Friend of the Business Law Prof Blog Anat Beck recently posted a draft of her article entitled Unicorn Stock Options – Golden Goose or Trojan Horse? on SSRN.  I heard presentations on earlier versions of this piece, which I personally find quite intricate and interesting.  An excerpt fro the SSRN abstract follows:

This article examines a contemporary puzzle in Silicon Valley – is there a shift in unicorn employees expectations that results in labor contracting renegotiations? It explores the challenges faced by unicorn firms as repeat players in competitive technology markets. It offers the following possible solutions. First, new equity-based compensation contracts, and critiques them. Second, alternatives to the traditional liquidity mechanisms, and critiques them.

It concludes with proposals to remove legal barriers to private ordering, and new mandatory disclosure requirements.

The article has been picked up by the Harvard Law School Forum on Corporate Governance and Financial Regulation and linked to in a Matt Levine column for Bloomberg.  This is a good read, especially for those of you interested in entrepreneurial business law (which is Anat’s speciality).

5th Conference of the French Academy of Legal Studies in Business (Association Française Droit et Management)

June 20 and 21, 2019 – emlyon – Paris Campus

CALL FOR PAPERS 2019 Social Issues in Firms

Social issues and fundamental rights occupy an increasingly important space in the governance of today’s companies. Private enterprises assume an increasingly active role not only in a given economy but also in society as a whole. Firms become themselves citizens. They recognize and support civic engagement by the men and women who work for them. Historically, the role of the modern firm that resulted from the Industrial Revolution has been torn between two opposing viewpoints.

[More information under the break.]

Continue Reading 5th Conference of the French Academy of Legal Studies in Business – June 20-21 – Paris

Jeremy Kessler and David Pozen have posted a draft of their paper The Search for an Egalitarian First Amendment on SSRN (available here).  In skimming the paper, I came across a number of quotes, including a couple of citations, I thought readers of this blog might find of interest. So, here they are, in no particular order:

— One does not need to read Piketty … to guess that equating corporations’ rights to spend money, sell data, and trim benefits with citizens’ First Amendment rights might prove controversial in a world of bank bailouts and mortgage foreclosures.

— the question whether the Free Speech Clause permits a legislature to limit the election-related spending of corporations, unions, or wealthy individuals in the service of antiplutocratic goals. To help answer this question in the face of mixed precedent and negligible Founding-era evidence, the Justices have adverted to each of the three major normative theories of the First Amendment [pursuit of truth, the promotion of individual autonomy, and the facilitation of democratic self-government].

— Both the majority and the dissent in Citizens United thus plausibly invoked each and every one of the three major First Amendment theories, as well as the value of equality itself, in support of their dueling positions. 

— For a decade now, the “anxiety that the ‘Great Recession’ . . . defines a new economic normal,” in which the wealthiest
individuals take an ever larger piece of an ever shrinking pie, has shaped American public culture.

— “Pikettymania” revolved around the stark neo-Marxist claim that “capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.”

— it is not just the current composition of the Supreme Court or its most controversial free speech decisions that account for the rise of First Amendment Lochnerism—a First Amendment jurisprudence that disables redistributive regulation and exacerbates socioeconomic inequality

— The move from speaker to system is the most powerful move in the contemporary grammar of egalitarian First Amendment argument; its underlying account of free speech does not merely complicate or chisel away at the deregulatory Lochnerian paradigm but supplies a comprehensive alternative.

— a First Amendment-industrial complex. Mapping the contours of this complex is well beyond the scope of this Essay. The basic point, for present purposes, is that arguments for a deregulatory First Amendment are now promoted not only
(or even primarily) by for-profit companies seeking to minimize their own labor costs or regulatory burdens, but also by a growing set of nominally depoliticized nonprofits with varying degrees of connection to the business community

— An additional feature of informational capitalism extends the potential reach of First Amendment Lochnerism: the dominant role played by private owners of the platforms through which information circulates online and within which ever more data is commodified and mined for economic value. Even though they control the infrastructure of digital communication and function as the “new governors” of the digital public sphere, companies like Facebook and Google are generally assumed to not be bound by the First Amendment because they are not state actors. Instead of empowering users to challenge their policies, the First Amendment empowers the companies themselves to challenge statutes and regulations intended to promote antidiscrimination norms or users’ speech and privacy, among other values. First Amendment law not only fails to check the internet’s new governors and the inequalities that pervade their platforms, but also stands in the way of legislative and administrative correctives.

— The neoliberal preference is not necessarily for “free markets” as such, but for a regulatory environment that prioritizes “familiar protections of property and contract” along with “a favorable return on investment and managerial authority.” In our digital age, the facilitation of these preferences has fallen to the “information state,” the set of national (or international) bureaucracies that oversee the operations of informational capitalism. Within these bureaucracies, “mandates or bans on conduct”—such as traditional labor laws, wage and price controls, or licensing regimes—are apt to be rejected as overly market-disruptive and replaced whenever possible with “‘lighter-touch’ forms of governance . . . such as disclosure requirements” and other regulatory techniques that further the production and circulation of commercially salient information.

— Cases decided by the Roberts Court, the Rehnquist Court, the Burger Court, and even the Stone Court have been singled out as the inflection point when First Amendment doctrine took its inegalitarian turn.

— For an ideologically diverse range of scholars, policymakers, and activists, growing inequality names both the deep cause and the dangerous effect of a set of overlapping conflicts—economic, racial, cultural, constitutional—that threaten the stability of contemporary U.S. society.

— Citizens United v. FEC, 558 U.S. 310, 424–25 (2010) (Stevens, J., concurring in part and dissenting in part) (“Under the majority’s view, I suppose it may be a First Amendment problem that corporations are not permitted to vote, given that voting is, among other things, a form of speech.”).

— Citizens United v. FEC, 558 U.S. 310, 441 (2010) (Stevens, J., concurring in part and dissenting in part) (arguing that “the Constitution does, in fact, permit numerous ‘restrictions on the speech of some in order to prevent a few from drowning out the many’” (quoting Nixon v. Shrink Mo. Gov’t PAC, 528 U.S. 377, 402 (2000) (Breyer, J., concurring)))

If you follow this blog regularly, you’ve probably seen me rant about the myriad errors courts make when evaluating market and investor behavior in the context of securities litigation.  I finally did what I’d been threatening to do and compiled my complaints into a single Essay on the subject, which I presented at the Connecting the Threads symposim hosted by the University of Tennessee at Knoxville in September.  (The symposium featured all of the Business Law Prof bloggers, and Marcia posted a description of the full program here)

My Essay, along with pieces by my co-bloggers, will be published in Transactions: The Tennessee Journal of Business Law.  I’ve just posted a draft to SSRN, and – anyway, here’s Wonderwall:

Fact or Fiction: Flawed Approaches to Evaluating Market Behavior in Securities Litigation

Abstract: Courts entertaining class actions brought under Section 10(b) of the Securities Exchange Act are required to make numerous factual judgments about the economic effects of the alleged misconduct.  For example, they must determine whether and for how long publicly-available information has exerted an influence on security prices, and whether an alleged fraud caused economic harm to investors.  Judgments on these matters dictate whether cases will proceed to summary judgment and trial, whether classes will be certified and the scope of such classes, and the damages that investors are entitled to collect.   

Over the years, courts have developed a variety of common law doctrines to guide these inquiries.  As this Essay will demonstrate, collectively, these doctrines operate in such an artificial manner that they no longer shed light on the underlying factual inquiry, namely, the actual effect of the alleged fraud on investors.  The result is that determinations of market impact and investor loss have become, in a real sense, fictional: the size and effects of the fraud are determined based on abstract doctrine rather than any empirical assessment of market behavior.  Ultimately, these stylized approaches to assessing market evidence interfere with the ability of the Section 10(b) cause of action to fulfill its modern function as a mechanism for deterring fraud. 

This Essay therefore recommends that, to the extent possible, these inquiries should be replaced with alternative schemes that award damages based on some combination of statutory formulas and evidence of investors’ reliance on the fraud.  These alternatives would be easier for courts to administer, and would re-align the fraud-on-the-market action with its fundamental goals.

SEC Commissioner Stein recently spoke at the Brookings Institution and called for more effective investor education as well as clearer and more effective disclosures.  One suggestion was to start designing curricula and providing investor education at much earlier ages.  She highlighted work done by  Nicole Iannarone and her students at Georgia State to put investor education information into nursery rhymes  My favorite is this bit from one about REITs set to My Little Teacup:

Non-traded REIT funds,

Have unique risks.

Illiquid value,

Harder to list.

Tempting for certain,

High dividend yields,

But higher up-front fees,

Could kill.

Admittedly, I might be unusual in my enthusiasm for poetry about the risks with non-traded REITs.  My attempts at crafting non-traded REIT rhymes veer toward unprintable, scatological rhymes.

Importantly, Commissioner Stein didn’t just call for putting all investor protection hopes into Investor Ed.  She recognized that it can only do so much and that more effective and useful disclosures would make a big difference as well.  She also called for disclosures to make it clear to investors exactly who they are paying and how much they pay.  

Fee confusion remains widespread.  One recent survey found that about 43% of investors just don’t know how much they pay.  This signals that our current system isn’t working.  It’s even worse for older cohorts.  A majority of investors in their sixties or seventies either don’t know what they’re paying or mistakenly believe that their financial adviser gives advice for free.

It may be difficult for commission-compensated salespeople to give good advice about non-traded REITs and similar products.  Josh Brown broke down what a transparent conversation about these products would look like on his blog:

With your portfolio size and risk tolerance I would recommend a $100,000 investment.  Given that amount let’s first go over the fees.  If you invest $100,000 I will be paid a commission of $7,000. My firm is going to get $1,500 – $2,000 in revenue share. My wholesaler, the salesman that works for the investment’s sponsor company, will get $1,000. He is a great guy, buys me dinner all of the time and takes me golfing. The sponsor company is going to get around $3,000 to pay for some of the costs they incurred in setting up the investment.  So all in on Day 1 there will be around $87,000 left over to actually invest.  I bet you are getting excited.

As the conversation around disclosure continues, we need to pay more attention to what disclosures actually increase understanding.  

The following comes to us from  John Marshall Law School Associate Dean David Sorkin. 

Spring 2019 Full-Time Faculty Podium Visitors

The John Marshall Law School in Chicago seeks one or two full-time visiting faculty members for the Spring 2019 semester. We need coverage in the areas of Corporations, Civil Procedure (evening course), Secured Transactions, and Estates & Trusts. The appointment is for one semester, but we will be seeking visitors for the 2019–2020 academic year in these areas plus some combination of Evidence, Criminal Law, and Property.

Candidates should have taught full-time at an ABA-approved law school.

To Apply:

Submit a current CV, cover letter, and three professional references to Associate Dean David Sorkin at 7sorkin@jmls.edu. The review will begin immediately and continue on a rolling basis until one or both positions are filled. We may request a Skype or in-person interview and submission of prior teaching evaluations.

The John Marshall Law School, finding any invidious discrimination inconsistent with the mission of free academic inquiry, does not discriminate in admission, services, or employment on the basis of race, color, sex, religion, national origin, ancestry, age, disability, veteran status, marital status, sexual orientation, gender identity, gender expression, genetic characteristics, or any other characteristic protected by applicable law.

I try not to use this space too often to brag on my students–the folks whose quest for knowledge gets me up in the morning.  But three of my students have been co-authors of two separate pieces in the American Bar Association’s Business Law Today publication since May.  The initiative and the follow-through that these students (two of whom have graduated and are now in private practice) exhibited is truly extraordinary.  And so, I brag . . . .

Most recently, my current student Samuel Henninger has co-authored an article with a practitioner on preference payments in bankruptcy entitled “I Scream, You Scream, We All Scream at Preference Claims.”  Samuel graduates in May 2019. He will clerk for a local bankruptcy court judge next year and then practice with Waller Lansden Dortch & Davis, LLP in Nashville after his clerkship concludes.

Back in May, my former students Brian Adams and Bo Cook co-authored an article together entitled “Limiting the Scope of Post-Closing Actions in Private Mergers & Acquisitions: The Role of Non-Reliance and Integration Clauses in Delaware,” delving into enforcement issues in mergers and acquisitions relating to allegations of fraud based on “extra-contractual representations.”  Brian and Bo graduated in the spring of this year (2018).  Brian is a newly minted associate at Polsinelli PC in Nashville and Bo holds the same august position at Bass Berry & Sims PLC also in Nashville.

Few students understand the significant contribution that these kinds of articles may make in solving the problems of practicing lawyers and, potentially, the judiciary.  Fewer yet have the chutzpah to think that their article of this kind, if submitted, would make it to publication.  Even fewer students would undertake and complete the tailored research and writing that an article of this kind takes.  These three guys deserve some real credit, in my estimation.  And so, I brag!

I posted about this program last year, too, and it looks like another good program this year. Hard to beat good wine and learning about international business, I would think,  but I can’t make it again this year.  It overlaps with the AALS Annual Meeting, and I have plans for New Orleans.  But, if it’s your thing, it looks like a neat opportunity.  

Temple University’s Center for International Business Education (CIBE) presents

A Faculty Development in International Business (FDIB): Santiago, Chile

January 5-11, 2019

 

Chile: The Global Star of Latin America

Understanding the International Business Environment through Innovation in Chile

Chile is often considered to be the place where great Latin American wines come from. Some may even know that Chile is also the hub of the global copper industry. But what many people are unaware of is how Chile became the only South American country invited to join the OECD, or how it is a country that has signed 21 free trade agreements and is one of the most open economies in the world, or the fact that it is rapidly attracting foreign innovators and entrepreneurs through a unique start-up incubator program for investors worldwide. Chile serves as an example of what a Latin American country can do with the right economic and social policies in place. It is the star of the South.

On this FDIB, faculty will be immersed in the Chilean business environment and will meet with business and academic thought leaders across innovative sectors from copper to manufacturing to wine. Our emphasis will be on how a small Latin American economy far removed from major trade routes has excelled through its linkages to the global business environment. Two key sectors—wine and copper—have driven much of this growth and will be a large part of our focus. However, we will also explore the start-up, education, and manufacturing sectors, in order to grasp a full picture of the Chilean business environment. In addition to the robust academic content, participants will have a chance to explore Chile’s marvelous natural environment and history through cultural activities and events, from visiting a wine innovation center to exploring the effects of the dictatorship on Chilean business and social culture.  Some of the key learning outcomes will include:

  • A better understanding of how innovation is utilized to drive growth in emerging markets;
  • A comparative study of innovation in emerging and developed markets;
  • Increased awareness of the importance of global markets for commodity production, such as grapes and copper, and;
  • Fundamental insights into Latin American economic development and business strategy. 

This Chilean immersion experience is being led by Fox School of Business Assistant Professor Dr. Kevin Fandl, a professor of legal studies and international business. Dr. Fandl’s research emphasizes the relationship between law, policy, and business in global markets, especially in Latin America.  

PROGRAM FEE:  $2,750 per person*

FEE INCLUDES:

  • Accommodations (single occupancy)
  • Corporate visits
  • Cultural activities
  • Some meals
  • In-country transportation

DEPOSIT: *A $500 non-refundable deposit is due upon registration. The remaining balance, also non-refundable, must be paid in full by November 30, 2018. Space is limited. A guest package for spouse/significant other is also available.

QUESTIONS? Please contact Phyllis Tutora, Director of International Programs at ptutora@temple.edu