A former law student of mine who practices in Delaware just alerted me to this Delaware Online article. 

The article describes the proposed bill as follows:

House Bill 371 would restrict the number of corporate shareholders who can petition the court for a stock appraisal to only those who own $1 million or more of a company’s stock or 1 percent of the outstanding shares, depending on which is less. Currently, any shareholder can ask the court to appraise their shares. Those motions are typically filed when a company is the target of an all-cash acquisition and the shareholder wants to ensure the buyer is paying a fair price for the stock. (emphasis added)

Corporate governance expert Charles Elson is quoted as saying:

. . . he understands the argument on both sides. “Anytime you attempt to restrict the rights of a smaller shareholder, it is going to be controversial whether or not the approach is warranted”

The article cites co-authored work by my Nashville neighbor, Randall Thomas (Vanderbilt Law):

A study published earlier this month by four noted corporate law professors, including Wei Jang of Columbia Business School and Randall S. Thomas of Vanderbilt Law School, found that hedge funds have accounted for nearly 75 percent of the amount awarded in all appraisal actions over the last few years. The study also found that 32 percent of the cases involved stakes below $1 million or 1 percent of a company’s stock.

Go read the entire article. 

Public companies are required to report certain material events within 4 business days on Form 8-K.  These events include such matters  as the departure of directors or officers, the disposition of assets, or material impairment of assets. 

In their paper Strategic Disclosure Misclassification, Andrew Bird, Stephen A. Karolyi, and Paul Ma find that in their 8-K filings, corporate managers seem to be taking a leaf from Roseanne’s bill paying system:

 

Specifically, Bird et al. find that companies frequently “misfile” their 8-Ks, categorizing them as miscellaneous “other” rather than properly identifying them in the appropriate category.  “Misfiling” is particularly likely to occur for negative events, and during periods when investor attention is high – suggesting that misfilings are part of a strategic effort to deflect investor attention.  Happily for corporate managers, the strategy is an effective one: misfiled 8-Ks not only receive less traffic, but they also have less stock price impact.

Roseanne would be so proud.

One of our readers (thanks, Tom N.) brought this to my attention earlier today.  I have passed it on to some folks internally here at UT Law.  Scammers who prey on students to extract money from them to pay a “Federal Student Tax” deserve their own special place on the Wall of Shame. ‘nough said.

A few months ago, Inside Higher Ed ran a story that noted “that grades continue to rise and that A is the most common grade earned at all kinds of colleges.” (emphasis added).  This finding surprised me. I knew grade inflation was becoming more and more common, but I did not expect A to be the most common grade earned, especially in the undergraduate setting.

The article reported that A’s accounted for “more than 42 percent of grades” and “A’s are now three times more common than they were in 1960.” (emphasis added).

This grade inflation trend is a mistake, in my opinion. And it is a trend that is impacting graduate schools as well. At the law school I attended, they moved from a 100-point scale and a 78-point mean when I attended, to letter grades and a much higher mean GPA. I understand why my alma mater made the move; they were very different than other law schools, even at the time, and a student with an 85% average had a tendency to be discounted by employers, even if that person was in the top 10% of her class. Business graduate schools may well have led the grade inflation charge, probably driven, at least in part, by employers who would only reimburse for a B or better in a class. Again, I think grade inflation is a mistake.

Is grade inflation simply an extension of the participation trophy phenomenon? “Entitled” might be the most common adjective I hear used to describe students today. “65% of Americans Say Millennials Are “Entitled,” 58% of Millennials Agree.” And if these students grew up being rewarded for just showing up, why wouldn’t they be entitled? For the most part, I agree with Pittsburg Steeler, James Harrison, who famously returned his children’s participation trophies. To be clear, I think there is a place for team (and individual) achievement trophies and for most improved trophies, but trophies for just showing up seems to encourage mediocrity.

I also understand this mother’s point of view, who argued in favor of participation trophies, given the situation of her “mildly intellectually disabled” son. She is concerned for “kids who don’t have the chance to ever be the star athlete [or student] no matter how hard they work for it” and hopes for recognition “that not everyone is born with the same abilities.” When teaching, my heart does go out to the C-student who appears to be doing his best, while a slacker gifted student may be able to get a B with minimal effort. We should encourage the determined C-student, but also teach him that achievement takes time and effort and is more difficult for some. I believe that former UCLA basketball coach John Wooden defined success well when he wrote: “Success is peace of mind which is a direct result of self-satisfaction in knowing you made the effort to become the best you are capable of becoming.” I want my children and my students to know that I care about them regardless of their relative achievement. I want them to know that doing their very best is all that can be rightly expected. But I do not want to shelter them from the reality of failure. And I want them to realize that life is not always fair. And I want to help them to find a career well-suited for them, which may be aided by comparison to others over time.  

In light of all of this, how should we respond in our grading?

I think there has to be a discussion at the college and university level. Individual teachers are in a tough position. At most schools, a professor who believes that Cs are average, and As are only for true excellence, would be a significant outlier and could wreck individual student GPAs. Personally, I think colleges and universities need to establish a presumptive mean grade (and maybe some distribution requirements as well). The grade mean would have to have some flexibility, especially for smaller classes, where the high achieving students may be concentrated or absent from particular classes. I know there are some who find a required grade mean limiting, and an established mean is not without faults, but I think it is a more fair system and limits the race to grade inflation that is sure to occur if more flexibility is granted.  

While effort should be recognized and encouraged, grades and trophies should represent relative achievement. Competition is a reality of business. You don’t get clients just by trying hard; you get clients by being the best. Students and athletes need to learn to compete, push through failure, and at some point realize that it may be best to move on to a different area.   

It is that time of year again when law profs are up to their ears in grading exams. (Unless one teaches on the continent, where exams are oral.) Given my location in the UK, I thought I would provide a few insights on what we do here.  These are my own personal reflections and I may not be able to generalise about what gets done across the board, though in the UK we probably have more uniformity of policies among law schools and universities generally than in the US. What I am about to say is nowhere near complete in coverage. I want to focus here only on some differences which caught my particular attention as an American teaching in the UK.

Preliminarily, we don’t use the word “grading.”  The term is “marking.” This is terminological. They mean the same thing. I’ll stick to the American terminology here.

We allocate grading and just about every other task to be done in a British law school through something called a “workload allocation.” A workload allocation is a bit of distributive justice. It is meant to allocate work in the school fairly among all faculty (we say staff but I’ll stick to the US word). So, if you are called upon to chair a busy committee, you get credit for that in the workload. The workload will include time for you to do scholarship if scholarship is part of your job.

Here comes the interesting part for those of you saddled with large classes and large amounts of exam grading: exam grading is also subject to the workload allocation. You may be asked to grade in a course (a ‘module’) you did not teach.

Continue Reading Guest Blog Post: Grading Law School Exams (in the UK) and Distributive Justice

Last week the SEC announced insider trading charges against former-Dean Foods Company board member Thomas C. Davis and professional sports gambler, William “Billy” Walters of Las Vegas.  Involved in the case is professional golfer, Phil Mickelson, named as a relief defendant in the case. Davis owed money to Walters and began passing along confidential information first about Dean Foods, and later about Darden Restaurants.  Walters passed along his insider knowledge of Dean Foods to Mickelson, who also owed Walters money.  

For those unfamiliar, 

“the SEC may seek disgorgement from “nominal” or “relief” defendants who are not themselves accused of wrongdoing in a securities enforcement action where those persons or entities (1) have received ill-gotten funds, and (2) do not have a legitimate claim to those funds.”  S.E.C. v. DCI Telecommunications, Inc., 122 F. Supp. 2d 495, 502 (S.D.N.Y. 2000).
 

The SEC issued a statement on Friday detailing the alleged wrong doing by all parties and announcing that “Mickelson will repay the money he made from his trading in Dean Foods because he should not be allowed to profit from Walters’s illegal conduct.”  

As most insider trading cases are, the facts are fascinating.  This would make a great exam hypo, and I am flagging it for my casebook section on insider trading.

-Anne Tucker

The Duke Law School will host the 11th Annual Conference on Empirical Legal Studies (CELS) on November 18-19, 2016.  CELS is a highly regarded interdisciplinary gathering that draws scholars from across the country and internationally and is sponsored by the Society for Empirical Legal Studies. The conference brings together hundreds of scholars from law, economics, political science, psychology, policy analysis, and other fields who are interested in the empirical analysis of law and legal institutions. Papers are selected through a peer review process and discussion at the conference includes assigned commentators and audience questions.

Paper submissions are due by July 10, 2016.

For more information about the conference click here.

Some time ago, I wrote the post Better Teaching Idea: Try to Notice When the Wind Is at Your Back. That post emerged from some observations while running, and today’s post has the same origin.

This month I have been trying to up my miles again for no particular reason. I don’t run for races. I run to run. And to feel like I am at least doing something to stay in some semblance of good shape (it’s not really working).  I now run 4 miles most days. Maybe a little more or less, but that’s the norm this month.  The past two days, I ran from my house, which is at the top of a hill. It is more of a mountain when I am running up it. (I promise, I am getting somewhere with this.)  

I often go down to the rail trail along the river, which is a mostly flat, pretty place to run.  The last two days, I have been running from my house. This means that if I want to get any distance in, I need to go down the mountain.  And, of course, it means I need to get back to the top.  Now, I could stay at the top.  It’s relatively flat on our street, and I can run a quarter of a mile down and back and stay at the top of the mountain. That’s a lot of down and backs to get in four miles.  No thanks. It’s easier, but not much fun. (Note: you can follow along my running escapades on Twitter @jfershee and Nike+.) 

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The Mon River Trail: A Mostly Flat, Pretty Place to Run

My usual route from my house takes my down the mountain, then back up the mountain, where I turn around and retrace my steps.  That means I am running up the steepest part of the run at mile 3.5.  It’s not always my favorite part of the run, even if it is my most triumphant.  As I was slogging my way back up the mountain, my mind wandered and I caught myself thinking again, “It would have been a lot easier to just stay at the top.”  And it is. It’s true in running, and it’s true in most everything else we do.  

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Pace over elevation – slow pace today.

It doesn’t matter how you get to the top.  Once you’re there, it’s easier to stay there than it was to get there.  It may take a lot of work to get to the top. For most people, it does. But someone can just take you to the top, too. Once you’re there, it’s easier to stay there. And once you leave, it’s hard to get back up. 

Knowing all of this is important.  And it is important to remember that not everyone has the same amount to climb to get to the top of whatever it is they are climbing.  I did not come from money, but I had everything I needed.  I am a straight, white male. The data show that starts you ahead of the game.  I went to good public schools.  I went to college. And law school.  This required a lot of work to move ahead, but the opportunity was there for me in a way it isn’t for many.

It’s easy to start thinking that everyone is starting from the same point.  And it’s a lot easier to notice the people who are ahead of you on the way up. It’s not that often that we look back, which can skew our perspective in unproductive ways.  

As teachers, it’s important to recognize that we can be part of helping our students move up their mountain.  And they may not be starting from the same place we were. They may have further to go. Some may have less.  It’s our job to help them get where they want go.  As a corollary, it’s also important to remember that just because they might have farther to go, it’s not our job to limit the mountains they can climb. To the contrary, it’s our job to help them see that the sky truly is the limit. 

That’s my take away for the day: as hard as it is to keep climbing to the top, don’t ever think you’re doing it alone.  Appreciate who helped you. Keep slogging. And when you get to the top, don’t forget to see if you can help someone else up.   

Well, given that I just spent several hours constructing a somewhat lengthy post that I apparently lost (aargh!), I will keep this relatively short.

This summer, I am working on a benefit corporation project for the Annual Adolf A. Berle Symposium on Corporation, Law and Society (Berle VIII) to be held in Seattle next month.  In that connection, I have been thinking about litigation risk in public benefit corporations, which has led me to consider the specific litigation risks incident to mergers and acquisitions (“M&A”).  I find myself wondering whether anyone has yet done a benefit corporation M&A transaction and, if so, whether a checklist might have been created for the transaction that I could look at.  I am especially interested in understanding the board decision-making aspects of a benefit corporation M&A transaction. (Haskell, maybe you know of something on this . . . ?)

Preliminarily, I note that fairness opinions should not carry as much weight in the benefit corporation M&A approval context, since they only speak about fairness “from a financial point of view.” Benefit corporation boards of directors must consider not only the pecuniary interests of shareholders in managing the firm, but also the firm’s articulated public benefit or benefits (which is/are set forth in its charter).  Will legal counsel pick up the slack and render an opinion that the board’s consideration of the public benefit(s) complies with law?  What diligence would be required to give that opinion?  I assume in the absence of interpretive decisional law, any opinion of that kind would have to be qualified.  I also assume that legal counsel will not readily volunteer to give this kind of opinion.

However, even in the absence of an opinion, legal counsel will have to offer advice on the matter, since the board of a benefit corporation has the legal obligation to manage the firm consistent with its public benefit(s) in any case.  Moreover, M&A agreements typically include representations (on transactional consents, approvals, and governance/legal compliance) affirming that the requisite consents and approvals for the transaction have been obtained and that the agreement and consummation of the transactions contemplated by it do not violate the firm’s charter or applicable law.  Legal counsel will be responsible for counseling the client on these contractual provisions.

At first blush, the embedded issues strike me as somewhat complex and fact-dependent.  Important facts in this context include the precise language of the applicable statutory requirements, the nature of the firm’s public benefit or benefits, the type of M&A transaction at issue and the structure of the transaction (including which entity survives in a merger), and the identity of the other party or parties to the transaction (especially whether, e.g., a merger partner is organized as a public benefit corporation or another form of entity).  As I continue to ponder these and related matters in the benefit corporation M&A setting, I invite your comments on any of this–or on broader aspects of litigation risk in the public benefit corporation environment.