I have been on the road a good bit over the past few months. Like Stephen Bainbridge, I greatly prefer driving to flying. On these road trips, I have noticed an increasing number of billboard advertisements for universities (my university included).

When I was in high school, I cannot remember any respectable 4-year universities or graduate schools using billboards to advertise. Maybe they did, and I just did not notice; but I do remember for-profit and community colleges using them. Today, however, I have seen billboard advertisements for schools ranked as high as the top-25 universities in the country, not to mention many solid public (including state flagship) and private universities. The Ivy League schools and their chief competitors seem to still be avoiding billboards, though even some them resort to billboards for their executive programs. (The for-profit schools still use billboards, but have also moved on to things like buying stadium naming rights).

I do wonder what accounts for the shift towards university billboard advertising, if there has been a shift. I also wonder about the costs and benefits of billboard advertising for universities. And I wonder about the comparative costs and benefits of alternative marketing.

Super Bowl ads – costing a record high $5 million for a 30-second spot – are likely a much more significant investment than your average billboard ad, but I imagine most companies that are advertising during the Super Bowl have decided that the costs outweigh the benefits. A few years ago, however, Pepsi decided to withdraw from the Super Bowl advertising frenzy for the first time in 23 years. Instead, Pepsi made more than $20 million in local grants, in the amount of $5,000 to $250,000 each. The local grants included things like buying uniforms for a high school’s band. I imagine the local grants were powerful, relatively narrow in impact, and perhaps difficult to tie directly to sales. This year, it looks like Pepsi is back advertising during the Super Bowl where the advertising is much broader, if shallower. (Hat tip to the Coursera and University of Illinois digital marketing course for the link to the Pepsi story).

So maybe the decision for universities to use billboards is similar to the decision of multinational corporations to advertise during the Super Bowl: the ad might not be as personally powerful as something more individualized like local grants, but the ad will reach many more people. While I think the broader reach makes some sense, I do wonder if that will continue to hold true with social media; I imagine some of Pepsi’s local grants, for example, could “go viral” when shared on social media and could possibly rival the reach of a Super Bowl ad. 

For the past four weeks I have been experimenting with a new class called Transnational Business and Human Rights. My students include law students, graduate students, journalists, and accountants. Only half have taken a business class and the other half have never taken a human rights class. This is a challenge, albeit, a fun one. During our first week, we discussed CSR, starting off with Milton Friedman. We then used a business school case study from Copenhagen and the students acted as the public relations executive for a Danish company that learned that its medical product was being used in the death penalty cocktail in the United States. This required students to consider the company’s corporate responsibility profile and commitments and provide advice to the CEO based on a number of factors that many hadn’t considered- the role of investors, consumer reactions, the pressure from NGOs, and the potential effect on the stock price for the Danish company based on its decisions. During the first three weeks the students have focused on the corporate perspective learning the language of the supply chain and enterprise risk management world.

This week they are playing the role of the state and critiquing and developing the National Action Plans that require states to develop incentives and penalties for corporations to minimize human rights impacts. Examining the NAPs, dictated by the UN Guiding Principles on Business and Human Rights, requires students to think through the consultation process that countries, including the United States, undertake with a number of stakeholders such as unions, academics, NGOs and businesses. To many of those in the human rights LLM program and even some of the traditional law students, this is all a foreign language and they are struggling with these different stakeholder perspectives.

Over the rest of the semester they will read and role play on up to the minute issues such as: 1) the recent Tech Terror Summit and the potential adverse effects of the right to privacy; 2) access to justice and forum non conveniens, arguing an appeal from a Canadian court’s decision related to Guatemalan protestors shot by security forces hired by a company incorporated in Canada with US headquarters; 3) the difficulties that even best in class companies such as Nestle have complying with their own commitments and certain disclosure laws when their supply chain uses both child labor and slaves; 4) the Dodd-Frank conflict minerals debate in the Democratic Republic of Congo and the EU, where students will play the role of the State Department, major companies such as Apple and Intel, the NGO community, and socially-responsible investors debating some key corporate governance and human rights issues; 5) corporate codes of conduct and the ethical, governance, and compliance aspects of entering the Cuban market, given the concerns about human rights and confiscated property; 6) corporate culpability for the human rights impacts of mega sporting events such as the Super Bowl, World Cup, and the Olympics; 7) human trafficking (I’m proud to have a speaker from my former company Ryder, a sponsor of Truckers Against Traffickers); 8) development finance, SEC disclosures, bilateral investment treaties, investor rights and the grievance mechanisms for people harmed by financed projects (the World Bank, IMF, and Ex-Im bank will be case studies); 9) the race to the bottom for companies trying to reduce labor expenses in supply chains using the garment industry as an example; and 10) a debate in which each student will represent the actual countries currently arguing for or against a binding treaty on business and human rights.

Of course, on a daily basis, business and human rights stories pop up in the news if you know where to look and that makes teaching this so much fun. We are focusing a critical lens on the United States as well as the rest of the world, and it’s great to hear perspectives from those who have lived in Europe, Africa, Asia, and South America. It’s a whole new world for many of the LLM and international students, but as I tell them if they want to go after the corporations and effect change, they need to understand the pressure points. Using business school case studies has provided them with insights that most of my students have never considered. Most important, regardless of whether the students embark on a human rights career, they will now have more experience seeing and arguing controversial issues from another vantage point. That’s an invaluable skill set for any advocate.

I am proud to announce that the lead official (the referee in NFL parlance) in Sunday’s Super Bowl is a graduate of my law school. Clete Blakeman graduated from the University of Nebraska College of Law in 1991, after playing for the Nebraska football team as an undergraduate. In addition to being an NFL referee, Clete is an attorney for an Omaha firm. (That’s right: the same Clete Blakeman who somehow managed to toss a coin in the Packers-Cardinals game without it flipping.)

Clete took Corporations from me so, if any corporate law issues come up during the course of the game, I’m confident he will handle them well.

If he screws up an important call, I will, of course, delete this post immediately after the game.

Laurence Fink, CEO of BlackRock, the largest asset manager in the U.S., wrote a letter to the CEO’s of S&P 500 Companies urging reforms aimed at fostering long-term valuation creation and curbing a myopic focus on near-term profits.  Fink has long been a public advocate of long-term valuation creation for the health of American companies and the wealth of society (for an example see this April 2015 letter on the “gambling nature” of the economy”).  His message has been consistent:  long term, long term, long term. 

Citing to increased dividends and buyback programs as evidence of corrosive short-termism, Fink laid out a modest play for action.  He asks every CEO to publish an annual strategic plan signed off on by the board.  The CEO strategic plan should communicate the vision for the company and how such long-term growth can be achieved.  

[P]erspective on the future, however, is what investors and all stakeholders truly need, including, for example, how the company is navigating the competitive landscape, how it is innovating, how it is adapting to technological disruption or geopolitical events, where it is investing and how it is developing its talent. As part of this effort, companies should work to develop financial metrics, suitable for each company and industry, that support a framework for long-term growth. 

Fink wants companies to create these long-term vision statements as a routine part of governance and not just in the context of hedge-fund motivated proxy fights.  The idea is that informing the investing public as to the long-term direction of the company and short-term obstacles frames the company message and dampens the “quarterly earnings hysteria”.  Also interesting to me as I approach a class on corporate social responsibility is Fink’s encouragement of companies to pay more attention to social and environmental risks as increasingly difficult obstacles that must be addressed as part of a long term plan.  Fink also called upon lawmakers to incentivize a long-term view by thinking beyond the next election cycle as would be needed to enact tax reform (specifically capital gains) and increased resources for infrastructure.  

As readers of the blog know, I am in interested in the long-term/short-term debate and have written past posts about it. How controversial would such a CEO statement be?  Venture capital/private equity funds investing in companies often require an annual CEO statement.  If the language can be crafted to avoid liability for future statements, what are the downsides?  Tipping off competitors and losing information advantages or first actor advantages?  Letting lesser competitors free ride and adopt market leaders’s plans a year or two later?  Exposing the board of directors and officers to breached duty claims for failure to meet the objectives? (this last one seems very unlikely given the liability standards and exculpation provisions.)     

The financial press and blogs are awash in stories on this. If you are interested in the related commentary, here are a few:

NYTimes

Reuters

Bloomberg

Business Insider

CNBC

The Globe & Mail

 -Anne Tucker

I have been giving a lot of thought to the idea of waiving the duty of loyalty in LLCs in Delaware.  The more I think about it, the more I am okay with the concept of allowing members of an LLC to decide to do away with the duty of loyalty when they form the entity.  Delaware, of course, retains the implied covenant of good faith and fair dealing in any contract, and I think parties to a contract should be able to decide the terms of their deal.  

Still, I am sympathetic to those who are concerned about eliminating the duty of loyalty because it does seem rather awful, and yet, I am also a proponent of freedom of contract.  How to reconcile these things?  Well, I am now of the mind that perhaps we need to bring a partnership principle to LLCs to help.  In partnerships, the default rule is that changes to the partnership agreement or acts outside the ordinary course of business require a unanimous vote. See UPA § 18(h) & RUPA § 401(j).  I think changes to the duty of loyalty should have the same requirement, and perhaps that even the rule should be mandatory, not just default.  

At formation, then, those creating an LLC would be allowed to do whatever they want to set their fiduciary duties, up to and including eliminating the consequences for breaches of the duty of loyalty.  This is part of the bargain, and any member who does not agree to the terms need not become a member.  Any member who joins the LLC after formation is then on notice (perhaps even with an affirmative disclosure requirement) that the duty of loyalty has been modified or eliminated.  This is not especially concerning to me. 

What would concern me more is a change in the duty of loyalty after one becomes a member.  That is, if the majority of LLC members could later change the loyalty provision, then that seems problematic to me, as fiduciary duties are not just to protect the majority.  As such, it seems to me more proper that changes to the duty of loyalty, when a member does not have any say in that change, is what should be restricted. Like in changing a partnership agreement, if everyone agrees, then there is not a problem.  And if you accept the provision when you join, it is not a problem.  But you shouldn’t have a fiduciary duty removed or modified after the fact without your consent.  

Because the duty of loyalty is a fixture that most people expect, I do see value in requiring (at least for some time) that there be clear disclosure of the applicable to duties to potential LLC members.  But at least for the moment, I am feeling the freedom of contract option on the duty of loyalty is quite reasonable.  

Most law professors want to place their articles in the top law reviews. The higher the ranking, the better. Because of that, editors at schools further down the chain have trouble getting high-quality articles.

Personally, I think it’s inappropriate to judge articles by where they’re placed. I don’t trust the quality judgments student editors make. They lack the subject-matter background to judge the true quality of an article and they often have a preference for faddish topics. But placement matters to many people, and that has a negative effect on many law reviews. They never even see some of the best articles.

The Harvard, Yale, and Chicago law reviews are never going to have trouble getting good submissions. If you’re a law review editor at a top-20 law review, you can stop reading here. But what about the rest of the reviews?
One option many people have tried is to organize symposia, but that’s not always effective. Even if leading scholars are willing to participate in those symposia, they often don’t submit their top work.

My proposed solution: use money as a motivation.

Paying for each article is a possibility, but that’s financially difficult. Professors might be willing to publish in a lower-ranked review for a thousand dollars or two, but schools aren’t going to give their law reviews enough extra money to pay $2,000 for each article. And $100 or so per article isn’t going to motivate many law professors. There’s also no quality assurance; leading scholars might just dump their lower-quality work on the review to get the money.

But there’s a better way to spend the money that might work. Assume a law school is willing to cough up an extra $2,000-$3,000 a year to improve its law review. (That’s not a huge amount for many law schools; it’s certainly less than schools pay for symposia.) Instead of trying to spread that out among the authors, the review could offer a $2,000-$3,000 cash prize to the article in each volume that gets the most citations within 2-3 years of publication. The better the article (at least in terms of citations), the more likely it is to win the prize.

That amount of money might motivate authors. I’ve written things for foreign journals for cash payments like that.

It’s a lottery, but many law professors have big egos and would assume their article would win. It would be most attractive to the professors who are cited most often, increasing the review’s readership.

Law reviews could even phrase the payment as an award, giving professors something to put on their vitas. “I won the John J. Smith Award for Legal Writing Excellence.”

If you’re a law review editor considering something like this, let me know. I have this article I’m working on and I need some money for a backpacking trip I’m planning.

This piece in the Wall Street Journal reports on a recent article by David F. Benson, James C. Brau, James Cicon, Stephen P. Ferris regarding the language used in charters and bylaws of companies going public.  As described in the WSJ, they conclude that companies with shareholder-unfriendly provisions – such as, for example, staggered boards or supermajority voting – are inclined to “camouflage” this fact by using more obscure, harder-to-parse language.  And this effect is more pronounced for companies that can expect they won’t be caught – such as, companies with a smaller analyst following and fewer institutional investors.  They also find that companies that use camouflage reap benefits in the form of higher pricing.  I was intrigued by the description in the WSJ, and thought the findings might be a useful point of discussion in my Sec Reg class, so I tracked down the actual study.  But I found myself a bit confused by the evidence offered to support their conclusions.

[More under the cut]

Continue Reading IPOs and Camouflage of Shareholder-Unfriendly Governance Provisions

Sports have had some well-publicized legal and ethical problems over the past few months.

I hope to look into these scandals more deeply in coming months, but it seems unchecked power and/or loose oversight are at least part of the problem.

As with many of the recent business scandals, I wonder if punishments need to be more severe to curb these problems, or if there is another, more effective, solution waiting to be uncovered.

From the Faculty Lounge: “Villanova University – Charles Widger School of Law seeks an outstanding lawyer/educator/scholar to teach business law and entrepreneurship courses, broadly defined, and to serve as the Faculty Director for The John F. Scarpa Center for Law and Entrepreneurship.” More information available here.

Updated Law Professor (Business Areas) Position List.

Updated Legal Studies Professor Position List (Mostly Business Schools).

At this point in the year, I imagine that some, if not many, of the positions on the list may be filled.