Has Wal-Mart reformed? Last week I blogged about whether conscious consumers or class actions can really change corporate behavior, especially in the areas of corporate social responsibility or human rights. I ended that post by asking whether Wal-Mart, the nation’s largest gun dealer, had bowed down to pressure from activist groups when it announced that it would stop selling assault rifles despite the fact that gun sales are rising (not falling as Wal-Mart claims). Fellow blogger Ann Lipton did a great post about the company’s victory over shareholder Trinity over a proposal related to the sale of dangerous products (guns with high capacity magazines). There doesn’t appear to be anything in the 2015 proxy that would necessitate even the consideration of a change that Wal-Mart fought through the Third Circuit to avoid.

So why the change? Is it due to the growing public weariness over mass shootings? Did they feel the sting after Senator Chris Murphy praised them for ceasing the sale of Confederate flags but called them out on their gun sales? Even the demands of a Senator won’t overcome the apparent lack of political will to enact more strict gun control, so fear of legislation is not a likely factor either. Selling guns doesn’t even conflict with the very specific initiatives in their comprehensive GRI-referenced global responsibility report.

Maybe the CEO just wants to do what he believes is the right thing. After all, he announced to great fanfare in February that the retailer would be raising minimum wages for associates. But just this week the chain announced that it would be cutting back on worker hours in many stores. Was the pay raise a “cruel PR stunt” as some have complained or it good business sense for a company that has failed to live up to investor expectations and needs to retain good talent and reduce turnover?

A few weeks ago when I did a crash course in US corporate law and governance in Panama, I had a lengthy debate with the head of CSR for a Latin American company. I (cynically) told her that in my ideal(ist) world, companies should adopt a stakeholder view and look beyond profit maximization. However, I believed that most large companies in fact implemented CSR programs to enhance reputation, avoid onerous legislation, and mitigate enterprise risks. The company that builds the school or the drinking well in a remote area of a third-world country does good for the community but it also has workers who can send their children to school, educates the next generation of employees, and makes sure that the community has potable water so that workers don’t get sick. Its CSR builds good will in the community that can be worth more than gold. The smart company makes sure that it has a social license to operate as well as legal license.

So back to Wal-Mart. Does the retailer need a social license to boost sagging sales or does it just need different merchandise?  In other words is the retailer trying to get more customers by stopping the sale of assault rifles? Was that announcement timed to blunt the effect of the announcement about cutting back hours? Or is Doug McMillon simply doing what he believes makes sense for the shareholders and the stakeholders? The cynic in me says that there’s a business reason other than low sales for the change in position on guns and that there was always a business reason for the rise in wages.

As many readers already know, I teach Corporate Finance in the fall semester as a three-credit-hour planning and drafting seminar.  The course is designed to teach students various contexts in which valuations are used in the legal practice of corporate finance, the key features of simple financial instruments, and legal issues common to basic corporate finance transactions (including M&A).  In the process of teaching this substance, I introduce the students to various practice tips and tools.

As part of teaching M&A in this course and in my Advanced Business Associations course, I briefly cover the anatomy of an M&A transaction and the structure of a typical M&A agreement.  For outside reading on these topics, I am always looking for great practical summaries.  For example, Summary of Acquisition Agreements, 51 U. Miami L. Rev. 779 (1997), written by my former Skadden colleagues Lou Kling and Eileen Nugent (together with then law student, Michael Goldman)  has been a standard-bearer for me.  In recent years, practice summaries available through Bloomberg, LexisNexis, and Westlaw (Practical Law Company) have been great supplements to the Miami Law Review article.  In our transaction simulation course, which is more advanced, I often assign part of Anatomy of a Merger, written many moons ago by another former Skadden colleague, Jim Freund.  Just this past week, I came across a new, short blog post on the anatomy of a stock purchase agreement on The M&A Lawyer Blog.  Although I haven’t yet given the post a review for teaching purposes, it is a nice summary in many respects and makes some points not made in other similar resources.

I will be revisiting my approach to the M&A part of my Corporate Finance course in the coming weeks.  I am curious about how others teach M&A in a context like this–where the topic must be covered in about three-to-five class hours and include practice points, as well as a review of doctrine, theory, and policy.  I am always interested in new materials and approaches that may reach more students better.  I invite responses in the comments that may be useful to me and others.

A couple weeks ago, I wrote Ten Promises For New Law Students to Consider, which discussed the promises I made to myself when I went to law school.  It seems to me appropriate that I should follow up with something applies to me now.

This list for law professors (or at least, this law professor) includes some of the promises I made myself when I left practice, and some that have evolved over the almost decade I have been teaching.  It’s hard to believe this is my tenth year as a full-time teacher. 

To that end, here are my suggestions for faculty members, based on my experience. I don’t always keep these promises, but (as I did with the law school promises) I try.  This list is even less exhaustive than my last effort, and I welcome additions to the list in comments. I am not going to lie, this was a harder list to make, and it’s a challenge to fulfill them all (especially #6). 

I promise: 

 

(1) To be intentional.  That is, I will choose books, assign readings and exercises, and draft paper assignments and exams with a purpose.  They may not always be the best choice, but there will be a reason (supported by good intent) they were chosen. 

 

(2) To remember, whether it’s related to demeanor, effort, or analysis, that I cannot be the benchmark for all my students.  They are not me, and I am not them.  We all have a story, and it is (in some way) unique. 

 

(3) To remember that, while kindness, sympathy, and empathy are essential skills to being a good teacher, colleague, and human being, they are not inconsistent with high expectations.

 

(4) To keep connected to practice and to people with non-academic jobs so that I can keep current and  grounded in the practical realities of life as an attorney and member of a broader community. 

 

(5)  To take pride (and risks) in my work in an effort to be better at what I do and to evolve in all aspects of my work — teaching, research, and service.  (Old dogs can learn new tricks.)

 

(6) To recognize boundaries and to be kind and patient with my family because who I am at home impacts who I am at work (and vice versa).

 

(7) To do my best to get enough sleep and enough exercise. 

 

(8) To find the fun in my work when I can, and not forget that one of the best parts of being an academic is writing about things I choose (not that my clients choose) and taking positions I think are right.

 

(9) To be friendly and helpful to build relationships so that the community I know is a community I want. This includes my faculty colleagues, our staff and support colleagues, and our student colleagues.  

 

(10) To understand that I cannot be everything to everyone and that opportunity costs are real.  Thus, as I seek to fulfill John Wooden’s ideal — “Don’t measure yourself by what you have accomplished, but by what you should have accomplished with your ability.”– I will keep in mind that accomplishments are more than articles written and classes taught. They include those, but they also include things like laughs, hugs, bike rides, soccer games, swing sets, sunsets, beaches, and good food. Beer, wine, and cocktails, are sometimes a nice touch, too. 

Andrew Vollmer, a law professor at the University of Virginia and a former SEC deputy general counsel, has written two excellent papers on SEC enforcement.

The first, SEC Revanchism and the Expansion of Primary Liability under Section 17(a) and Rule 10b-5, is a critical look at the SEC’s decision in the Flannery administrative proceeding. If you’re a securities lawyer and you’re not familiar with Flannery, you should be. It stakes out a number of broad interpretations of liability under Rule 10b-5 and section 17(a) of the Securities Act. I (and Professor Vollmer) believe some of those positions are inconsistent with Supreme Court precedent, but the SEC’s is clearly trying to set up an argument for judicial deference under Chevron.

Professor Vollmer’s second article is Four Ways to Improve SEC Enforcement. He discusses the problems with SEC administrative proceedings and how to fix them.

Both articles are definitely worth reading.

Apparently, Paul Hastings is planning to bring lawyer cubicles to New York.  First and second year associates won’t get an office; instead, they’ll get a cubicle.  The firm pitches this as a move to enhance creativity; conveniently, it also saves expenses on office space.

Whenever I hear about moves like this – which include offices with glass walls, or offices shares by multiple people – I always wonder: But how will they sleep?

Leaving aside the sleep research demonstrating the cognitive benefits of naps, I know from personal experience that I cannot get through a full working day – let alone the kind of long day that lawyers often must work – without one or two 20-minute naps.  I’ve talked to other lawyers and I’ve heard the same thing; they loathe glass walls and other open-office plans not simply for the lack of privacy, but because they need space to sleep.

Google is famous for, among other things, counterbalancing shared offices and glass walls with sleeping pods – which likely benefits employee productivity (and also, presumably,  is part of a strategy to keep employees from ever leaving the complex).  I suppose Paul Hastings could try something similar, but I’m guessing the cultural taboos against napping – especially among lawyers, who take punishing hours are taken as proof of commitment to the firm – would inhibit their use.

I get why firms may feel the need to cut costs – and lots of attorneys, as well as workers in other fields, have long toiled in cubicles or at shared desks – but won’t someone think of the nappers? 

 

I don’t agree with SEC Commissioner Luis Aguilar on many issues. But I agree with his recent call for transparency in the disqualification waiver process.

A number of SEC rules, such as some of the offering registration exemptions, are not available to companies that have engaged in certain misbehavior in the past. But the SEC has the authority to waive those disqualifications, and it often does. Or, I should say, the SEC staff often does. As Commissioner Aguilar points out, the commissioners are often unaware that a waiver has been requested. And, as with staff no-action letters, it’s often unclear why some waivers are granted and others are not.

I’m not a fan of the whole idea of discretionary waivers. Allowing government employees to waive the law on a case-by-case basis with little explanation strikes me as inconsistent with the rule of law. But, if we’re going to have them, the process should be as transparent as possible.

I’m the socially-conscious consumer that regulators and NGOs think about when they write disclosure legislation like the Dodd-Frank conflict minerals law that I discussed last week. I drive a hybrid, spend too much money at Whole Foods for sustainable, locally-farmed, ethically-sourced goods, make my own soda at home so I minimize impacts to the environment with cans and plastic bottles, and love to use the canvas bags I get at conferences when I shop at the grocery store. As I (tongue in cheek) pat myself on the back for all the good I hope to do in the world, I realize that I may be a huge hypocrite. I know from my research that consumers generally tell survey takers that they want ethically sourced goods, but they in fact buy on quality, price, and convenience.

I thought about that research when I read the New York Times expose and CEO Jeff Bezos’ response about Amazon’s work environment. As a former defense-side employment lawyer and BigLaw associate for many years, I wasn’t in any way surprised by the allegations (and I have no reason to believe they are either true or false). I have both provided legal defenses and lived the life alleged by some former and current Amazonians. But now that I research and teach on corporate social responsibility and strive to be more socially conscious myself, can I in fact shop at Amazon? I considered this because I ordered almost a dozen packages to be delivered to me over the past weeks. I was literally about to click “order now”  for another delivery when I was reading the article. And then I clicked anyway.

I confess that I may be the consumer discussed in an article I cite in my research entitled “Sweatshop Labor is Wrong Unless the Shoes are Cute: Cognition Can Both Help and Hurt Moral Motivated Reasoning.” As the authors point out, “Our findings show that consumers will actually change what they believe if they strongly desire a product … As long as companies continue to create value and maintain loyalty, it is likely store shelves won’t see ‘sweatshop-free’ products.”

I’ve argued that for that reason, consumers generally don’t have as much impact as people think. While hashtag activism in an era of slacktivism may raise awareness in social movements, I’m not sure that it does much to change company behavior, with the notable exception of SeaWorld, which has seen a drop in attendance after a CNN story about treatment of killer whales and subsequent calls for boycott.

Maybe I’m wrong. I look forward to seeing what, if anything, Costco shoppers do when/if they learn about the putative class action lawsuit filed this week in California claiming that Costco knowingly sold shrimp farmed by Thai slaves and misled consumers. According to the complaint (which has graphic pictures), “this case arises from the devaluing of human life. Plaintiff and other California consumers care about the origin of the products they purchase and the conditions under which the products are farmed, harvested or manufactured. Slavery, forced labor and human trafficking are all practices which are considered to be abhorrent, morally indefensible and acts against the interests of all humanity.” The complaint also cites Costco’s supplier code of conduct and notes that its practices are inconsistent with its statement of compliance with the California Transparency in Supply Chain Act, another name and shame disclosure law meant to root out slavery and human trafficking. This is the first US lawsuit related to these kinds of disclosures, but may not be the last.

Costco was supposed to be one of the good guys with its fair wages and benefits compared to its competitors and  its “reasonable” CEO salary. This favorable PR has likely cloaked Costco with the CSR halo effect, where consumers believe that when a company does something good for workers, for example, the company also cares about the environment, even though there may be no relationship between the two. This may cause them to spend more money with the company, and some believe, may cause regulators to look more favorably upon a firm.

Will socially conscious consumers stop buying at Costco? Will they stand their ground and rush over to Whole Foods? Although I don’t have a Costco card, I admit I have considered it because I liked the labor practices and for years have refused to shop in another big box retailer because of its treatment of workers. I’m also interested to see what investors think of Costco. What will the shareholders resolutions look like next year? In 2015, the only shareholder proposal in the proxy concerned “reducing director entrenchment.” How will this lawsuit affect the stock price, if at all?

Next week I will explore the Wal-Mart decision to stop selling assault rifles. Did Trinity and other socially-responsible investors get their way after all?? Wal-Mart’s CEO says no, but I’m not so sure.

 

 

 

 

Back in January, I joined Planet Fitness. The $10/month membership seemed too good to be true. Most gyms I had joined in the past had cost 3-5X that amount, and the equipment looked pretty similar. Also, the advertisement of No Commitment* Join Now & Save! (small font – *Commitments may vary per location) gave me pause.

Like a good lawyer, I read all the fine print in the membership contract, looking for a catch. There wasn’t really a catch – except for a small, one-time annual fee (~$30), if I did not cancel before October.

I signed up, enjoyed the gym, and canceled a few months later, as soon as the weather outside improved. (When I exercise, which is not as consistently as some of my co-bloggers, it is mostly just running, and I prefer to run outside if the weather is decent).

So, in total, I paid around $30 for three months of access to a single location of a decent gym.

This deal is still somewhat puzzling to me. If Planet Fitness’ business model makes sense, why aren’t more competitors coming close to the $10/month price point?

Here are some of my guesses (based on my brief experience at one location and pure speculation):

  • Planet Fitness may have a lower cost structure than some gyms. While I thought the equipment was fine, most of the equipment seemed to be of the “no frills variety.” For example, none of the treadmills at my location had color screens and most of the machines appeared to be base models. I did, however, appreciate that Planet Fitness seemed to pay attention to what machines members use regularly – like treadmills, bikes, and ellipticals –  and devoted most of their space to those machines.
  • Planet Fitness may be taking a page from the behavioral economist’s playbook. Planet Fitness made signing up extremely easy and automatically deducted the fee from the member’s checking account each month. Canceling was slightly more difficult. You had to physically come into the gym to sign cancellation paperwork, or you could snail mail your cancellation. You also had to give a bit of notice, prior to cancellation, to avoid getting charged for the following month.  The slight difficulty canceling, coupled with the very low monthly fee might result in some folks forgetting about their membership for a while, simply taking a while to cancel, or purposefully avoid canceling, in hopes they would return to working out. I will say that I did not find canceling at Planet Fitness terribly difficult. However, when I was a member of LA Fitness a number of years ago, I remember their cancellation process, through certified “snail-mail” letter, being a pain. 
  • Planet Fitness may have been offering $10/month as a “teaser rate” to attract members, with plans to increase rates once members had developed habits of going to their gyms.  My gym has already increased the “no commitment” membership to $15/month, while the $10/month membership now comes with a 1-year commitment.
  • Judging from these complaints, many members may not understand the annual fee, the commitments (on some plans), and the cancellation requirements. Perhaps these parts of the contracts are helping off-set the low monthly price.
  • Planet Fitness may have been trying to increase their membership numbers in advance of their IPO this summer.

This last bullet-point, regarding increasing membership numbers to help their IPO, is the one I find most interesting. If the valuation of certain tech-companies, like Instagram, can be based on, at least in part, “number of users,” I think it is reasonable to assume that “number of members” is an important metric for the valuation of gyms.

On August 5, The Wall Street Journal reported that Planet Fitness priced its IPO at $16/share and raised $216 million. Planet Fitness disappointed in early trading (See here and here), then rose to just under $20/share, and is now back around its IPO price. Given the prevalence of IPO under-pricing, I imagine early investors hoped for better. That said, I plan to follow Planet Fitness and see if their business model is one that works in the long-term. If they have continued success, I imagine other companies will attempt to imitate. 

Update: Will Foster (Arkansas) passed along this interesting public radio podcast on gym memberships, which discusses Planet Fitness. Basically, it suggests that many gyms seek members who will not show up regularly (or at all). Maybe this is a key to Planet Fitness’ business model; Planet Fitness advertises itself as a “no judgment” gym and even has a “lunk alarm” that it rings on weightlifters who grunt or drop weights. Members seeking “no judgment” may come to the gym much less frequently than serious weightlifters. In fact, at the Planet Fitness featured, 50% never even showed up once. That location has ~6000 members, but a capacity of ~300. Also, this podcast makes sense of why Planet Fitness has free candy, bagels, mixers, massage chairs, and pizza parties – again this attracts less serious gym members and it also gives some value to those who come to the gym only to socialize and eat. Listen to the whole thing. 

As mentioned in my post about law schools hiring in business law areas, we received the following posting from The University of Utah S.J. Quinney College of Law.

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University of Utah Hiring in Business and Tax Law

The University of Utah S.J. Quinney College of Law invites applications for a tenure-track faculty position at the rank of associate professor beginning academic year 2016-2017. Qualifications for the position include a record of excellence in academics, successful teaching experience or potential as a teacher, and strong scholarly distinction or promise. The College is particularly interested in candidates in the areas of business and tax law. Interested persons can submit an application to the University of Utah Human Resources website at https://utah.peopleadmin.com/postings/43173 (please note that the application requires a cover letter, CV, and list of references). Baiba Hicks, Administrative Assistant to the Faculty Appointments Committee (Baiba.hicks@law.utah.edu or 801-581-5464) is available to answer questions.

The University of Utah is an Equal Opportunity/Affirmative Action employer and educator and its policies prohibit discrimination on the basis of race, national origin, color, sex, sexual orientation, gender identity/expression, religion, age, status as a person with a disability, or veteran’s status. Minorities, women, veterans, and those with disabilities are strongly encouraged to apply. Veterans’ preference is extended to qualified veterans. To inquire further about the University’s nondiscrimination and affirmative action policies or to request a reasonable accommodation for a disability in the application process, please contact the following individual who has been designated as the University’s Title IX/ADA/Section 504 Coordinator: Director, Office of Equal Opportunity and Affirmative Action, 201 South Presidents Circle, Rm. 135, Salt Lake City, UT 84112, (801)581-8365, email: oeo@utah.edu.