During the recent presidential campaign, there was a lot of talk the evil of “political correctness” or (PC).  A lot has been said about this concept on social media, and I got to thinking about the legal applications of what PC means. This post is my first look the concept from a legal perspective and looks briefly at the legal origins and applications of the idea. 

Speechwriter (and author and columnist) Barton Swaim has said that “Political correctness is an insidious presence in American life.” PC is generally seen (and criticized) as a product of the political left. 

And the political right has a companion, “patriotically correct,” and that idea was recently explained in a popular article by Alex Nowrasteh, an immigration policy analyst at the Cato Institute’s Center for Global Liberty and Prosperity. Nowrasteh notes that political correctness has been a “major bugaboo of the right” in recent years and explains:

[C]onservatives have their own, nationalist version of PC, their own set of rules regulating speech, behavior and acceptable opinions. I call it “patriotic correctness.” It’s a full-throated, un-nuanced, uncompromising defense of American nationalism, history and cherry-picked ideals. Central to its thesis is the belief that nothing in America can’t be fixed by more patriotism enforced by public shaming, boycotts and policies to cut out foreign and non-American influences.

As for a definition of political correctness, I will borrow from Swaim again:

Political correctness, if I could venture my own admittedly rather clinical definition, involves the prohibition of common expressions and habits on the grounds that someone in our pluralistic society may be offended by them. It reduces political life to an array of signs and symbols deemed good or bad according to their tendency either to include or exclude aggrieved or marginalized people from common life.

But where did the concept come from? The first cited U.S. legal use of it appears to be one of the foundational Supreme Court cases, which ultimately led to passage of the Eleventh Amendment, states:

Sentiments and expressions of this inaccurate kind prevail in our common, even in our convivial, language. Is a toast asked? ‘The United States,‘ instead of the ‘People of the United States,‘ is the toast given. This is not politically correct. The toast is meant to present to view the first great object in the Union: It presents only the second: It presents only the artificial person, instead of the natural persons, who spoke it into existence.

Chisholm v. Georgia, 2 U.S. 419, 462, 1 L. Ed. 440 (1793) (emphasis added). This doesn’t seem to apply to the modern concept of what it means to be politically correct.  The fact that the case draws a distinction between the artificial person (in this case, the United States of America) and the natural persons who make up the nation. That’s concept that has application in the business law world, to be sure.  

The phrase “politically correct” appears in 259 cases per a search on Westlaw, and the phrase took 191 years off after Chisholm v. Georgia. The phrase resurfaced in 1984, with a use that seems to combine the more modern usage with the 1793 use. Am. Postal Workers Union v. U.S. Postal Serv., 595 F. Supp. 1352, 1362 (D.D.C. 1984), aff’d in part, vacated in part sub nom. Am. Postal Workers Union, AFL-CIO v. U.S. Postal Serv., 764 F.2d 858 (D.C. Cir. 1985) (stating that a union “could find out what party a worker is affiliated with and, if not ‘politically correct,’ exert pressure on the worker to change).

In 1991, the phrase comes into more common usage, and we see a particularly modern spin in a Minnesota appeals court dissent in a case upholding a trespassing conviction against abortion protestors:

Both the issues of war and abortion produce a deep split in America’s fabric. Oftentime an ugly split. Although it is not pretty, at least it proves that Americans feel strongly on both sides of the issue. Courts do not determine whether anti-war protests are more “politically correct” than abortion protests. It is not up to courts to pass judgment on the “worthiness” of appellants’ cause. Trespass is a crime. This is a criminal case. I do not bother my head with whether appellants should protest against “X” (because I disagree with “X”) but not protest against “Y” (because I agree with “Y”). As criminal defendants, appellants are entitled to certain constitutional rights. We do not differentiate between “good” defendants and “bad” defendants. We treat all the same.

State v. Rein, 477 N.W.2d 716, 723 (Minn. Ct. App. 1991) (Randall, J., dissenting).

From a legal perspective, this 1991 case is a jumping off point for modern legal usages of the PC concept. The idea almost always connotes something negative. Take, for example, the most recent case in which a judge used the phrase as part of the opinion (there are more recent cases in which the court quotes others using the phrase).  Here, again is a dissent, this time a Fourth Circuit case upholding a District Court order allowing a transgender student to use their restroom of choice: 

Somehow, all of this is lost in the current Administration’s service of the politically correct acceptance of gender identification as the meaning of “sex”—indeed, even when the statutory text of Title IX provides no basis for the position.

G.G. v. Gloucester Cty. Sch. Bd., 824 F.3d 450, 452 (4th Cir. 2016) (Niemeyer, J., dissenting), cert. granted in part Gloucester Cty. Sch. Bd. v. G.G. ex rel. Grimm, 137 S. Ct. 369 (2016). 

I find it interesting that my quick search (admittedly not exhaustive), only revealed the term being used by courts in dissents.  As such, when in the majority, the label is deemed unnecessary, even in discussing a counterargument.  Is is just a matter of time, or is it more that the majority is deciding not to take a victory lap when on the winning side? 

That’s the quick look at the legal landscape of political correctness. Does it lead us anywhere? I don’t know. At a minimum, I think we should try not to offend others when we can avoid it. And if we do offend others, apologize and try to move forward.

Beyond that, I have to get back grading. So far, not one person has called an “LLC” a “limited liability corporation.” Doing so would be decidedly un-PC.  

In her post on Saturday, co-blogger Ann Lipton offered observations about possible legal issues resulting from the President-Elect’s tweets regarding public companies.  She ends her post with the following:

So, it’s all a bit unsettled. Let’s just say these and other novel legal questions regarding the Trump administration are sure to provide endless fodder for academic analysis in the coming years.

Probably right.

Today, I take on a somewhat related topic.  I briefly explore the President-Elect’s conflicting interests through the lens of a corporate law advisor.  For the past few weeks, the media (see, e.g., here and here and here) and many folks I know have been concerned about the potential for conflict between the President-Elect’s role as the POTUS, public investor and leader of the United States, and his role as “The Donald,” private investor and leader of the Trump corporate empire.

The existence of a conflicting interest in an action or transaction is not, in and of itself, fatal or even necessarily problematic.  In a number of common situations, fiduciaries have interests in both sides of a transaction.  For example, a business founder who serves as a corporate director and officer may lease property she owns to the corporation.  What matters under corporate law is whether the fiduciary’s participation in the transaction on both sides results in a deal made in a fully informed manner, in good faith, and in the bests interests of the corporation.  Conflicting interests raise a concern that the fiduciary is or may be acting for the benefit of himself, rather than for and in the best interest of the corporation. 

Corporate law generally provides several possible ways to overcome concerns that a fiduciary has breached her duty because of a conflicting interest in a particular action or transaction:

  • through good faith, fully informed approval of the action or transaction (e.g., after disclosure of information about the nature and extent of the conflicts) by either the corporation’s shareholders or members of the board of directors who are not interested in the transaction; and
  • through approval of a transaction that is entirely fair–fair as to process and price. 

See, e.g., Delaware General Corporation Law Section 144.  Yet, if I believe what I read, no similar processes exist to combat concerns about actions or transactions in which the POTUS has or may have conflicting interests.  In particular, to the extent one does not already exist, should a disinterested body of monitors be identified or constituted to receive information about actual and potential conflicting interests of the POTUS and approve the action or transaction involving the conflicting interests?  Perhaps the Office of Government Ethics (“OGE”) already has something like this in place . . . .  If it does, then both the public media and I are underinformed about it.  While there seems to be OGE guidance on the President-Elect’s nominees for executive branch posts (see, e.g., here and here) and on overall executive branch standards of conduct (see here), I have not found or read about anything applicable to the President-Elect or POTUS.

In making these observations, I recognize that our federal government is different in important ways from the corporation.  I also understand that the leadership of a country/nation is different from the leadership of a corporation.  Having said that, however, conflicting interests can have similar deleterious effects in both settings.  The analogy I raise here and this overall line of inquiry may be worth some more thought . . . .

The University of Akron invites applications and nominations for the position of Dean of the School of Law, with an anticipated start date of July 1, 2017.  Review of applicants will begin immediately and continue until the position is filled. 

The University of Akron School of Law is a public law school of approximately 450 students, with both full-time and part-time programs, and opportunities to begin study in either the Fall or the Spring.  The school offers the J.D., five joint-degree programs, an LL.M. in Intellectual Property, and various certificate programs for both J.D. and non-J.D. students.  Since its founding in 1921, the school has graduated over 6,300 men and women.  The school has historically embraced a strong commitment to teaching and public service in the community. 

Akron Law has recently experienced tremendous upward trajectories in admissions in terms of applications, selectivity, yield, and the size and quality of the incoming class.  The employment rate for graduates is above the national average. The school boasts several Centers with opportunities for students to distinguish themselves in their education and practice-ready preparation: a Center for Intellectual Property Law and Technology; a Constitutional Law Center, one of only four such centers established by Congress; and the Joseph G. Miller and William C. Becker Institute for Professional Responsibility.  The Akron trial advocacy program also consistently ranks among the top in the nation.  Clinical programs in a wide variety of areas have won awards recently for their excellence and innovation, and new clinical programs continue to be added under growing faculty numbers and associations with outside practitioners.

Akron Law and its programs have been showered over the past year with national recognition, including a #7 ranking for training prosecutors and public defenders, an “A” grade for our Intellectual Property program, a Top 50 ranking in 2015-16 from Above The Law, a Top 25 recognition for bar exam preparation, and a Top 8 rating for affordable living and quality of education.  Akron Law also continues to be recognized as a Best Value school.

Continue Reading The University of Akron invites applications and nominations for the position of Dean of the School of Law

One of the more … striking … habits of President-Elect Trump is his tendency to use Twitter to attack specific companies that have displeased him in some way.  For example, after the CEO of Boeing criticized him, he tweeted:

After Vanity Fair published a scathing review of Trump Grill, he tweeted:

And other times, Trump seems to simply be reacting to whatever he sees on the news.

These tweets might explicitly threaten to harm their targets through the exercise of government power – such as the threat to cancel Boeing’s Air Force One contract – but even if they don’t, the implicit possibility is there.  As a result, Trump’s tweets move the market.  Boeing’s stock reacted negatively to Trump’s tweet (though it rebounded).  Shares of Lockheed Martin dropped dramatically after Trump criticized one of its fighter jets as too expensive.

Wall Street traders have begun building a Trump tweet effect into their models.  One anecdotal report says that compliance departments have lifted bans on trader Twitter usage, aware that presidential-tweet monitoring is now a necessary part of the job.

The Wall Street Journal even published a blog post recommending four proactive steps all businesses take in anticipation of a Trump twitter attack.

All of this has prompted some accusations of market manipulation and insider trading.  For example, it’s been reported that some lucky trader started dumping shares of Lockheed Martin six minutes before Trump tweeted, though that could simply be the result of hedge funders correctly predicting where Trump would tweet next.

For the sake of argument, let’s say that Trump’s tweet attacks – at least some of them – are calculated to drive down stock prices in order to allow someone (maybe Trump himself, maybe someone in his circle) to make a profit.  Is there anything illegal here?

[More under the jump]

Continue Reading Trading on Trump’s Twitter Tirades

My favorite new (to me) podcast is NPR’s How I Built This. They describe the podcast as “about innovators, entrepreneurs, and idealists, and the stories behind the movements they built. Each episode is a narrative journey marked by triumphs, failures, serendipity and insight — told by the founders of some of the world’s best known companies and brands.”

So far, I have listened to two of the episodes: one about the Sam Adams founder Jim Koch and one about the Clif Bar co-founder Gary Erickson.

On the Sam Adams episode, I liked Jim Koch’s distinction between scary and dangerous — repelling off a mountain with an expert guide is scary but not not necessarily dangerous; walking on a snow-covered, frozen lake on a sunny day is dangerous but not necessarily scary. Jim said that his comfortable job at Boston Consulting Group was not scary, but it was dangerous in luring him away from his true calling. However, founding his own company (Sam Adams) was scary, but not really as dangerous as working for BCG. Also, it was interesting to find out that Jim Koch is a Harvard JD/MBA.

On the Clif Bar episode, though I have eaten more than my share of Clif Bars, I was surprised to learn that the bars were named for Gary’s father, Clif. The Clif Bar episode also gave great insight into the emotions that can come out when deciding whether to sell your business; Gary decided not to sell to Quaker Oats at the last minute and then needed to buy-out his partner. Separately, Gary talked about the need for corporate counsel (and how a “handshake deal” with a distributor almost cost him his business), but he also noted how many attorneys are simply too expensive for small businesses.

Both entrepreneurs drew on lessons they learned during their outdoor adventure experiences. And both entrepreneurs discussed some combination of lawsuits, contracts, and regulatory challenges.

Looking forward to listening to more episodes. 

This post is not about politics, although it does concern President-elect Trump’s cabinet pick, ExxonMobil head, Rex Tillerson. I first learned about Tillerson during some research on business and human rights in the extractive industries in 2012. I read the excellent book, “Private Empire” by Pultizer-prize winner Steve Coll to get insight into what I believe is the most powerful company in the world.

Although Coll spent most of his time talking about Tillerson’s predecessor, Lee Raymond, the book did a great job of describing the company’s world view on climate change, litigation tactics, and diplomatic relations. Coll writes, “Exxon’s far flung interests were at times distinct from Washington’s.” The CEO “did not manage the corporation as a subordinate instrument of American foreign policy; his was a private empire.” Raymond even boasted, “I am not a U.S. company and I don’t make decisions based on what’s good for the U.S.” Indeed, the book describes how ExxonMobil navigated through Indonesian guerilla warfare, dealt with kleptocrats in Africa, and deftly negotiated with Vladmir Putin and Hugo Chavez. 

Before I read the book, I knew that big business was powerful–after all I used to work for a Fortune 500 company. But Coll’s work described a company that was in some instances more influential to world leaders than the UN, the US State Department, or the World Bank. I don’t know if Trump has read the book, but no doubt he knows about the reach of Tillerson’s power. I won’t comment about whether this pick is good for the country. I will say that this choice is not outrageous or even surprising given Trump’s stated view of what he wants for America. The key will be for Tillerson, if he’s confirmed, to use the skills he has honed working for ExxonMobil for the country. 

If you have time after grading for a really good read (it’s a fast 700 pages), pick up the book. Coll’s view on the Tillerson nomination is available here.

As I mentioned in my “Show Me the Money!” blog last week, back in March of 2014 the Chicago District (Region 13) of the National Labor Relations Board (NLRB) held that Northwestern University football players qualified as employees and could unionize and bargain collectively.  Although this decision was later overturned, the national level NLRB’s final holding specifically targeted unionization efforts at private schools – leaving the door wide open to revisit this issue at some point with respect to public universities.

Although the Regional decision was reversed, I was interested in Peter Sung Ohr’s (Director of Region 13) analysis, especially with respect to athletic scholarships.  He noted that although student-athletes don’t officially receive paychecks from universities, they do receive “a substantial economic benefit for playing football” in the form of scholarships.  He also focused on the extent of control exerted by coaches on players (something that has been touched on quite a bit in academic literature) and the amount of time players spend on football related activities, ultimately concluding that receiving scholarships in exchange for playing football amounts to a contract-for-hire between employer and employee.

I was inspired to write my 3rd sports/ tax paper, Northwestern, O’Bannon And the Future: Cultivating a New Era For Taxing Qualified Scholarships based on Ohr’s analysis in conjunction with the similarly-timed O’Bannon v. NCAA case where D-I athletes settled a $40 million lawsuit for the improper use of their likenesses.  In this paper my colleague Adam Epstein and I analyzed whether these cases, combined with other recent efforts by student-athletes to unionize and mobilize, could redefine the principal that select student-athletes aren’t really unpaid amateurs, but instead employees who earn scholarships in exchange for services rendered.  We also considered whether the IRS can realistically treat scholarships received by student-athletes as excludable from gross income if they are one day characterized as employees of their universities, specifically focusing on relevant historical cases and the direct language of the Internal Revenue Code.

Ultimately, we concluded that if select student-athletes are characterized as employees of their institutions at some point in the future, the IRS may  be hard pressed to reevaluate whether their scholarship amounts are part of a greater overall compensation package that is subject to taxation.  I should note that this particular paper doesn’t focus on the tax effects of the hypothetical prototype of the pay-for-play model (where student-athletes would receive cash in exchange for playing sports) but instead concentrates on the evolving relationship between institution and student-athlete, and the effect that characterizing student-athletes as employees could have on the taxability of their athletic scholarships in the future.

UC Irvine law professor, David Min, has a new article titled, Corporate Political Activity and Non-Shareholder Agency Costs, in theYale Journal on Regulation.  Professor Min examines corporate constitutional law  in recent examples such as Citizens United, through the lens of nonshareholder dissenters.  

The courts have never considered the problem of dissenting nonshareholders in assessing regulatory restrictions on corporate political activity. This Article argues that they should. It is the first to explore the potential agency costs that corporate political activity creates for nonshareholders, and in so doing, it lays out two main arguments. First, these agency costs may be significant, as I illustrate through several case studies. Second, neither corporate law nor private ordering provides solutions to this agency problem. Indeed, because the theoretical arguments for shareholder primacy in corporate law are largely inapplicable for corporate political activity, corporate law may actually serve to exacerbate the agency problems that such activity creates for non-shareholders. Private ordering, which could take the form of contractual covenants restricting corporate political activity, also seems unlikely to solve this problem, due to the large economic frictions facing such covenants. These findings have potentially significant ramifications for the Court’s corporate political speech jurisprudence, particularly as laid out in Bellotti and Citizens United. One logical conclusion is that these decisions, regardless of their constitutional merit, make for very bad public policy, insofar as they preempt much-needed regulatory solutions for reducing non-shareholder agency costs, and thus may have the effect of inhibiting efficient corporate ordering and capital formation. Another outgrowth of this analysis is that nonshareholder agency costs may provide an important rationale for government regulation of corporate political activity.

In examining corporate political activity, Professor Min, expertly blends and connects agency theory to corporate theories of the firm.  He rebuts traditional arguments against nonshareholder constituents such as residual interest holders (shareholders), the role of private ordering and provides 3 detailed case studies illustrating the costs of CPA on nonshareholder constituents. Among the proposals and options explored to mitigate these agency costs, Professor Min suggests that the existence of agency costs to nonshareholders–an area heretofore unexamined in corporate law–could justify a regulatory intervention.

 

AT

 

U.S. Securities and Exchange Commission Chair Mary Jo White has vowed to press on in her efforts to adopt new rules related to derivatives and mutual funds, among other issues, says a Reuters report.  The Senate Banking Committee’s top two Republicans, Chairman Richard Shelby and Mike Crapo of Idaho, sent a letter asking her to stop the rule making process while the Trump administration reviews the SEC’s agenda. She declined. 

Chair White replied that the SEC must “exhibit a spirit of firm independence” in continuing its work “without fear or favor.” She further wrote,  “I am not insensitive to the issues raised by your letter and have carefully considered what impact, if any, the election should have on the current work of the Commission.” (Reuters saw the letter, but I have not found a copy.) 

I am on record as saying (e.g., here and here) I’d like to see the SEC and Congress take a break from new regulations and focus on enforcement, though I know some of the proposed rules are (at least in some form) required by Dodd-Frank. Still, even where I disagree with some of the proposals, I think it’s right for independent agencies to continue on with their work. Each such agency can be respectful of the incoming administration, while continuing on with their workload.  Just because the incoming Congress and president may disagree with some of the policies or rationales, the SEC has statutory obligations to put forth rules, and the business of the country doesn’t stop between terms.  Ultimately, I’d be quite content to see the SEC decide to put the a lot of these rules on hold (or make them more narrow) because the Commission thinks that’s the best course of action, but not because the top Senate Banking Committee members asked.