As I prepare to teach Business Associations in the spring after taking a few semesters off from that task, I am rooting around for the best statutory resource book for my students. I am still inclined to assign a book for variety of reasons, despite the additional cost for students. (But feel free to offer arguments in the comments to the contrary.)

I had been successfully using the Corporations and Other Business Associations: Selected Statutes, Rules, and Forms book edited by Chuck O’Kelley, Bob Thompson, and (recently added) Dorothy Lund since 2000. But a few years ago, the editors made the decision to substitute the Delaware Revised Uniform Limited Partnership Act for the Revised Uniform Limited Partnership Act (RULPA). RULPA is the law in Tennessee, and it conforms to the structure of the other uniform acts I teach (Revised Uniform Partnership Act and the Revised Uniform Limited Liability Company Act). Because most of my students will practice in Tennessee and sinceI spend little time on limited partnership law, RULPA is a better choice for me in my teaching. (But again, feel free to push back on that choice on my part.)

So, what do you do? Do you used a paperback statutory resource? If so, which one, and why? If not, what do you do to ensure that students know the statutes and how to navigate them? I have tried several ways to accomplish those purposes in the past. But I have concluded that, for my teaching, having the statutes handy in a book is optimal.

Today (as I type this, it is still Monday night), I merely want to express gratitude to all of those who, like my father (pictured above), have fought for our country in the armed services. My father enlisted in the U.S. Army and later received his draft notice (when he already was serving in Korea). I had the pleasure and honor of interviewing him about his time in the Army before he passed away. The recording and information about him and his service can be found here.

Elon Musk is using his new quasi-official role with the federal government to threaten to preempt Delaware law with federal corporate governance standards, if the Delaware Supreme Court does not restore his Tesla pay package.

And another thing, on this week’s Shareholder Primacy podcast, Mike Levin talks with Matt Moscardi of Free Float Analytics about what shareholders should and do look for in director candidates, and how to use advanced data and modeling to identify good and bad directors. Available on Spotify, Apple, and Youtube.

Like many of you, I’m still digesting the election results and mulling what it will mean for financial regulation.  At the least, here are my early expectations:

  • Administrative agencies may focus on repealing existing rules over crafting new ones to address problems.  We saw this with the last Trump Administration and I’d expect to see more of the same.
  • The Trump Administration will likely move to exert more political control over civil servants.  At the end of the last Trump Administration, President Trump issued an Executive Order aiming to exclude many more federal employees as outside the ordinary civil service rules. President Biden revoked it on taking office.  If reinstated, Schedule F would cover “[p]ositions of a confidential, policy-determining, policy-making, or policy-advocating character not normally subject to change as a result of a Presidential transition[.]”   Essentially, the Trump Administration may seek to take political control over any federal employees involved in policy work.  This would cover a huge swath of federal employees.
  • The independence of the SEC will be tested.  There are two ways I can see this happening.  First, Chair Gensler could decline to resign and simply serve out his term.  President-elect Trump has promised to fire him.  But it’s not entirely clear to me that he can be fired without cause.  By staying at his desk, Chair Gensler could bring clarity to whether the SEC does enjoy for-cause removal protection. Of course, if Gensler resigns, someone else will take the job.  That person also stands a good chance of getting fired because the prior Trump administration included regular firings and turnover.  If some new SEC Chair decided to resist termination, we’d also get an answer to this question.
  • Climate-related rules are likely to be watered down or rolled back.
  • Enforcement priorities may shift away from crypto-related frauds and scams.
  • The Federal Reserve may lose independence.
  • Self-regulatory organizations may face greater risks that courts will question their status.

I was quoted earlier this week (Monday) in a Business Insider article, “Elon Musk has a lot to gain if Trump wins. A Harris presidency is more uncertain.” The article is behind a paywall (sorry!), but at the time this is being posted, an aol.com version is available. In any event, this post offers my two quotes with some context.

On the potential for bias against Elon Musk in a Harris administration:

“One would hope that governmental units would be immune to political pressures,” Joan MacLeod Heminway, a law professor at the University of Tennessee, told BI. “But people in those units are humans and may inadvertently scrutinize proposals coming from entities owned or controlled by Elon Musk.”

In response to a question about the inclusion of Elon Musk in a Trump administration:

“There are ethical rules mandating compliance with various types of obligations, including conflict-of-interest reporting, for certain types of government positions,” Heminway said. “Elon Musk may not want to take on these obligations.”

Now, we will wait and see what actually transpires. The article notes that “Trump has already incorporated some of Musk’s policy proposals into his campaign, with plans to establish a government efficiency commission led by Musk. Trump has said the commission would conduct a ‘complete financial and performance audit of the entire federal government’ and make suggestions for ‘drastic reforms.'”

Certainly, the deregulatory business environment that characterized the initial Trump administration (which I wrote about some here and here) was and likely would be a boon for business innovators like Elon Musk. The article observes that “[m]any of Musk’s companies depend largely on federal approvals, regulations, subsidies, or contracts — and Trump has promised a lighter regulatory environment with plans to lower corporate and personal taxes.” No doubt we will have more to say on all this here on the BLPB as time moves forward.

Many readers know Bill Carney, Professor Emeritus at Emory Law. Bill’s scholarly and instructional work in business finance has enlightened so many of us. That, alone, is a great legacy of his many years of research, writing, and teaching.

But now we have another reason to celebrate Bill and the mark he is leaving on our world. Last week, Emory announce a major gift from Bill, creating the William and Jane Carney Center for Business and Transactional Law at Emory Law. Many know about Emory Law’s historical leadership in business law through its Center for Transactional Law and Practice (which is encompassed in the Carney Center). Bill has been a strong component and proponent of that leadership. This gift will undoubtedly ensure a continued academic and instructional focus on business law at Emory Law for the foreseeable future.

I am thrilled for Emory Law and my friends there. And we all can be grateful to Bill for so much–including this. Business law education needs more of this kind of support.

One issue that I keep coming back to concerns the conflicts inherent in asset management.  Namely, mutual fund companies control lots of funds; each fund is its own entity, and presumably has its own interests; and yet historically, they’ve tended to be managed as a group, with – for example – all funds voting relatively in tandem, even if different funds might have different sets of interests (not always; sometimes there are legal reasons to separate them).

Anyway, it’s a subject I’ve written about in the past, and I’m always fascinated when a new empirical paper pops up illustrating the coordinated management of funds. Recently there have been a couple of interesting ones on the subject of ESG.  Previously, I blogged about this paper by Roni Michaely, Guillem Ordonez-Calafi, and Silvina Rubio, which finds that mutual fund families let their ESG funds vote separately in support of ESG issues only when those votes are unlikely to be the pivotal ones, because the proposal is widely supported or widely opposed.  When it’s a close vote, their ESG funds are reined in to the house view.

And now there’s ESG Favoritism in Mutual Fund Families, by Anna Zsofia Csiky, Rainer Jankowitsch, Alexander Pasler, & Marti G. Subrahmanyam, which finds that mutual fund families functionally “subsidize” their ESG funds – by allocating better performing assets to them at the expense of other, non-ESG funds within the same family – in order to prevent them from underperforming.  The authors speculate that families may be motivated to support their ESG funds in order to cater to a new ESG market, or simply to burnish their own reputations.

And finally, the latest Shareholder Primacy podcast is up.  This week, me and Mike Levin talk about the McRitchie v. Zuckerberg case, and Exxon’s lawsuit against Arjuna Capital.  Available at Apple, Spotify, and YouTube.

I know this is late notice, but I have a small role in an online symposium on benefit corporations being held today at 3:30 pm Eastern (12:30 pm Pacific). The symposium features essays on Professor Michael Dorff’s recent book on benefit corporations, Becoming a Benefit Corporation. The essays will be published in a forthcoming issue of the Southwestern University Law Review. I am writing a foreword for the issue. If you have time and want to register to attend, the flyer is included above. You also can just register here.

Happy Halloween!

The Delaware Supreme Court just heard oral argument in the TripAdvisor case. Both sides had talented lawyers representing them. Keith Bishop has also covered this here. You can watch the oral argument here:

I’d like to offer three quick thoughts.

The Reincorporation Premium/Discount

At around the 28th minute, counsel for the stockholder made claims about there being a Nevada discount. This doesn’t seem to be supported by the weight of the evidence–or recent evidence. Steven Davidoff Solomon summarized the evidence in a recent memorandum that was attached to The Trade Desk Proxy. This is what he found:

24. Professors Paul Gompers, Joy Ishii, and Andrew Metrick also examined Professor Daines’ results as part of their study of 1,500 large firms to assess how firm governance affects stock returns. Consistent with the unique nature and heterogeneity of each company, they found that the premium observed in Professor Daines’ study was attributed to various governance characteristics, such as a classified board, limited ability to call special shareholders’ meetings, and state law and charter takeover protections. After controlling for these factors, they discovered that the Delaware premium was no longer statistically significant. In other words, Professors Gompers, Ishii, and Metrick concluded that any valuation increase in Delaware firms identified by Professor Daines was not due to incorporation in Delaware, but rather to the individual governance choices of those firms.

25. Finally, in a 2020 article, Professor Ed Fox investigated whether there is a premium for controlled companies incorporated in Delaware.35 Replicating the Daines study with a smaller sample of firms, Professor Fox found a potential effect for middle-market diffusely held Delaware firms, but it was not significant. He also examined controlled firms, like The Trade Desk, and discovered that “controlled Delaware firms have a lower Tobin’s Q compared to controlled firms incorporated elsewhere, after factoring in firm characteristics.”36 In other words, Professor Fox identified a Delaware effect, but it was negative for controlled firms. He found that controlled Delaware firms are, on average, worth 4.9% less than similarly situated firms incorporated elsewhere.

26. Regarding Nevada firms and the value of Nevada incorporation, the primary study by Professors Clark and Barzuza found that, as of 2011, Nevada is the place of incorporation for 8.0% of all public firms incorporating outside their headquarters state, making it second only to Delaware in attracting out-of-state incorporations.37 Professors Clark and Barzuza also replicated the Daines study and found “no discernible valuation effect for firms that incorporate in Nevada,” in contrast to Delaware firms, which are “valued higher than firms incorporated in Nevada and other states outside Delaware.”38 This discrepancy may be attributed to the fact that the Nevada firms in their sample are significantly smaller than Delaware firms, potentially leading to a lower overall value. Additionally, the value differential could reflect differences in the quality of firms incorporating in Delaware versus Nevada.39

27. Professor Eldar has more recently analyzed studies of whether Nevada firms have a premium or discount. He states that “there seems to be no convincing evidence that incorporation in Nevada adversely affects share prices.”40 Professor Eldar also conducted his own study and concluded that “the evidence supports the hypothesis that Nevada’s protectionist laws do not harm shareholder value…. ”41

28. Ultimately, these and other studies suggest that while incorporating in Delaware may have had some value in the past, the premium has diminished as capital markets have matured. Additionally, these findings are subject to limitations, such as the inability to fully control for selection effects and omitted variable bias. More specifically, it is possible that these studies observed higher or lower-quality companies choosing Delaware, Nevada, or elsewhere, and that these unobserved characteristics influenced the results. Furthermore, the findings of Professors Gompers, Ishii, and Metrick, along with subsequent research, support the idea that any observed valuation effects of incorporation may also be attributed to the unique governance characteristics of the companies.42

In short, there doesn’t seem to be any meaningful change in stock price when firms pick Nevada over Delaware. To the extent that controlled firms really do trade at a discount in Delaware, reincorporation might offer a minority stockholder benefit by helping reduce that discount.

What Companies Give Up When They Decamp to Delaware

If Delaware does start imposing liability for reincorporations, other states might respond. Nevada made this point in its brief by pointing out that stockholders might sue under the law of other states because a reincorporation to Delaware would deprive them of their rights to a jury trial.

But there are other differences between the states. Take constituency statutes for instance. Over thirty states have them. They generally provide that the corporation’s board may consider constituencies other than shareholders when making decisions. Nevada’s constituency statute allows a corporate board to take into account the interests of “the corporation’s employees, suppliers, creditors or customers” among an array of other constituencies when considering the interests of the corporation. Reincorporation to Delaware trims away a corporate board’s ability to consider these other interests directly and makes it so that they must be considered through the lens of what best advances shareholder interests.

The states that charter corporations surely have an interest in them. As there isn’t a good mechanism for these constituencies to sue for the loss of their ability to be considered as part of the interests of the corporation, states might authorize their attorney generals to seek damages for reincorporations to jurisdictions that apply different standards.

Damages Remain Speculative

Either for the loss of the constituency statutes or for other changes in rights between states, figuring out damages appears to be a really nasty thicket. I don’t know any great way to do it. I don’t think anyone does. How do you value a different set of statutes, different cases, and a different court system? I don’t know. I don’t think the Delaware Supreme Court has a great answer either. It might be better to just treat damages here as too speculative.