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[Image by Keturah Moller from Pixabay ]

When I was young, Memorial Day meant one thing: the Memorial Day Fair at my church, The Cathedral of the Incarnation in Garden City, New York.  As I contemplated how to honor our war dead this Memorial Day, I kept coming back to thinking about that fair.  Others have also had memories of the fair on their minds this week.  A May 25th post in a Facebook group I belong to, I grew up in Garden City, New York, asked: “What are your memories of the Memorial Day fair at the cathedral? I looked forward to it every year!”  At the time this post was published, there were over 100 comments and replies posted.  The Memorial Day Fair even gets a nod on the TripAdvisor page for the church–“Wonderful [sp] Memorial Day Fair and Concert.”  Local press stories on the preparations and schedule for this year’s fair can be found here and here.

The Memorial Day Fair is a collaborative community event in which local businesses join together with church volunteers to produce a major good time.  The webpage for this year’s fair notes ten business sponsors and boasts that the fair “will feature games, inflatables, rides, prizes, and delicious fair food! You’ll also find arts & crafts, vendors, organ concerts with patriotic sing-alongs (at 1pm and 3pm), historic tours, and an archives display.”  Those commenting in the Facebook group remembered the goldfish (most of which died rather soon after the fair) that many of us won by throwing ping-pong balls into goldfish bowls, the games, the rides, and the food–especially the cotton candy.

I remember all that–and selling ice cream to a famous actor visiting our local famous basketball player.  But I also remember the American Legion’s red poppies and the local Memorial Day Parade (which many also remembered in response to the Facebook group post).  These parts of the day were directed almost exclusively toward honoring those who lost their lives fighting for our country and became intertwined with the fair in meaningful ways.

My memories of the Cathedral of the Incarnation Memorial Day Fair remain relatively strong as I take time out today to remember why Memorial Day exists:  to honor the lives of people who died while serving in the U.S. armed forces.  (See also here and here.)  The forces of community in my home town–business and religious interests alike–that came together (and apparently continue to come together) in honor of the men and women who died in military service to our country is a great example of social responsibility in action.  It continues to inspire.

As it’s a holiday weekend, I’ll be brief and flag for readers one of the most intriguing news stories – given my research interests – that I came across this past week.  In Sirius Computer moves to block derivatives holders from speculation, Kristen Haunss notes:

Language in the financing package backing Sirius’ buyout by private equity firm Clayton, Dubilier & Rice (CD&R) prohibits lenders that own derivative positions from voting on company matters, according to three sources familiar with the loan credit agreement. As investor activism rises, the borrower wants to prevent these holders from declaring a default that could pay off for their hedged trades.

It’s an interesting move to limit potential strategic behavior by lenders with CDS positions.  The story notes that additional such limitations could be seen in the future.  If you want to learn more about recent cases of such strategic lender behavior, a great place to start would be Gina-Gail S. Fletcher’s Engineered Credit Default Swaps: Innovative or Manipulative?, which will be published in the New York University Law Review.

A couple of weeks ago, I was lucky to participate in a panel on securities litigation at George Mason University Antonin Scalia Law School, along with Professor J.W. Verret, Jonathan Richman of Proskauer Rose, Steven Toll of Cohen Milstein, moderated by Judge Michelle Childs of the District of South Carolina.  We had a lively discussion about current issues concerning these actions, including what I guess is now being branded as “event-driven” litigation, definitions of materiality, and arbitration clauses in charters and bylaws.

In my opening remarks, I discussed merger litigation and the shift from state to federal courts, covering much of the territory I previously described on this blog (of course, since that post, the Supreme Court dismissed the Emulex case as improvidently granted).  I also drew from research by Matthew Cain, Steven Davidoff Solomon, Jill Fisch, and Randall Thomas, presented in April at the ILEP symposium on corporate accountability.  (Their research is not yet public but I will link here as soon as it becomes available).

In the meantime, if you’re interested, you can watch a video of the panel here:

 

The other panels from the symposium are also available for viewing at this link.

Bird

“Bird Scooter” by mikecogh is licensed under CC BY-SA 2.0 

Here in Nashville, Mayor David Briley announced that he is seeking to ban scooters. This announcement follows the first scooter-related death in the city.

Currently, I am working on a project that looks at how social value is measured and reported. As I dig deeper, I am becoming even more convinced that measuring social value may be too difficult for us to do well.

Let’s take scooters as an example. How would you measure (and report) the social value of these scooter companies? How many points should a “third-party standard” assign for the jobs created, for the gasoline saved, for the affordable transportation provided, for the fun produced? How many points should you subtract for a death, for injuries, for obstructing sidewalks? In the language of the Model Benefit Corporation Legislation, how do you know if a scooter company is producing “[a] material positive impact on society and the environment, taken as a whole”?

Over the past few weeks, I’ve been diving into the B Impact Assessment, (which is the top third-party standard used by benefit corporations) and, frankly, the points assigned seem somewhat arbitrary and easy for companies to manipulate. In my opinion, almost any company, including a scooter company, could get the 80+ points needed to qualify as a certified B corp. if they learned and worked the system a bit (and, as most readers know, you don’t even have to be certified to become a benefit corporation under the state statutes.)

I know bright people who would emphatically argue that scooter companies create a “material positive impact,” and I know bright people who think scooter companies are socially destructive. Social reporting does not have to be totally useless; it would be interesting to have the data on scooter usage (how many people are using them for their commute, what is the injury rate relative to cars, etc?). But the total amount of social value is not easily reduced to numbers and social reports. Given the nuance of each decision, the various externalities, and the difficulty in quantifying the social impact, I have previously suggested giving stakeholder representatives certain governance rights (such as the ability to elect and sue the board of directors). This way, directors will be more likely to consider each stakeholder group when making decisions.

We have a new call for papers in Professional Responsibility.  It’s the law regulating the business of law.

 

AALS Section on Professional Responsibility 

2020 Annual Meeting

Call for Papers Announcement

 

Confronting the Big Questions About the Regulation of the Legal Profession

Saturday, January 4, 2020
10:30 a.m.-12:15 p.m.

Washington, D.C.

 

The AALS Professional Responsibility Section is pleased to announce a Call for Papers for the Section’s program at the AALS 2020 Annual Meeting in Washington, D.C. 

 

Program Description:

In its 2016 Final Report, the American Bar Association Presidential Commission on the Future of Legal Services concluded after a two-year inquiry that “technology, globalization, and other forces continue to transform how, why, and by whom legal services are accessed and delivered. Familiar and traditional practice structures are giving way in a marketplace that continues to evolve. New providers are emerging, online and offline, to offer a range of services in dramatically different ways. The legal profession, as the steward of the justice system, has reached an inflection point. Without significant change, the profession cannot ensure that the justice system serves everyone and that the rule of law is preserved. Innovation, and even unconventional thinking, is required.” Some of this change must come in the form of fundamental reconsideration of how we regulate the legal profession, the practice of law, and the delivery of legal services.  This program calls for scholars to heed the ABA Futures Commission’s call and apply unconventional thinking  to confront the big questions about the future of lawyer regulation.

Topics addressed at the program might include: 

  • What does the market for legal services look like today?
  • What regulatory changes need to be made to improve the delivery of legal services?   
  • Do the current prohibitions on multidisciplinary practice, nonlawyer ownership of law firms, multijurisdictional practice, and the unauthorized practice of law need to be reconsidered in the interest of improving the delivery of legal services? 
  • What regulations are necessary to ensure ethical delivery of services and consumer protection? 
  • What regulatory changes have been implemented in other countries and what impact have those changes had on the delivery of legal services?

 

Submission Information: 

Papers should be submitted to the section chair, Ben Cooper, via email at bcooper@olemiss.edu, no later than September 1, 2019, with the subject line: PR Section Call for Papers. 1-2 papers will be selected from the Call for Papers to be presented at the section program along with other panelists, including ABA President Judy Perry Martinez, Professor William Henderson, and Professor Rebecca Sandefur.  

It has been kind of a unique end of the semester, and I am working feverously to get through my Business Organizations exams. I’m getting there.  So far, I have had zero exams reference a “limited liability corporation.”  If this holds, it will be at least three years in a row.  

I have had a couple of folks refer to LLC veil piercing as piercing the “corporate” veil (another no-no), and I did have some other “corporate” references to LLCs (e.g., “an LLC’s corporate formalities”), so we’re not all the way there. But so far, I am seeing improvement, and I appreciate the effort.  

Here’s hoping for 48 of 48 describing the LLC (as an entity) correctly.  I hope the rest of my colleagues are holding up well here in the home stretch. Good luck to all. 

The following comes to us from Bernard Sharfman:

I have slightly revised a key paragraph from the Introduction of my new article, Enhancing the Value of Shareholder Voting Recommendations. This paragraph takes the approach that shareholder voting is really more about authority than accountability. Using this approach has significant implications for the use of board voting recommendations. I would appreciate any comments that you may have on the following:

[S]hareholder voting in a public company cannot be looked at as simply another tool of accountability, i.e., a device to minimize agency costs or enhance efficiency, such as when shareholders file a direct or derivative lawsuit, initiate a proxy contest, attempt a hostile takeover, or take significant positions in the company and then advocate for change (hedge fund activism, here and here). When shareholders vote they are also participating, alongside the board, in corporate decision making. That is, they are temporarily transformed into a locus of corporate authority that rivals the authority of the board. As co-decision makers it is critical that shareholders and those with delegated voting authority, such as mutual fund advisers, have at their disposal informed and sufficiently precise voting recommendations, no matter what the source, including the board of directors. If shareholders and investment advisers with delegated voting authority feel that the board can provide them with the most precise voting recommendations, then those are the recommendations that they should use.

Brown(Jonathan-2018)
Last week, a wonderful man in my life died.  Jonathan Spencer, a classmate from and fellow class leader for Brown University, died unexpectedly a week ago.  He collapsed while exercising and was unable to be revived.  At the time of his death, he was the General Counsel of the Museum of Science Fiction in Washington, DC, a museum that he helped to found.  The above photo was taken last year at our 35th reunion celebrations.  Although we did not see each other a lot in between reunions, we shared a passion for Brown and our class.

We also shared a professional connection, as the title of this post indicates.  Jonathan was a fellow business lawyer.  He focused on communications technology for much of his career.  His formal professional bio as currently posted at the Museum of Science Fiction is as follows:

Jonathan Spencer, General Counsel. Jonathan is a technology and transactional attorney with over 25 years of experience having held senior and executive level positions with several Internet and telecommunications companies. Jonathan has also representedtechnology and media companies, financial institutions and nonprofit organizations. Jonathan is a former chair of the Association of Corporate Counsel’s IT, Privacy and E-Commerce Committee and has spoken at programs for the American Bar Association, the Association of Corporate Counsel, the American Society of Association Executives and the International Technology Law Association. Jonathan is a graduate of Brown University and Duke University School of Law.

I can assure you, as impressive as his professional accomplishments are, Jonathan was far more than an impressive business lawyer.  He had a seemingly boundless intellectual capacity.  At his memorial services in Falls Church, Virginia yesterday, it was noted by family that “Before Google and Wikipedia, there was Jonathan.”  That rang so true to me.  But more importantly, perhaps, Jonathan had an incredible joy for life.  He was “all in” when he chose to do things–from simple conversations with friends and classmates about mutual interests through event planning and fundraising work for Brown to world travel (and much more in between).  He lived life–making sure that he enjoyed the present moment as he strived to achieve all that he accomplished.  His altogether too-short life reminds me to do the same.

The photo below was taken of the two of us at Brown Homecoming back in 2007.  We were on campus for a leadership weekend and attended the football game while we were there.  A fellow classmate found this picture for me a few days ago.  I will treasure it and all of the memories of our times together.  Jonathan, may you rest in eternal peace, and may your family be comforted in their time of grief.  You will be missed by us all.

Brown(Me&Jonathan-2007)

Today, I thought of Haskell Murray’s recent post, Reflections on the Life of a Smiling, Selfless Educator: Rivers Lynch, in thinking about paying tribute to my former colleague, mentor, and friend, University of Notre Dame Law School Professor John Nagle, who passed away yesterday.  Like so many, I am stunned and devastated by John’s death.  He too was a smiling, selfless educator who positively impacted the lives of so many.

John was a tremendous scholar in the areas of environmental law, property, legislation & regulation, and biodiversity and the law.  Yet because of his characteristic selflessness, I could always as his junior colleague count on him to critically read and comment on my work on topics such as the Federal Reserve and clearinghouses!  His feedback, in addition to his lasting support and encouragement, has been a priceless gift in my life.  I will be forever grateful.

Others have written about how John creatively integrated his life and research.  For example, he managed to “convert his love of the outdoors and our national parks into a research agenda.”  In catching up with John, I always loved hearing about his most recent national park adventure.  And others have written about his devotion to his family and faith.  I too received an email from John one year saying we wouldn’t get to catch up at AALS because he didn’t want to miss any of his daughter’s basketball games!

John knew what he valued and what his priorities were in life.  And he lived accordingly.  He had a clear definition of success and lived consistent with that vision.  Harvard Business School Professor Clayton M Christensen asks “How Will You Measure Your Life?”  John had a ready answer for this question.   

Perhaps one of the best ways I can honor John and his memory is to reflect upon my values and priorities, and to ask myself whether I’m using my time, talent, and treasure in such a way that these values and priorities are actually being put into practice, and to encourage others to engage in similar reflection.           

(published 5/19/19, revised 5/20/19)

In 2014, the Supreme Court decided Burwell v. Hobby Lobby Stores, where it held that it is possible for a for-profit corporation to have a religious identity, derived from the religious commitments of “the humans who own and control those companies.”  In so holding, the Court relied in part on state laws that permit even for-profit corporations to pursue purposes beyond stockholder wealth maximization.  As the Court put it:

Not all corporations that decline to organize as nonprofits do so in order to maximize profit. For example, organizations with religious and charitable aims might organize as for-profit corporations because of the potential advantages of that corporate form, such as the freedom to participate in lobbying for legislation or campaigning for political candidates who promote their religious or charitable goals.  In fact, recognizing the inherent compatibility between establishing a for-profit corporation and pursuing nonprofit goals, States have increasingly adopted laws formally recognizing hybrid corporate forms. Over half of the States, for instance, now recognize the “benefit corporation,” a dual-purpose entity that seeks to achieve both a benefit for the public and a profit for its owners.

In any event, the objectives that may properly be pursued by the companies in these cases are governed by the laws of the States in which they were incorporated—Pennsylvania and Oklahoma—and the laws of those States permit for-profit corporations to pursue “any lawful purpose” or “act,” including the pursuit of profit in conformity with the owners’ religious principles.

So it was a bit of an eyebrow-raiser to read this April Executive Order in which Trump declares:

The majority of financing in the United States is conducted through its capital markets.  The United States capital markets are the deepest and most liquid in the world.  They benefit from decades of sound regulation grounded in disclosure of information that, under an objective standard, is material to investors and owners seeking to make sound investment decisions or to understand current and projected business.  As the Supreme Court held in TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976), information is “material” if “there is a substantial likelihood that a reasonable shareholder would consider it important.”  Furthermore, the United States capital markets have thrived under the principle that companies owe a fiduciary duty to their shareholders to strive to maximize shareholder return, consistent with the long-term growth of a company.

(emphasis added),

As readers of this blog are likely aware, academics love to argue over whether existing law requires that corporations be run solely to maximize stockholder wealth, and of course over whether such law – if it exists – is a good idea or a bad idea.  See generally Joan MacLeod Heminway, Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and Organic Documents, 74 Wash. & Lee L. Rev. 939 (2017).  Usually, however, these battles occur in the context of state law.  And while federal law – securities regulation, and so forth – often implies a corporate purpose of wealth maximization, I have to admit, I don’t recall seeing so blatant a statement about it before.

In any event, this section of the Executive Order directs the Department of Labor to review its existing guidance re: ERISA plans’ involvement in ESG matters.  It’s a follow-up to last year’s Labor Department release – which I blogged about here – warning that ERISA plans may violate their duties to plan beneficiaries if they engage on ESG matters,  or vote for ESG-related proxy proposals, for reasons other than plan wealth maximization.

As I’ve previously discussed, the SEC is currently reviewing rules governing the proxy process – including the role of proxy advisory services – to determine if additional regulation is needed.  Much of this fight is, of course, about shareholder involvement in ESG matters and corporate governance more generally.  I assume from this latest Executive Order that we’re about to see something of a two-pronged effort to limit shareholder power, with new guidance and/or regulations issuing from the SEC on one side and the Labor Department on the other.  Anyone’s guess how successful this effort is likely to be, but I will highlight Andrew Tuch’s recent article, Why Do Proxy Advisors Wield So Much Influence? Insights From U.S.-U.K. Comparative Analysis, B.U. L. Rev. (forthcoming), pointing out that proxy advisory services have far less influence in the UK than in the United States, which he attributes to the fact that US shareholders have less power, and have reached less consensus on best practices in corporate governance, than shareholders in the UK.  He concludes that many of the attempts to limit shareholder power – and the power of proxy advisors – in the US will not only be ineffective, but will actually strengthen proxy advisors’ hand.