Claire Moore Dickerson, a much-loved member of the Tulane faculty, passed away recently.  I did not have the privilege to know her personally (though I have been grateful to her for her notes while designing my Business Enterprises class), and I know how much she will be missed by my colleagues.

There will be a burial service tomorrow and a memorial service in Rye, New York on October 17.  Christine Hurt at The Conglomerate has more.

 

Last week I ventured a few blocks from Belmont’s campus to our neighbor Vanderbilt University Law School for their conference on The Future of International Corporate Governance. 

One of the many interesting papers presented was Independent Directors in Singapore: Puzzling Compliance Requiring Explanation by Dan Puchniak and Luh Luh Lan, both of the National University of Singapore.

The entire paper is worth reading, but I want to share three take-aways with our readers.

  1. “[O]nly a handful of jurisdictions [roughly 7%] have ever adopted the American concept of the independent director (i.e., where directors who are independent from management only— but not substantial shareholders—are deemed to be independent).” (pg. 6)

  2. Singapore adopted an American-style definition of “independent director” in 2001, which did not include independence from substantial shareholders. Despite this weaker definition of independence in a jurisdiction with much more concentrated shareholding than the U.S., Singapore enjoyed relative success through “functional substitutes” that limited the private benefits of control. According to the authors, these “functional substitutes” include social relationships in Family Controlled Firms (“FCFs”)” and legally imposed limits on the controlling government shareholder in Government Linked Companies (“GLCs”). 

  3. Despite relative success with the American-style definition of “independent director,” Singapore changed its definition “independent director” to require independence from management and 10%+ shareholders in their 2012 Corporate Code (effective at the start of 2015). This change seems prompted, at least in part, by scandals involving S-Chip companies (non-Singapore based companies that are listed on the Singapore Exchange.) The authors suggest that these S-Chip companies do not have the same “functional substitutes” as the FCFs and GLCs.

The article includes a helpful history of Singapore’s recent corporate codes, and is a useful article for comparative corporate governance research. I do wonder if the “functional substitutes” explain quite as much as the authors suggest, but I highly recommend the article, especially for those interested in international corporate law.  

Transactions: The Tennessee Journal of Business Law is sponsoring a continuing legal education program on the afternoon of Friday, September 18 entitled “Crowdfunding: The Basics.”  If you will be in or near Knoxville at the end of next week (maybe because you’re arriving early for a certain football game on Saturday night versus Western Carolina . . . ), come on over and check it out.  I am presenting for the introductory session.  The second session will feature entrepreneurs from two local (Chattanooga-based) crowdfunded social enterprises, and the third session will be a discussion among the three of us about successful and unsuccessful crowdfunding efforts.  

I am excited to be able to participate in this program with local entrepreneurs and have the opportunity to talk to them about the future of crowdfunding.  I will post important out-takes from the program in the future. I assume there will be a number of them . . . .

I think my life as a compliance officer would have been much easier had the DOJ issued its latest memo when I was still in house. As the New York Times reported yesterday, Attorney General Loretta Lynch has heard the criticism and knows that her agency may face increased scrutiny from the courts. Thus the DOJ has announced via the “Yates Memorandum” that it’s time for some executives to go to jail. Companies will no longer get favorable deferred or nonprosecution agreements unless they cooperate at the beginning of the investigation and provide information about culpable individuals.

This morning I provided a 7-minute interview to a reporter from my favorite morning show NPR’s Marketplace. My 11 seconds is here. Although it didn’t make it on air, I also discussed (and/or thought about) the fact that compliance officers spend a great deal of time training employees, developing policies, updating board members on their Caremark duties, scanning the front page of the Wall Street Journal to see what company had agreed to sign a deferred prosecution agreement, and generally hoping that they could find something horrific enough to deter their employees from going rogue so that they wouldn’t be on the front page of the Journal. Now that the Yates memo is out, compliance officers have a lot more ammunition.

On the other hand, the Yates memo raises a lot of questions. What does this mean in practice for compliance officers and in house counsel? How will this development change in-house investigations? Will corporate employees ask for their own counsel during investigations or plead the 5th since they now run a real risk of being criminally and civilly prosecuted by DOJ? Will companies have to pay for separate counsel for certain employees and must that payment be disclosed to DOJ? What impact will this memo have on attorney-client privilege? How will the relationship between compliance officers and their in-house clients change? Compliance officers are already entitled to whistleblower awards from the SEC provided they meet certain criteria. Will the Yates memo further complicate that relationship between the compliance officer and the company if the compliance personnel believe that the company is trying to shield a high profile executive during an investigation?

I for one think this is a good development, and I’m in good company. Some of the judges who have been most critical of deferred prosecution agreements have lauded today’s decision. But, actions speak louder than words, so a year from now, let’s see how many executives have gone on trial.

A while back, the CLS Blue Sky Blog  featured a post by Michael Peregrine on an article authored by Delaware Supreme Court Chief Justice Leo Strine (Documenting The Deal: How Quality Control and Candor Can Improve Boardroom Decision-making and Reduce the Litigation Target Zone, 70 Bus. Law. 679 (2015)) offering pragmatic advice to corporate directors in deal-oriented decision making.  Michael’s post summarizes points made by Justice Strine in his article, including (of particular importance to legal counsel) those set forth below.

  • “Counsel can play an important role in assuring the engagement of the strongest possible independent financial advisor, and structuring the engagement to confirm the provision of the full breadth of deal-related financial advice to the board; not simply the delivery of a fairness opinion or similar document.”
  • “[I]n the M&A process, it is critical to be clear in the minutes themselves about what method is being used, and why.”
  • “Lawyers and governance support personnel should be particularly attentive to documenting in meeting minutes the advice provided by financial advisors about critical fairness considerations or other transaction terms, and the directors’ reaction to that advice.”
  • “[P]laintiffs’ lawyers are showing an increasing interest in seeking discovery of electronic information that may evidence the attentiveness of individual directors to materials posted on the board portal.”

Michael concludes by noting the thrust of Justice Strine’s points–that “a more thoughtful approach to the fundamental elements of the M&A process will enhance exercise of business judgment by disinterested board members, and their ability to rely on the advice of impartial experts.”  All of the points made reflect observations of the Chief Justice emanating from Delaware jurisprudence.  Michael also notes that the points made by Justice Strine have application to decision making in other forms of business association as well as the corporation.

I could not agree more with the thesis of the post and the article.  Maybe it’s just my self-centered, egotistical, former-M&A-lawyer self talking, but good lawyering can make a difference in M&A deals and the (seemingly inevitable) litigation that accompanies them.  I wrote about this in my article, A More Critical Use of Fairness Opinions as a Practical Approach to the Behavioral Economics of Mergers and Acquisitions, commenting on Don Langevoort’s article, The Behavioral Economics of Mergers and Acquisitions.  We should be teaching this in the classroom as we frame the lawyer’s role in M&A transactions.  I use a quote from Steve Bainbridge to introduce this matter to my Business Associations, Corporate Finance, and Cross-Border M&A students:

Successful transactional lawyers build their practice by perceptibly adding value to their clients’ transactions. From this perspective, the education of a transactional lawyer is a matter of learning where the value in a given transaction comes from and how the lawyer might add even more value to the deal.

Stephen M. Bainbridge, Mergers and Acquisitions 4 (2003).  Great stuff, imv.  I am sure this quote or one like it is in the current version of this book somewhere, too.  But I do not have that with me as I write this.  Perhaps if Steve reads this he will add the current cite to the comments . . . ?

At any rate, I want to make a pitch for highlighting the role of the lawyer in guiding the client through the legal minefields–territory that only we can help clients navigate most efficaciously.  As business law educators, we have a podium that enables us to do this with law students who are lawyers-in-training about to emerge from the cocoon-like academic environment into the cold, cruel world in which fiduciary duty (derivative and direct) and securities class action litigation is around every transactional corner.  Let’s give them some pointers on why and how to take on this task!

Limited liability companies (LLCs) are often viewed as some sort of a modified corporation.  This is wrong, as LLCs are unique entities (as are, for example, limited partnerships), but that has not stopped lawyers and courts, including this nation’s highest court, from conflating LLCs and corporations.  

About four and a half years ago, in a short Harvard Business Law Review Online article, I focused on this oddity, noting that many courts

seem to view LLCs as close cousins to corporations, and many even appear to view LLCs as subset or specialized types of corporations. A May 2011 search of Westlaw’s “ALLCASES” database provides 2,773 documents with the phrase “limited liability corporation,” yet most (if not all) such cases were actually referring to LLCs—limited liability companies. As such, it is not surprising that courts have often failed to treat LLCs as alternative entities unto themselves. It may be that some courts didn’t even appreciate that fact. (footnotes omitted).

I have been writing about this subject again recently, so I decided to revisit the question of just how many courts call LLCs “limited liability corporations” instead of “limited liability companies.”  I returned to Westlaw, though this time it’s WestlawNext, to do the search of cases for the term “limited liability corp!”. (Exclamation point is to include corp., corporation, and corporations in my search, not to show excitement at the prospect.)

The result: 4575 cases use the phrase at least once.  

That means that, since May 2011, 1802 additional cases have incorrectly identified the definition of an LLC.   (I concede that some cases may have used the term to note it was wrong, but I didn’t find any in a brief look.)

Even the United States Supreme Court published one case using the incorrect phrase, and it was decided around three years after my article was published.  See Daimler AG v. Bauman, 134 S. Ct. 746, 752, 187 L. Ed. 2d 624 (2014) (“MBUSA, an indirect subsidiary of Daimler, is a Delaware limited liability corporation.”).  (Author’s note: ARRRRGH!)  The court also stated, “Jurisdiction over the lawsuit was predicated on the California contacts of Mercedes–Benz USA, LLC (MBUSA), a subsidiary of Daimler incorporated in Delaware with its principal place of business in New Jersey.” Id. (emphasis added). (Author’s Note: Really?)

This opinion was written by Justice Ginsberg, and joined by Chief Justice Roberts, and Justices Scalia, Kennedy, Thomas, Breyer, Alito, and Kagan. Justice Sotomayor filed a concurring opinion that did not, unfortunately, concur in judgment but disagree with the characterization of the LLC. The entire court at least acquiesced in the incorrect characterization of the LLC! 

It appears things have to get worse before they can get better, but I will remain vigilant.  I’m working on an article that builds on this, and it will hopefully help courts and practitioners keep LLCs and corporations distinct.  

In the meantime, I humbly submit to Chief Justice Roberts, and the rest of the Court, that there are already some useful things in law reviews. 

Today’s Labor Day, and what better topic to discuss on Labor Day than law teaching jobs?

A candidate for a law school teaching position recently asked if I would post advice on the interview process. That’s like asking the Tasmanian Devil for advice on coping with ADHD. I didn’t exactly tear up the interview scene when I was interviewing thirty years ago. But I have seen a great deal of the process from the other side since then, including two stints on our Appointments Committee.

I can’t tell you how to ace the law teaching interview process, but I do have a good idea of what doesn’t work. I have seen a number of candidacies ruined by incredibly bad interviews and job talks. If you have the credentials to get in the door, but you don’t really want the job, here, in no particular order, are eleven easy ways to sabotage your search.

1. Don’t change the names when you send out that form letter.

“I would really like to teach at Nebraska because I love the Southeast. Go Dawgs!” Believe it or not, I have actually seen letters like this. (Not with “Go Dawgs.” No one in his right mind would cheer for the Dawgs.) It destroys your credibility. Anything else you say in the letter is immediately suspect.

2. Don’t proofread your resume, FAR form, or cover letter. No one will notice.

Everyone will notice! I can’t count the number of typos I have seen on resumes, cover letters, and FAR forms. I want colleagues who take care in their work. Giving me a resume with mistakes that a simple spell-check could have caught predisposes me against you.

3. Don’t have any questions ready for the interviewers.

At some point in almost every interview, your interviewer will turn to you and say, “Do you have any questions for us?” “No” is not an appropriate answer. It signals that you’re either not that interested or haven’t done enough homework to know what to ask. Even if it’s the end of the day and all of your questions have already been answered, ask them again. You’ll be amazed how often the answers are inconsistent; different people have different perspectives.

4. Know nothing about the school interviewing you or where they’re located.

All of us, even the faculty at Podunk University School of Law and Auto Repair, like to think we’re important. We want to believe we’re your first choice, even though we understand we probably are not.

Indulge us. You don’t have to lie and tell us we’re your top choice, but you should at least know something about our school. Questions like “Where exactly is your school?” or “Do you have any faculty I might have heard of?” aren’t likely to endear you to the appointments committee. Even if it’s just a thirty-minute preliminary interview at the hiring conference, learn a little about the school and ask informed questions that show you’ve actually heard of them.

5. Have nothing to say about articles you’ve written.

We’re interested in your scholarship. We read your scholarship. But some candidates seem surprised when we ask them about their past articles. You need to be prepared to discuss your previous work—to explain and defend what you wrote.

6. Focus on your research interests and ignore teaching and service.

Most of us take all three parts of the educational mission—teaching, research, and service—seriously. Yet, some candidates focus almost exclusively on the research they want to do. Before you interview, give at least some thought to what and how you want to teach. And don’t treat teaching as something you’re compelled to do so you can write. Research is important, but we want to be sure you’re committed to all three aspects of the job.

7. Be rude to the law school’s administrative staff or students

It’s amazing how often candidates let their true colors show when they think no one on the faculty is watching. But I promise you that any rudeness toward anyone at the law school—students or staff—will get back to those doing the hiring. We know these people; we respect them; and any negative behavior towards them will not be well-received. They don’t have a vote, but we do, and we expect them to be treated well. Be nice—to everyone.

8. Don’t bother preparing for your job talk. Speak extemporaneously.

The job talk is probably the most important part of an on-campus interview. Unless you’re a lateral candidate, it’s the only way we have to consider how good a teacher you’re likely to be.

Be prepared. Know what you’re going to say. Don’t ramble. Practice, practice, practice, preferably in front of a live audience.

But that brings me to my next point . . .

9. Read your job talk from a prepared script.

I understand the motivation. I’m not a good extemporaneous speaker, so I carefully prepare everything I’m going to say. I even have scripted notes for my classes, although I almost never look at them. (Who knows? Someday, I may find myself at a loss for words.)

It’s fine to have a detailed outline for your job talk. But don’t read it to us. Talk to us. Have a conversation with us. And, if that conversation doesn’t fit the sequence in our outline, be prepared to go with the flow. One of the marks of a good teacher is an ability to adjust when questions come up or things don’t go as you expected.

10. Assume your job talk audience knows a lot about your subject.

Law professors are not omniscient; we just act like we are. Most of your audience probably won’t know much about your topic. I admit that, as a securities scholar, I’m not up on the latest developments in health care law or civil procedure.

Even if you made a paper available in advance, don’t assume you have a “hot bench.” You can’t just jump into a sophisticated discussion of some complicated area of the law. You have to give us some background.

In fact, one of the hardest challenges of the job talk is keeping it simple enough for the neophytes, but advanced enough for the experts. But the job talk is just like teaching in that sense; you will often have to deal with a broad range of intellectual abilities and preparation in the classroom.

11. Focus on only one side of the issue you’re discussing in your job talk and ignore any weaknesses in your argument.

Any issue that’s worth discussing in a job talk has multiple possible solutions. People in the audience will disagree with your position. Some people may even dispute whether there is a problem that needs to be solved.

You need to fully understand the arguments against your position and be prepared to deal with those arguments. Your own argument will have weaknesses; acknowledge them honestly and don’t overstate your case. Here’s a good test: could you construct a strong argument against your view? If not, you’re not ready.

Respect the arguments against your position. Now is not the time to tell someone his or her views are stupid, even if they are. Be prepared to explain how you weighed all of the possible arguments and came to the position you did.

Good luck to everyone who’s in the market. I hope you all find the law teaching positions you’re looking for.

The Delaware Chancery Court recently issued its opinion in the Dole Food Stockholder litigation (.pdf), and it’s a doozy.

The précis, as has been reported extensively, is that according to the court, Dole’s Chair, CEO, and 40% controlling shareholder David Murdock conspired with C. Michael Carter, another Dole officer, to make Dole look less profitable than it actually was, so that Murdock could buy out the public stockholders at a bargain price.

The opinion is well worth reading if only for the entertainment value – the machinations involved, and the court’s commentary, make for a riveting tale – but I can’t help but read this and wonder, can we expect to see a follow on Section 10(b) complaint?  And what would that look like?

[tl;dr analysis under the cut]

Continue Reading On the Dole

Babson College has posted their Global Entrepreneurship Monitor (“GEM”) Reports for 2014 (one global, one for the U.S.), available here.

The reports are valuable resources and should be read in full, but below are a few, selected quotes from the executive summary of the US GEM Report.

  • “The United States consistently exhibits among the highest entrepreneurship rates in the developed world. At 14% of the U.S. working age population, entrepreneurship levels edged upward in 2014 to reach the highest level in the 16 years GEM has assessed this activity. This represents approximately 24 million Americans starting or running new businesses. An additional 14 million people were estimated to be running established businesses.”
  • “36% of U.S. entrepreneurs operate in the business service sector, which is generally associated with knowledge and service-based businesses.”
  • “15% of entrepreneurs state that 25% or more of their customers come from outside the United States. This shows an increase over 11% reported in 2013, but it is still lower than 21% reported, on average, in the other innovation-driven economies.”
  • “29% of Americans personally know an entrepreneur; this measure has generally followed a downward path since 2001, when 43% indicated this affiliation.”
  • “Women’s entrepreneurship in the United States exhibits among the highest rates (11%) in the developed world.”
  • “The United States shows the highest rate of entrepreneurship among 55-64 year olds (11%) across the 29 developed economies surveyed by GEM in 2014.”
  • “20% of entrepreneurs aged 18-34 currently employ six or more people. 58% of 18-24 year olds and 46% of 25-34 year olds project six or more employees in five years. Among both younger age groups, 75% use the internet in their businesses.”

At Belmont University, we have quite a number of entrepreneurial students, and I think the statistics show that entrepreneurship is a critical piece of our economy.

On the legal scholarship side, Gordon Smith (BYU Law) and others have been building the Law & Entrepreneurship field. The field continues to grow, and I hope to make it to the annual meeting of the Law and Entrepreneurship Association at some point soon.

On the legal education side, there is now a Law & Entrepreneurship LLM at Duke, and the number of related programs is growing. My colleague Mark Phillips is one of the academics advocating for the teaching of entrepreneurial skills to law students, and he shows that those entrepreneurial skills are useful to lawyers at law firms of all sizes.