inequities in Experiential Learning Opportunities (Wednesday, January 6, 11:00 am – 12:15 pm)
  • Never Let A Good Crisis Go To Waste; The Pedagogy of Leadership During Crisis—Student Engagement (Thursday, January 7, 11:00 am – 12:15 pm)
  • Legal and Judicial Ethics in the Post-#MeToo World (Thursday, January 7, 2:45 pm – 4:00 pm)
  • Teaching Leadership Skills in a Time of Crisis (Saturday, January 9, 2:45 pm – 4:00 pm)

I have the honor of presenting a short “idea paper” on teaching change leadership to law students at the Thursday morning session.  I hope that you will join me in attending some or all of these programs if you are registered to attend the conference.  Our students are the legal and community leaders of tomorrow.  Studying and practicing leadership in law school can help them to see their leadership potential, harness it, and use it constructively in and outside law practice.

The entire program for this year’s AALS annual meeting can be found here.

I’ve previously written about Shari Redstone and the controversies surrounding Viacom and CBS; this week, VC Slights kindly gave me something new to blog about when he denied defendants’ motion to dismiss shareholder claims associated with the Viacom/CBS merger.

The CliffsNotes version is that due to a dual-class voting structure, Shari Redstone was the controlling shareholder of CBS and Viacom, and for several years fought to combine the two companies.  Her dreams were finally realized in 2019 when the two merged in a stock-for-stock deal.  Former Viacom shareholders sued, alleging that this was a transaction in which a controlling stockholder – Redstone – stood on both sides, and that the deal sold out the Viacom shareholders to benefit CBS and Redstone. 

Normally, of course, deals in which a controlling stockholder has an interest are subject to entire fairness scrutiny unless they are cleansed in the manner prescribed by Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014).  Notwithstanding the failure to employ those protections here, the defendants creatively claimed that business judgment review was appropriate – and moved to dismiss on that basis – arguing that mere presence on both sides does not trigger heightened scrutiny; instead, plaintiffs must additionally show that the controller received a nonratable benefit, which did not happen in the CBS/Viacom merger.

To me, that’s kind of redundant; by definition, standing on both sides of a transaction means that the controller received something not available to the minority stockholders.  In this case, Redstone was able to trade her CBS stock for shares in the combined entity – a benefit that Viacom stockholders did not share.  (Well, okay, probably some Viacom stockholders did, but that’s a whole ‘nother issue I’ve talked about pretty endlessly).   

VC Slights, however, was unsatisfied with leaving things there, perhaps because it begs the question why Redstone would have favored CBS over Viacom in the exchange ratio.  And the answer to that, according to the plaintiffs, was because Redstone wanted Robert Bakish at Viacom to head the combined entity, and a favorable-to-CBS exchange ratio was the price that the CBS board demanded for installing him.  Normally, it might be reasonable to trade merger consideration for a particular governance arrangement, so plaintiffs further argued that this arrangement was unfair to the Viacom stockholders because Bakish wasn’t worth the price.  Redstone wanted him in place for personal reasons (to cement her control by installing an ally).

In any event, all of this left Slights with the question whether (1) standing on both sides is enough to trigger fairness scrutiny absent a nonratable benefit to the controller, and (2) if not, did plaintiffs allege enough of one?

His answers, respectively, were (1) to reserve judgment and (2) yes.

What’s interesting here?

First, though Slights chose not to decide whether entire fairness must always apply when a controller stands on both sides, in discussing the question, he had something of an intriguing footnote.  He wrote:

I note that Viacom and CBS’s dual-class structures, whereby NAI possessed more than 80% of the voting power but faced only 10% of the economic risk in both companies, commends Plaintiffs’ “mere presence” argument for careful consideration in this case. See David T. White, Delaware’s Role in Handling the Rise of Dual-, Multi-, and Zero-Class Voting Structures, 45 Del. J. Corp. L. 141, 153–54 (2020) (positing that in dual-class structures, “the owners of the majority voting rights in these companies are less concerned when riskier moves fail as compared to their counterparts at ‘one share-one vote’ corporations”); Lucian A. Bebchuk & Kobi Kastiel, The Perils of Small-Minority Controllers, 107 Geo. L.J. 1453, 1466 (2019) (observing that “small-minority controllers are insulated from market disciplinary forces [in dual-class companies] and thus lack incentives generated by the threat of replacement, which would mitigate the risk that they will act in ways that are contrary to the interests of other public investors”); id. (“[D]ualclass structures with small-minority controllers generate significant governance risks because they feature a unique absence of incentive alignment.”).

As we all know, dual class share structures are increasingly popular, and concerns have been raised that they present a challenge to Delaware corporate doctrine, which assumes that stockholders have economic incentives proportional to their interests and that a functioning market for corporate control justifies a deferential judicial stance.  I could of course be overreading the footnote, but to me it suggests a hint of a step toward Delaware developing differential scrutiny for disputes involving dual-class shares, especially since the Note he cites by David White argues precisely that the business judgment rule is inapposite in dual-class cases.

Second, after concluding that Redstone’s personal interest in consolidating her control was a sufficient nonratable benefit justifying entire fairness scrutiny, he further held that plaintiffs had stated a claim against the controller for breach of fiduciary duty.  But that left the question whether plaintiffs had also stated a claim against the directors on Viacom’s special committee for breaching their duties by, essentially, bowing to Redstone’s demands.

Now the interesting thing here is that plaintiffs did not allege that the Viacom directors were interested in the transaction themselves; the entire basis for the allegations of disloyalty arose from their obedience to Redstone.

Thus the question: Assuming plaintiffs have alleged facts to suggest a transaction was unfair due to a conflict, can they state a non-exculpated claim for breach of fiduciary duty against disinterested directors who were involved with that transaction, solely due to their dependence on the person with the conflict?

To answer that question, Slights quoted In re Cornerstone Therapeutics, Inc. Stockholder Litigation, 115 A.3d 1173 (Del. 2015):

To state “a non-exculpated claim for breach of fiduciary duty against an independent director protected by an exculpatory charter provision,” Plaintiffs must allege “facts supporting a rational inference that the director harbored self-interest adverse to the stockholders’ interests, acted to advance the self-interest of an interested party from whom they could not be presumed to act independently, or acted in bad faith.”

Cornerstone did say that, ‘tis true, but it still begs the question whether mere lack of independence is enough, or whether something more is required.  (VC Glasscock asked that question in connection with a dispute over Oracle’s acquisition of NetSuite, and sought additional briefing on the matter.  Which was never filed; the plaintiffs voluntarily dismissed their claims against the relevant defendants.)

Because here’s the thing.  There’s dependence, and there’s dependence.  There’s director dependence that comes from essentially agreeing to work for the controller rather than to work for the corporation, and there’s director dependence that comes from, you know, being unconsciously biased to favor a friend.  That’s particularly true today, since Leo Strine worked so hard to expand the concept of director dependence to include “mutual affiliations” that would make it “difficult to assess [a person’s] conduct without pondering his own association with [that person],” In re Oracle Corp Deriv. Litig., 824 A.2d 917 (Del. Ch. 2003), and “relationships [that] give rise to human motivations compromising the participants’ ability to act impartially toward each other,” Sandys v. Pincus, 152 A.3d 124 (Del. 2016).  Acquiescing to a controller’s demands comes very close to a “conscious disregard” for the director’s duties, or an intent to “act[] with a purpose other than that of advancing the best interests of the corporation.” Stone v. Ritter, 911 A.2d 362 (Del. 2006).  Simple lack of objectivity, though, is much more like a good faith failure to recognize the flaws in one’s own judgment.

Which is why it is not obvious that there’s a blanket rule that dependence, alone, states a claim for disloyalty. 

That said, Slights elided this issue, which he could do successfully because, although he framed his analysis in terms of director “dependence,” he actually found that plaintiffs had alleged a more serious kind of dependence – a “controlled mindset,” whereby they simply worked to advance Redstone’s goals.  And that, coupled with other allegations about their relationship to Redstone, was enough to “plead reasonably conceivable breaches of the duty of loyalty.”

Third, the final interesting data point in Slights’s examination of director independence had to do with the legal significance of the directors’ fear that Redstone would fire them if they failed to do her bidding.  Now, the doctrine is sort of confused when it comes to directors’ fear of being removed by a controller – in the context of derivative lawsuits, it’s not grounds for a finding of dependence unless the directors have a personal need to remain on the job; in the context of cleansing a controller conflict, we assume generally that directors fear removal. 

Here, though, the question was whether fear of removal was enough to create dependence such that it suggested disloyalty on the directors’ part – which is a whole ‘nother question (one which, I would think, might actually raise the bar for a finding of dependence).  And to answer that, Slights said that while he would not generally assume directors are dependent simply because they serve at the pleasure of the controller, it was not necessary for the plaintiffs to allege that these directors had an especial need for their positions in light of Redstone’s specific history of threatening to remove board members at Viacom and CBS who bucked her authority.  The fact that they labored under that realized threat created an inference of dependence.

So takeaway here?  The definition of dependence and its legal significance shifts across contexts – and depending on how the dual-class case law shapes up, the same may turn out to be true of control.

Happy New Year!

I first posted this on Thrive Global a few weeks ago. In the spirit of the New Year, I’m sharing it with you all. 

It’s time to work on your happiness like it’s a full-time job. 2020 has challenged everyone and 2021 may not be much better. You’ve made it this far so now it’s time to reclaim your power at work with these five tips.

  • Worklife balance is a myth. Whether you’re working from home or actually going to a work site, there’s no such thing as work life balance and there never has been. It’s impossible to devote your full attention to work and family at the same time — something will suffer. As time management guru David Allen explained, you can do anything you want, you just can’t do everything you want. Learn how to say no to anything that isn’t absolutely necessary. For me, if it’s not a hell yes, then it’s a hell no. Unless you can’t say “no,” use your non-work time to do something that brings you joy and sustains you. Find a passion project. When you focus on life balance, your work life will improve.
  • Change your thoughts and change your life. Do you focus on everything that’s happened to you? Why not reframe that to believe that everything happens for you? What are the lessons that you can learn from the curveballs that life has thrown at you? A job loss could be your impetus to start your own business or go back to school. An abusive boss may be what you need to get out of your comfort zone and look for another job. Changing your mindset will help you at home and at work because you’ll get much less frustrated over things you can’t control. You’ll soon be the go-to person because you’ve shown that you can be flexible and you’re able to pivot. Resilience and grit are key currencies in the workplace, particularly in the age of COVID.
  • Forgive no matter what. Before you stop reading, I didn’t say that you have to forget. Anger and resentment impacts everyone in your life and it can affect your health. You’re either complaining to your colleagues about your family or complaining to your family about your colleagues. Don’t demand an apology and don’t dwell on the fact that you’re “right.” Forgive without conditions and treat everyone as though they only have 24 hours to live. Forgiveness is a gift, not to the other person but to yourself. Once you forgive someone, they no longer have power over you because they no longer take up space in your head or your heart. You don’t even have to tell the person you’ve forgiven them, but it helps. Acknowledge any role you’ve played in the issue, apologize, and then forgive. Even if you don’t want to be magnanimous, just think of how much you’ll upset the power dynamic with the person who hurt you if you make it clear that you’re no longer angry with them. Remember, the opposite of hate isn’t love, it’s indifference. No matter what they’ve done, let it go and set yourself free. You’ll be much lighter and a much more pleasant person to be around.
  • Words have power. We’ve all heard about the power of affirmations and gratitude. I wake up in the morning and journal about what I’m grateful for, even if what I want hasn’t happened yet. I’m specific and I write in the present tense. I see, feel, smell, taste and hear what I would experience if what I wanted was true. Sooner or later, some variation of what I journaled or something better comes to pass. When you dream big, you achieve big. Think of that job or promotion as though it were already yours. But words are equally powerful when you speak negatively. Do you say, “I always get sick,” “the boss will never promote me,” or “I hate my job”? Think about what you say to yourself and how that corresponds to where you are in your life. I’ve literally gone to the hospital within days of telling  someone they were going to cause me to have a heart attack or stroke. Twice.
  • Have your FU fund and make sure people know about it. This is my most important tip. Never let your employer think you need the job. Know your value and then add tax to it. When you have a “forget you” fund, you’re not tied to either a job or a relationship for financial reasons. This affects how people treat you because they know that you can leave without a second thought if you see something unethical, get passed over for a promotion, or don’t get the respect you deserve. When I was in corporate America, I had saved enough to live for two years without working. My boss knew it and so did the board of directors. But let’s be honest, some of us are struggling just to pay the bills. In that case, start thinking of your side hustle. What skills are in demand? What kinds of certifications can you take online? How many other languages do you know? Are you using LinkedIn or Clubhouse to make meaningful contacts? If you have time for Facebook, TikTok, Instagram, and Netflix, you have time to learn something new so that you can level up your skills and be ready for any opportunities that open up either in your current workplace or someplace else.

Old habits are hard to break. If you’re a people pleaser, think self-care is selfish, have limiting beliefs, or have resentments that you can’t let go of, some of these tips may seem out of reach. If so, find an accountability partner and just pick one or two to work on. It will change your life. Don’t just survive 2021. Thrive.

If this woo woo stuff appeals to you, feel free to follow me on Instagram at @illuminatingwisdom or check me out on my website. 

Finally, I hope to “see” some of you at AALS on January 8 at 1:15 EST at the Section on Socio-Economics, Co-Sponsored by Business Associations, Minority Groups and Securities Regulation: For Whose Benefit Public Corporations? Perspectives on Shareholder and Stakeholder Primacy. Join me and co-bloggers Joshua Fershee and Stefan Padfield, along with:

  • Robert Ashford, Professor of Law, Syracuse University College of Law
  • Lucian Arye Bebchuk, James Barr Ames Professor of Law, Economics, and Finance and Director, Program on Corporate Governance Harvard Law School
  • Margaret M. Blair, Milton R. Underwood Chair in Free Enterprise; Professor of Law,Vanderbilt University Law School
  • June Rose Carbone, Robina Chair in Law, Science and Tech, University of Minnesota Law School
  • Sergio Alberto Gramitto Ricci,Cornell Law School
  • Michael P. Malloy, Distinguished Professor of LawUniversity of the Pacific, McGeorge School of Law
  • Edward L. Rubin, University Professor of Law and Political ScienceVanderbilt University Law School
  • George B. Shepherd, Emory University School of Law

Stefan is giving us 8 minutes each, so there’s no way you can get bored. See you there!

BLPB readers, I hope that everyone is enjoying the holiday season and the semester break!  I also want to get an early start on wishing everyone a HAPPY NEW YEAR!!! 

Before we leave 2020, I wanted to share that if you missed Bank Supervision: Past, Present, and Future, a stellar virtual conference hosted by the Federal Reserve Board of Governors, Harvard Law School, and the Wharton School on December 11, you can still access the conference materials here.  There’s lots of great stuff, including four literature reviews (below) that banking law profs researching in this area are certain to find helpful.  Enjoy!  And a big shout-out to the hosts for such a successful event!

Literature Review on Economics: Beverly Hirtle, Banking Supervision: The Perspective from Economics

Literature Review on Law: Julie Andersen Hill, Bank Supervision: A Legal Scholarship Review

Literature Review on History: Sean H. Vanatta, Histories of Bank Supervision

Literature Review of Supervisory Practices: Jonathan Fiechter and Aditya Narain, Enhancing Supervisory Effectiveness –Findings from IMF Assessments

This post catches up on a few recent position listings that may be of interest to business law faculty and have not yet been posted here.

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TEMPLE UNIVERSITY BEASLEY SCHOOL OF LAW

LOW INCOME TAXPAYER CLINIC DIRECTOR
AND VISITING PRACTICE PROFESSOR OF LAW

Position Summary: The Temple University Beasley School of Law was recently notified that it will receive funding from the IRS to open and operate a Low Income Taxpayer Clinic (LITC) on its Main Campus in North Philadelphia which will also serve taxpayers in northeastern Pennsylvania. It is therefore soliciting applications for the position of Visiting Practice Professor of Law and Director of the LITC, which is expected to operate on a part-time basis during 2021. The position will begin on January 15, 2021 or as soon thereafter as practicable, and will run through the end of the calendar year. The Clinic Director will be expected to establish and operate the LITC, including developing a panel of pro bono attorneys and performing community outreach, and to take a leadership role in applying to the IRS for a multi-year grant, which will likely need to be submitted in June, 2021. In addition, the Clinic Director will be expected to develop and teach a course through which students can enroll to participate in the LITC for academic credit in 2021.

It is anticipated that this part-time, visiting position will be enhanced and converted into a clinical faculty position upon receipt of a multi-year grant from the IRS. A national search for an individual to fill the clinical faculty position will be conducted if the multi-year grant is received; the individual selected to fill the part-time visiting position will be eligible for consideration for the clinical faculty position.

Minimum Qualifications: Candidates must have an excellent academic record and a J.D. degree, as well as experience working in an LITC or equivalent organization, either as a student or practicing lawyer, or other tax practice experience. Candidates must have sufficient tax law expertise to perform and oversee the substantive and procedural aspects of client representation, and be either admitted to practice before the U.S. Tax Court or eligible for such admission.

Temple University values diversity and is committed to equal opportunity for all persons regardless of age, color, disability, ethnicity, marital status, national origin, race, religion, sex, sexual orientation, gender identity, veteran status, or any other status protected by law; it is an equal opportunity/affirmative action employer, and strongly encourages veterans, women, minorities, individuals with disabilities, LGBTQI individuals, and members of other groups that traditionally have been underrepresented in law teaching to apply.

To Apply: Potential candidates are encouraged to contact the selection committee’s Chair, Professor Alice Abreu, at lawfsc@temple.edu with the following: 1) cover letter and/or statement of interest; 2) resume or CV; 3) the names, affiliations, and contact information for at least three individuals who can serve as professional references; and 4) any other material that demonstrates the candidate’s ability to succeed in the position, such as a publication, brief, or similar document.

Applications should be submitted as soon as possible; interviews, which will be conducted online, could begin as early as January 4, 2021. The position will remain open until filled. 

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BU/MIT TECHNOLOGY LAW CLINIC

VISITING CLINICAL ASSISTANT PROFESSOR

BU Law is hiring for a Visiting Clinical Assistant Professor to teach in the BU/MIT Technology Law Clinic, part of BU Law’s unique collaboration with MIT to provide legal assistance to current MIT and BU students. This is a two-year position, for the 2021–22 and 2022–23 academic years.  

BU Law believes that the cultural and social diversity of our faculty, staff, and students is vitally important to the distinction and excellence of our academic programs. To that end, we are especially eager to hear from applicants who support our institutional commitment to BU as an inclusive, equitable, and diverse community.

More information and application instructions are available at https://sites.bu.edu/techlaw/2020/12/14/vcap/. Applications received before January 31, 2021 will be given full consideration.

In my previous post on the “Study on Directors’ Duties and Sustainable Corporate Governance” (“Study on Directors’ Duties”) that Ernst & Young prepared for the European Commission (Commission), I focused on the transformative power of corporate governance. I said that stakeholder capitalism would have a practical value if supported by corporate governance rules based on appropriate standards such as the ones provided by the Sustainable Development Goals (SDGs).

Some of my pointers for the Commission were the creation of a regulatory framework that enables the representation and protection of stakeholders, the representation of “stakewatchers,” that is, non-governmental organizations and other pressure groups through the attribution of voting and veto rights and their members’ nomination to the management board (similar to German co-determination). I also suggested expanding directors’ fiduciary duties to include the protection of stakeholders’ interests, accountability of corporate managers, consultation rights, and additional disclosure requirements.

In my last guest post in this series dedicated to the Study on Directors’ Duties, I ask the following questions. Do investors have a moral duty to internalize externalities such as climate change and income inequality, for example? Do firm ownership and investor commitment matter? Should investors’ money be “moral” money? 

In their study Corporate Purpose in Public and Private Firms, Claudine Gartenberg and George Serafeim utilize Rebecca Henderson’s and Eric Van den Steen’s definition of corporate purpose, that is, “a concrete goal or objective for the firm that reaches beyond profit maximization.” In their paper, Gartenberg and Serafeim analyzed data from approximately 1.5 million employees across 1,108 established public and private companies in the US. In their words:

[W]e find that employee beliefs about their firm’s purpose is weaker in public companies. This difference is most pronounced within the salaried middle and hourly ranks, rather than senior executives. Among private firms, purpose is lower in private equity owned firms. Among public companies, purpose is lower for firms with high hedge fund ownership and higher for firms with long-term investors. We interpret our findings as evidence that higher owner commitment is associated with a stronger sense of purpose among employees within the firm.

With institutional investors on the rise, these findings are important because they redirect our attention from the board of directors’ short-termism discussion to shareholders’ nature, composition, ownership, and long-term commitment. When it comes to owner commitment, Gartenberg and Serafeim say:

Owner commitment could lead to a stronger sense of purpose for multiple reasons. First, to the extent that commitment translates to an ability to think about the long-term and avoid short-term pressures, this would enable a firm to focus on its purpose rather than on solely short-term performance metrics. Second, committed owners may invest to gain and evaluate more soft information about firms, which in turn may allow managers to invest in productive but hard to verify projects that otherwise would not be approved by less committed owners (e.g., Grossman and Hart, 1986). Third, committed owners might mitigate free rider problems inside the firm, allowing employees to make firm-specific investments with greater confidence that they will not be subject to holdup by firm principals (Alchian and Demsetz 1972; Williamson 1985), which in turn could enhance the sense of purpose inside the organization. A similar argument could hold for customers, suppliers, and other stakeholders, who could see a strong sense of corporate purpose from owner commitment as a credible signal that enables the development of trust or ‘relational contracts’ (Gibbons and Henderson 2012; Gartenberg et al. 2019).

Gertenberg’s and Serafeim’s paper also discloses other findings. They found that firms are more likely to hire outside CEOs when less committed investors control the firms. Additionally, those firms are more likely to pay higher executive compensation levels, particularly relative to what they pay employees. Those firms also engage more frequently in mergers and acquisitions and other corporate restructuring processes. A simple explanation for this would be that such firms have higher agency costs since their ownership is more dispersed.

If we understand the company’s ownership structure, we know the purpose of the company. Therefore, there must be an underlying mechanism to better understand the company’s ownership structure because it will help us understand the company’s purpose better. 

Besides, Gertenberg’s and Serafeim’s findings spell out that financial performance and corporate ownership positively impact corporate culture, employees’ satisfaction, and employee work meaningfulness. Putting it differently, the corporate culture, employees’ satisfaction, and employee work meaningfulness can be standards for evaluating the impact of corporate ownership, governance, and leadership.

Now that the focus is on investors, what can they do to change corporate behavior and consequently impact stakeholders like employees? They can be actively engaged through proxy voting. In their paper Shareholder Value(s): Index Fund ESG Activism and the New Millennial Corporate Governance, Barzuza, Curtis, and Webber explain that index funds often are considered ineffective stewards. The authors also explain how index funds have claimed an active role by challenging management and voting against directors to promote board diversity and sustainability.

Still, institutional investors manage their companies’ portfolios depending on the market, which is heavily impacted by systemic shocks we know will eventually occur. The Covid-19 pandemic has shown us how volatile markets are and our current economic model is.

Corporate laws of most European Union (EU) countries determine that the board of directors must act in the company’s interest (e.g., Unternehmensinteresse in Germany, l’intérêt social in France, interesse sociale in Italy, etc.). Defining what the interest of the company is has shown to be a rather tricky endeavor. Gelter explains that, in all cases, one side of the debate claims that the company’s interest is different from the interest of shareholders. In the US, the purpose of the company is commingled with the idea of shareholder wealth maximization.

To overcome the tension between prioritizing shareholders’ wealth maximization and corporate purpose that considers shareholders’ and stakeholders’ interests, the Commission should take into account the following dimensions in developing policies in corporate law and corporate governance. 

  1. Investors’ ownership and their impact on intangibles like employees’ satisfaction and employee work meaningfulness.
  2. Governance structure and how it relates to the company’s ownership structure.
  3. Governance structure and how it integrates stakeholders’ interests in the decision-making process.
  4. Board diversity and recruitment.
  5. Institutional investors’ financial resilience.

Finally, investors should demand CEOs and boards of directors show how they are changing the game and moving the needle toward a more sustainable and resilient conception of the corporation. Why? Because ownership matters and commitment too.

I am fascinated by Chancellor Bouchard’s opinions in the WeWork dispute, available here and here.

The backstory: In the wake of WeWork’s collapsed IPO, SoftBank – which was one of WeWork’s significant investors – agreed to buy additional equity from the company, to complete a tender offer for a large amount of WeWork’s outstanding equity, and to lend WeWork $5.05 billion.  It ended up buying the equity and the debt, but the tender offer fell through.  At that point, WeWork – on the authority of the 2-person Special Committee who had negotiated the SoftBank deal – filed suit against SoftBank for breaching its obligations under the contract.  The Board of WeWork – by then consisting of 8 people: the 2 members of the Special Committee, 4 others designated by and obligated to Softbank, and 2 more with SoftBank affiliations – appointed two new, ostensibly independent directors to serve as a new committee to investigate the litigation.  One of the Special Committee members objected to the appointment; the other abstained from the vote.

The new committee was charged with determining whether the Special Committee had authority to sue SoftBank.  To the utter shock of absolutely no one, they concluded that, in fact, the Special Committee had no such authority, that the Special Committee could not continue the lawsuit due to certain conflicts, and that in any event continuing the lawsuit was not in the best interests of the company.  Critically, one of the conclusions that the new committee reached was that WeWork – the company – had little to gain from the litigation because it was the tendering stockholders, and not the company, who would benefit from the completion of SoftBank’s tender offer.  Thus, the new committee sought to terminate the litigation. Bouchard was therefore confronted with warring committees, and had to decide whether the litigation against SoftBank would continue.

Probably the least interesting aspect of Bouchard’s decision was his determination that the test of Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981) – originally developed to determine the propriety of allowing a special committee to terminate derivative litigation – would be used to evaluate the new committee’s decision here.  That test requires that the court evaluate whether the new committee was independent acted in good faith, and conducted a reasonable investigation of the issues.  Assuming it did so, the court must evaluate whether in its own “business judgment” the motion to terminate the litigation should be granted.

Here, Bouchard held that assuming the new committee was independent and acted in good faith, its investigation was not reasonable, because it ignored several facts that suggested the Special Committee had the authority to litigate against SoftBank and did not properly weigh the benefits against the burdens of completing the litigation.  Bouchard also held that under Zapata’s second prong, in his judgment, the litigation should continue.  Thus, he refused to allow the new committee to terminate the lawsuit.

In a companion opinion, he evaluated SoftBank’s motion to dismiss the WeWork/Special Committee complaint against it.  Among other things, he held that WeWork had standing to sue over the failed tender offer, even though – as the new committee had also emphasized – the proceeds of the tender offer would go to tendering stockholders and not to the company itself.

What stands out here?

First, though Bouchard said he had “no reason to doubt” the good faith and independence of the new committee, I am not operating under such constraints.  The 2-man committee was appointed for a two month term, for which each was paid $250K, and the expected outcome of their investigation was undoubtedly known to each of them.  As Bouchard pointed out, they acted under significant constraints: not only were they on a clock, their limited mandate meant they could not, for example, take control of the litigation themselves and thus eliminate any purported conflicts under which the Special Committee acted.  Truly independent directors, who were acting in good faith, might have refused such a charge, but these directors had no such qualms, and they reached exactly the conclusions that their patrons expected of them.

The entire circumstances of their appointment should, I would think, raise questions about their good faith and independence, and honestly, I wonder how often courts are willing to take at face value the conclusions of directors who are appointed for a particular purpose in the expectation they will reach a particular result.  For example, I recall In re Oracle Corp. Derivative Litig., 824 A.2d 917 (Del. Ch. 2003), where two new ostensibly independent board members were appointed for the sole purpose of investigating claims against the incumbent board and concluded (again, shockingly) that the claims had no merit.  The court decided – controversially – that the new board members were not independent, but did so because of preexisting ties to the company, and not because of the circumstances of their appointment. 

There have previously been studies of how often board special committees conclude that derivative litigation against defendant board members has merit, and usually (but not always), they recommend dismissal.  But what has not been studied, as far as I know, is how often new directors are appointed to create a special committee, whether they are more likely to recommend dismissal than incumbent directors, and whether courts are more or less likely to take their recommendations seriously.  It’s possible sample sizes are just not big enough to draw conclusions, but I personally would be interested in an analysis of how new directors differ from incumbent directors in terms of their conclusions and/or the terms of their appointment.

I also note this: Delaware courts start with the presumption that corporate directors are so conscious of their fiduciary duties and so constrained by reputational concerns that they would not lightly betray their obligations for the crass material benefits that a board position can provide.  But if that’s going to work, reputations have to mean something, and once damaged, they should not lightly be rehabilitated.  Which is why I was so concerned by VC Zurn’s opinion in Rudd v. Brown.  There, the plaintiffs alleged that an activist shareholder appointed a compliant director to a company’s board in order to force a merger.  The plaintiffs claimed that this particular director lacked independence, because he had developed a sort of gun-for-hire reputation: activists had repeatedly appointed him, knowing he would champion acquisitions they favored.  Zurn rejected the argument in a footnote:

Plaintiff also asserts in briefing that Brown had “a long history of being appointed to companies’ boards to push a merger or acquisition for short-term profit, including other companies that Engaged had targeted for a sale in the past.” Pl.’s Answering Br. at 37. Insofar as Plaintiff asserts that this gives rise to conflict, that assertion fails. Plaintiff provides no support for the proposition that a director is conflicted purely by virtue of his track record, and I am aware of none.

With this kind of precedent in hand, the newly-appointed WeWork directors had no worries that they were accepting a quarter-million dollars at the expense of their reputations with respect to future opportunities.  But what if they had such concerns?  What if appointing stockholders, as well, had to worry about directors’ past history of compliance?  What if a past history of noncompliance helped burnish directors’ credentials as independent monitors?  Wouldn’t that create a better system, where courts and minority stockholders had more faith in the special committee process?

Second, there’s the standing/harm issue.  Both of Bouchard’s opinions – the one dealing with the new committee’s attempt at dismissal, and the one dealing with SoftBank’s dismissal motion – had to address the argument that WeWork the company was not harmed by SoftBank’s abandonment of the tender offer, since it was the individual stockholders, and not the company, who missed out.  And this interests me because, in a roundabout way, it touches on the issue I raised a couple of weeks ago – namely, when a merger agreement falls through, is the harm to selling stockholders direct or is it derivative?

In this case, the new committee and SoftBank argued that the tendering stockholders did not have a direct claim against SoftBank for breach of contract because they were not parties to SoftBank’s contract with WeWork, and the contract itself specified there were no third party beneficiaries.  They also argued that if the tendering stockholders had a problem with the termination of WeWork’s litigation, their remedy was a derivative action.  See Op. at fn 253.  And then they argued that WeWork was not in fact harmed by the termination of the tender offer because WeWork would not have collected the proceeds.

That is … quite the paradox.

Rather than fully engage this thorny question of who suffers a harm from a terminated stock sale, Bouchard concluded that WeWork as a company suffered a harm because if SoftBank increased its equity stake, it would have more of an interest in monitoring WeWork’s performance.

That is, I have to say, unsatisfying.  I mean, by that logic, SoftBank would have the greatest interest in monitoring WeWork’s performance if it was planning to buy the whole company.  But we know from Revlon that when there’s an offer to sell the whole company for cash, it’s an endgame transaction – we’re not worried about the company’s future after that point; instead, we’re worried about the selling stockholders. 

Anyway, all of this just highlights to me that it’s a blip in the law, and perhaps unresolvable.  At the end of the day, in a shareholder-wealth-maximization world, all harms to the company matter because they are harms to stockholders, and the direct/derivative distinction is not a fact of nature, but a policy judgment as to which types of claims should be handled by the board in the first instance and which should not.  So it stands to reason there wouldn’t be complete doctrinal coherence for the edge cases.

    With so much recent controversy and uncertainty surrounding the personal benefit test for tipper-tippee liability pursuant to Section 10b insider trading liability (see, e.g., here, and here), prosecutors have recently looked to other statutory bases for obtaining convictions. As part of the Sarbanes-Oxley Act of 2002, Congress enacted 18 U.S.C. § 1348, Securities and Commodities Fraud. This general anti-fraud provision provides that:

Whoever knowingly executes, or attempts to execute, a scheme or artifice…[t]o defraud any person in connection with…any security…or [t]o obatain, by means of false or fraudulent pretenses, representations, or promises, any money or property in connection with the purchase or sale of any…security… shall be fined under this title, or imprisoned not more than 25 years, or both.

    While the language of §1348 is similar to Section 10b, relatively few insider trading cases have been brought under it. It looked as though this might, however, be changing in the wake of a recent Second Circuit decision holding that the controversial personal-benefit test does not apply to tipper-tippee actions brought under §1348. In United States v. Blaszczak, 947 F.3d 19 (2d Cir. 2019), the court held that §1348 and Section 10b were adopted for different purposes. According to the court, “Congress enacted [Section 10b’s] fraud provisions…with the limited ‘purpose of eliminate[ing] [the] use of inside information for personal advantage,” and the personal benefit test is consistent with this purpose. Id. at 35. By contrast, §1348 was adopted “to overcome the ‘technical legal requirements’ of [Section 10b],” so the personal-benefit test should not be read into the latter’s elements. Id. at 36-37. The Blaszczak decision raised a number of important questions. See, e.g., Karen E. Woody, The New Insider Trading, 52 Arizona State L. J. 594 (2020). For example, going forward, why would a prosecutor ever bring a tipper-tippee case under Section 10b if they can simply bypass the personal-benefit element by bringing it under §1348? Commentators have also noted the problem that the test for criminal insider trading liability under §1348 (with a maximum penalty of 25 years imprisonment) is easier to satisfy under the Blaszczak rule than the test for civil liability (which must be brought under Section 10b because the SEC has no enforcement authority under §1348).

    Highlighting these and other concerns, the Blaszczak defendants petitioned the Supreme Court for writ of certiorari in September 2020. In an unusual move, the government responded by asking the Court to grant the petitioners’ writs, vacate the Second Circuit’s decision, and remand the case for consideration in light of the Court’s recent wire-fraud decision, Kelly v. United States, 140 S.Ct. 1565 (2020). In Kelly, the Court held that “a scheme to alter … regulatory choice is not one to take the government’s property.” Id. at 1572. Since the defendants in Blaszczak tipped and traded on confidential government information concerning proposed medical treatment reimbursement regulations, the government conceded that the Second Circuit should revisit the question of whether such regulatory information is “property” for purposes of a § 1438 prosecution after Kelly. The government only proposed a remand on the limited issue of what constitutes “property,” not on the question of whether the personal benefit test applies to insider trading prosecutions under § 1348. Nevertheless, if the Court vacates Blaszczak, then the Second Circuit’s controversial personal benefit holding will no longer be law unless it is embraced on remand or in some other case. See, e.g., Robert J. Anello & Richard F. Albert, Days Seem Numbered for Circuit’s Controversial Insider Trading Decision, 264 New York Law Journal (Dec. 9, 2020).