I’ve finally gotten around to updating my SSRN page.  I would love to hear any comments you might have.

1.  Corporate Governance and the Omnipresent Specter of Political Bias: The Duty to Calculate ROI

2.  Totalitarian Nudges, Illusory Externalities, and Utopian Benefits: Reflections on the 34th Economics Institute for Law Professors

3.  Killing Corporations to Save Humans: How Corporate Personhood, Human Rights, and the Corporate Death Penalty Intersect

4.  The Helper Therapy Principle: Using the Power of Service to Save Addicts

So, this week we’re back to litigation-limiting corporate constitutive documents.

Where we last left things, the Delaware Supreme Court held in Salzberg v. Sciabacucchi, 2020 WL 1280785 (Del. Mar. 18, 2020), that Delaware law permits corporations to adopt charter provisions that would require plaintiffs bring Securities Act claims in a federal, rather than state, forum.  I posted about that decision here, and argued that it left a number of unanswered questions about its application.

This week, we’re beginning to see the fallout.

In Seafarers Pension Plan v. Bradway, the plaintiff brought a derivative Section 14(a) action against the Boeing Company in the Northern District of Illinois.  Plaintiff alleged that the company proxy statements contained false statements pertaining to the development of the 737 Max, and via these false proxy statements, defendants solicited shareholder votes in favor of their own reelection and compensation.

Boeing moved to dismiss on the ground that its bylaws provided that Delaware Chancery Court would be “the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation,” as well as the sole forum for “any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation.”

Significantly, because Section 14(a) claims cannot be brought in Delaware Chancery – federal courts have exclusive jurisdiction – Boeing’s argument meant that the plaintiff would not be able to maintain its suit at all.  As a result, the plaintiff argued that application of the bylaw to this lawsuit necessarily ran afoul of 15 U.S.C. § 78cc, which prohibits prospective waivers of 1934 Act obligations.

A parallel case, Chopp v. Bradway, 20-cv-00326-MN, involving derivative claims under Section 10(b), was filed in the District of Delaware.  Boeing made the same arguments in favor of dismissal in that case as well.  (Section 10(b) claims, like Section 14(a) claims, can only be brought in federal court).  The plaintiff voluntarily dismissed that action before a decision could be reached, leaving only Seafarers.

On June 8, the Seafarers court agreed with Boeing and dismissed the derivative Section 14(a) claims.  See Seafarers’ Pension Plan v. Bradway, No. 27, 19-cv-08095 (N.D. Ill. June 8, 2020).  The decision is not currently available on Lexis or Westlaw though I assume it will turn up eventually.

[More under the jump]

Continue Reading And the Salzberg v. Sciabacucchi fallout begins

Friend of the blog Bernard Sharfman has a new post up on the Oxford Business Law Blog, responding to Martin Lipton’s recent “On the Purpose of the Corporation” posts.  Bernie’s full post can be found here, and I’ve excerpted some portions (slightly out of  order) below.  I appreciate that the post highlights that a big part of the shareholder v. stakeholder debate is about whose rights are determined by contract v. fiduciary duties.

[T]he Lipton, Savitt, and Cain definition of corporate purpose is missing both an objective and a strategy on how it will create social value….

I am disappointed with this definition, a definition that ignores the social value created by for-profit businesses, namely the goods and services they produce; ignores that this social value is being produced for the financial benefit of its shareholders; and uses the pretense that uninformed institutional investors are partners in the management of a company….

[T]hey make no mention of the social value created by the corporation through the successful management of its stakeholder relationships, the goods and services it provides. How can a definition of corporate purpose not mention this? It’s as if a corporation should be ashamed of why it exists….

Pfizer, as a for-profit corporation, … has the legal obligation of looking out for the interests of its shareholders. This is the only stakeholder group that the board owes fiduciary duties to, who can sue the board for a breach of those duties, who can approve major corporate decisions, and who can initiate and implement a proxy contest to remove board members. Thus, shareholder wealth maximization is the objective of Pfizer’s social value creation….

[A] collective action problem in shareholder voting leads to uninformed institutional investors, resource-constrained investor stewardship teams and proxy advisors that cannot solve this problem, and the current lack of enforcement of an investment adviser’s fiduciary duties does not solve the additional problem of institutional investor bias in shareholder voting.

The 2020 National Business Law Scholars Conference will be hosted on Zoom on Thursday, June 18 and Friday, June 19.  Conference sessions include paper panels covering a variety of areas of business law and plenary sessions on several current topics of interest.  As is true for the in-person conference, no registration fee is required for attendance.

The conference will begin on Thursday at 9:00 am EDT with a plenary Q&A session entitled “Business Law in the COVID-19 Era” (focusing on the ways in which Business Law has impacted and been impacted by the pandemic in various academic and practice settings).  Thursday’s formal proceedings end with a second plenary Q&A session at 4:45 pm EDT, “Teaching Business Law: Applying What We Learned from Emergency Remote Teaching During the Pandemic,” featuring doctrinal and experiential (including clinical) business law faculty reflecting on their recent experiences teaching remotely on an emergency basis and the lessons learned from that experience that inform future teaching.  An informal virtual cocktail hour follows that program, beginning at approximately 6:15 pm EDT.

Friday’s sessions begin at 9:00 am EDT and end at 4:30 pm EDT.  The final program of the day is a plenary panel on “Bankruptcy and COVID-19” that begins at 3:00 pm EDT.  This panel includes judicial, practical, and academic perspectives an bankruptcy law changes, challenges, and opportunities during and related to the pandemic.

The full schedule for the conference with assigned Zoom meeting rooms will be available later this week or early next week.  A link will be posted here and shared on social media.  Although the networking opportunities will not be quite the same in the virtual format, the Planning Committee (listed below) is looking forward to a vibrant conference filled with significant opportunities to promote and forward valuable business law scholarship, teaching, and service.

2020 National Business Law Scholars Planning Committee
 
Afra Afsharipour (University of California, Davis, School of Law)
Tony Casey (The University of Chicago Law School)
Eric C. Chaffee (The University of Toledo College of Law)
Steven Davidoff Solomon (University of California, Berkeley School of Law)
Joan MacLeod Heminway (The University of Tennessee College of Law)
Kristin N. Johnson (Tulane University Law School)
Elizabeth Pollman (University of Pennsylvania Carey Law School)
Jeff Schwartz (University of Utah S.J. Quinney College of Law)
Megan Wischmeier Shaner (University of Oklahoma College of Law)

In doing a routine SSRN search, I’m always thrilled to see an exciting new banking article!  At the top of my “to read list” for this week is Michael Salib & Christina Parajon Skinner’s, Executive Override of Central Banks: A Comparison of the Legal Frameworks in the United States and the United Kingdom (here).  For a quick read, the authors have a post on the CLS Blue Sky Blog (here).  The article’s abstract is here:

This Article examines executive branch powers to “override” the decisions of an independent central bank. It focuses in particular on the power and authority of a nation’s executive branch to direct its central bank, thereby circumscribing canonical central bank independence. To investigate this issue, this Article compares two types of executive over- rides: those found in the United States, exercised by the U.S. Treasury (Treasury) over the U.S. Federal Reserve (the Fed), and those in the United Kingdom, exercised by Her Majesty’s Treasury (HM Treasury) over the Bank of England (the Bank). This Article finds that in the former, the power is informal and subject to minimal formal oversight, whereas in the latter, there are legal powers of executive override within an established and transparent legal framework.

This Article is the first piece of scholarship to undertake comparative analysis of the legal powers of executive override over these two leading central banks. The comparison is indeed striking—it juxtaposes the express, but limited, legal powers of HM Treasury to direct the Bank of England with the ad hoc and informal conventions of Treasury or presidential control of the Federal Reserve. The comparative analysis begs a paradoxical question in the conception of central bank independence: could a narrowly tailored set of override powers that authorize a treasury, with oversight from the legislature, to direct a central bank in exigent circumstances yield a sturdier form of central bank independence than a system which establishes few or limited legal mechanisms of executive override? Ultimately, this analysis prompts renewed examination of the way in which the law structures the Fed’s independence vis-a`-vis the Treasury and the President, informed by lessons from the U.K. design.     

So instead, I’ll just say, like my co-blogger Stefan who posted yesterday, I’ve also been paying attention to corporate responses to protest movement. Because we’re both talking about that subject, I’ll just start by quickly reproducing the links that I gave Stefan in my comments on his post:

Many Claim Extremists Are Sparking Protest Violence. But Which Extremists?

The Justice Department’s rhetoric focuses on antifa. Its indictments don’t.

Misinformation About George Floyd Protests Surges on Social Media

Twitter says fake “Antifa” account was run by white supremacists

And one I forgot to add:

Armed white residents lined Idaho streets amid ‘antifa’ protest fears. The leftist incursion was an online myth.

Anyhoo, as I said, I’ve been watching how corporations are responding, but unlike Stefan, I haven’t perceived silence at all – quite the opposite.  But, what corporations are saying is interesting.  These are the articles that captured my attention:

Corporate Voices Get Behind ‘Black Lives Matter’ Cause (“Some companies were more cautious in their approach. Target, which is based in Minneapolis and was hit by looting at a store there last week, described ‘a community in pain’ in a blog post but never mentioned the word ‘black.’”)

What CEOs Said About George Floyd’s Death (“Few companies talked about law enforcement or other forms of authority. Dell Technologies Inc. was the only company to use the words ‘police brutality.’”)

Adidas Voices Solidarity While Closing Its Stores (“Companies like Adidas and Nike have long paid black entertainers and athletes to pitch their products, and it is often black teenagers in the country’s largest cities who determine which brands are fashionable and subsequently sell big in the white suburbs. This is a particular bone of contention for black employees at Adidas…”)

#BlackoutTuesday: A Music Industry Protest Becomes a Social Media Moment (“Beyond the confluence of hashtags, some in the music industry questioned what was being done beyond promises for reflection and general statements of support.”)

‘Blackout Tuesday’ Prompts Debate About Activism and Entertainment (“Other celebrities voiced skepticism over the efforts and concern that it would dilute more urgent forms of activism.”)

Silent No More on Race, America’s CEOs Fumble for Right Words (“Unlike syrupy messages in support of nurses and essential workers fighting the coronavirus pandemic or a call for unity after 9/11, there is no happy medium for a position on white privilege.”)

Brands Have Nothing Real to Say About Racism (“Facebook and Citibank weighed in, as did the gay dating app Grindr and even the cartoon cat Garfield.”)

Ben & Jerry’s pointed call to ‘dismantle white supremacy’ stands out among tepid corporate America statements (N.B.: take a moment to absorb that this article appears in the Washington Post Food section)

People On Nextdoor Say The Platform Censored Their “Black Lives Matter” Posts (“while the company may be officially saying that it supports the Black Lives Matter movement, this week, many of its volunteer moderators took a contrary position, stifling conversations about race, police, and protests while removing comments and postings with the very phrase the company had tweeted just three days ago.”)

Venture firms rush to find ways to support Black founders and investors (“Black entrepreneurs and investors are questioning the motivations of these firms, given the weight of evidence that shows inaction in the face of historic inequality in the technology and venture capital industry.”)

SoftBank launches $100M+ Opportunity Growth Fund to invest in founders of color (“Just a couple of weeks ago, the CEO and founder of one of its portfolio companies, Banjo, resigned after it was revealed that he once had ties to the KKK.”)

For more equitable startup funding, the ‘money behind the money’ needs to be accountable, too (“Consider that already, most VCs today sign away their rights to invest in firearms or alcohol or tobacco when managing capital on behalf of the pension funds, universities and hospital systems that fund them. What if they also had to agree to invest a certain percentage of that capital to founding teams with members from underrepresented groups?”)

 

I’ll finish by noting that however tepid, many of the corporate statements do explicitly reference Black Lives Matter. And since even that sentiment was considered controversial a few years ago, we can safely conclude that the needle has moved. 

Corporations have appropriately been condemning racism recently, but where’s the condemnation of the riots?  Does the following excerpt from “Understanding Antifa” provide some answers?

California Governor Gavin Newsom was a pitch perfect Rousseauist when he recently said that the violent riots were not caused by individuals; instead he insisted, “Our institutions are responsible.” Many progressives are ambivalent about criticizing the violence of Antifa because they retain this sympathetic worldview. While all on the left are not active in violent revolution, many liberal mayors and governors struggle to condemn it outright….

Some additional excerpts that may be of interest:

The anarchism of Antifa embodies the revolutionary outlook, common in the West since the 18th century, that … assumes any violent spark that creates a popular uprising will usher in a utopian world of equality and justice….

 

Antifa does not offer a platform of positive change. In the fashion of Robespierre, they seek to overthrow “the privileged” and they assume that this violence and destruction will inflame an uprising that will usher in a pure democracy of equality….

 

In the view of Antifa, traditionally powerful groups, such as white men and capitalists, conspire to suppress the natural nobility of underrepresented citizens….

 

The current politics of Western democracies are so roiled and divisive because strident elements on the left have adopted this revolutionary outlook and traditionalist and populist parties of the right, some genuinely suspect and some very healthy, have sprung up to resist it.

UPDATE (6/6/20): The conversation continues here.

Alex Platt has a fascinating new paper arguing that the SEC should consider the potential private litigation consequences of their activities.  He starts with the observation that SEC enforcement and oversight activity undoubtedly influences the private securities class actions often following in the SEC’s wake. SEC enforcement can catalyze or inhibit these “piggybacked” private securities class actions in many different ways.  For example, the SEC’s enforcement division may catalyze private litigation by revealing facts either through the filing of a complaint or in a settlement agreement. An SEC decision to include an admission of wrongdoing in a settlement agreement would substantially advance private litigation. This process can allow private attorneys to discover, and later plead, facts critical to surviving a motion to dismiss.  The SEC’s Division of Corporation Finance now also catalyzes and inhibits private litigation through its comment letter process.  Consider how the SEC communicates its views to issuers.  Oral comments in a phone call leave no record for plaintiffs to cite in some later class action.  In contrast, a disclosed letter laying out the SEC’s reasoning may persuade a court that particular facts were material or that a defendant had scienter.  A decision to pick up the phone instead of writing a letter has real consequences.

Yet the SEC does not now account for these collateral consequences stemming from its activities–even though it has to actually know about them.  Platt points out that the SEC now regularly reports to Congress about enforcement but omits its true effects because the score sheet does not include private securities class actions catalyzed by SEC actions.  Adding these into the mix might give the SEC a reason to internalize the impact of its decisions.

As a former defense lawyer, I know that companies sometimes view SEC or state enforcement actions as a single front in a larger war which may be waged in state and federal courts across the country.  Companies might prefer to pay larger settlements to the SEC with carefully negotiated language to deny plaintiffs the factual ammunition they would need to withstand summary judgment or a motion to dismiss.  In this sense, a large SEC settlement might actually reduce a defendant’s overall liability.

Oddly, even though we know defense teams think about these issues, there does not seem to be any disclosed process for weighing these impacts at the SEC.  Putting a process in place to consider these impacts would likely result in more effective and judicious enforcement.

As recounted by Jeff Edmonds, our high school’s track coach, Van Townsend:

would train runners from all the schools in the region over the summer, then relentlessly compete against them in the fall, then bring them back together to train in the winter. His world was the runner’s world, in which your rival is your greatest friend.

At the time, I did not really care much for training; I just liked winning. Van was easily the most knowledgeable coach in our region, and I remember being somewhat frustrated that he would share his expertise with our competitors.

With winning races as my ultimate goal, any assistance to other runners was counterproductive. For me, competition was zero-sum; if someone else won, I lost. Van saw competition differently. Van saw competition not as the end, but as a means to the greater ends of self-discipline, community, and true excellence.

Cormac McCarthy, in his 2007 Pulitzer Prize winning novel The Road, explores these competing views of competition. In this post-apocalyptic novel, an unnamed man and his son travel south over an ash-covered road, trying to outrun the harsh winter. Resources are scarce and many of the survivors have resorted to cannibalism.

The man reassures his son that they are two of the “good guys” because they do not eat fellow humans. Nevertheless, the man resists most of his son’s pleas to help others they encounter on the road, embracing a scarcity view of competition. The man admirably protects and shares with his son, but the man treats nearly everyone else with suspicion and violence. The father reminds his son to “always be on the lookout” and even after finding a cellar full of provisions, the father quickly turns his attention to trying to find another gun. His gun is down to its final bullet, so his power to fight off others is tenuous.

The man clearly loves his son, and the man appears well-intentioned in his attempts to do what is best for his son. But by trying to protect his son through selfishness, the man contributes to the cruel world that his son will inherit. The man tends to assume the worst of those they encounter on the road and, as a result, none of his compassion for his son spills over into the world at large. Selfishness, ruthless competition, and distrust leaves the world bleak and drains life of its meaning.

At the end of the novel, shortly after the boy’s father dies, the boy encounters another man. Following his father’s example, the boy points his pistol at the stranger. After a bit of conversation, the boy begins to let down his guard. But the boy remains a bit unsure, asking: “How do I know you are one of the good guys?” The stranger admits “You don’t. You’ll have to take your shot.” Unlike his father, the boy does not continue in distrust, and the boy does not resort to violence. The boy goes with the stranger.

The stranger rewards the boy’s trust by leaving a blanket—that they could use to help them survive—to wrap the boy’s dead “papa.” In a freezing world where survival is uncertain, this is an extreme act of kindness that strikes against cold utilitarianism. Even in a land of very limited resources, life means much more than simply using power to survive.

The boy and the stranger were both armed. The more powerful one could have killed the other and stolen his supplies. In a sense, the more powerful person would have “won” the competition, but he would have only secured a bit more time in a decidedly ugly world. In the novel, however, both the stranger and the boy risked a shortened life, but they seemed to gain beautiful friendship and the priceless experience of shared sacrifice. 

Competition is not altogether evil. As Coach Van Townsend knew, healthy competition can be used to inspire and it can even help build community out of shared striving and respect. But when “winning” becomes the ultimate goal, and virtue is trampled, the world can quickly turn cruelly cold.

(Note: Anything insightful I have written was likely drawn from conversations with my brilliant literature professor brother. Anything foolish is of my own making.)