Crowdfunding’s a popular topic here at BLPB, but here’s a use that hadn’t occurred to me.

Apparently, a former SEC lawyer is using Kickstarter to fund an investigation into the fees that CalPERS pays for its private equity investments.   

It all started when CalPERS announced that it didn’t know what it was paying in private equity fees.

This was somewhat surprising.  CalPERS has the money, and is assumed to have the sophistication, to bargain for its interests and at least require firms to make the appropriate disclosures.

Nonetheless, it appeared to be in the dark about its own fee payments.

To be fair, NYC’s Comptroller recently claimed to be shocked by NYC funds’ fees, and the SEC has now begun to aggressively investigate private equity fee and expense disclosure.  It even recently settled a case with KKR alleging that it improperly allocated expenses to fund investors that it should have partially absorbed itself.

 Still, one would have thought that CalPERS, of all funds, could protect itself.

Enter Edward A. H. Siedle, who is seeking public support for his investigation of CalPERS’s fees.  Apparently, he’s done this before: he recently issued a crowd-funded report on Rhode Island’s state pension fund, concluding that the fund experienced $2 billion in “preventable losses.”

I’m not sure what the broader lesson is here, but there are certainly plenty of candidates – the versatility of crowdfunding?  The dysfunctions of public pension funds generally, or CalPERS specifically?  The opacity of private equity?  The problems inherent in the SEC’s assumption that assets correlate with sophistication?   Or maybe it’s a just a story about the decline of local reporting, because honestly, these are the kinds of stories we might once have expected to be covered by local news outlets.  Does the “sharing economy” mean we have to “share” public goods like news reporting? 

Apparently so.

In any event – happy 4th of July!  Have a classic depiction of patriotism in celebration:

 

Among the DGCL amendments this year were a number of amendments to the Delaware Public Benefit Corporation (“PBC”) Law. 

I refer to the Delaware PBC amendments as “The Etsy Amendments” because I believe (without being sure) that a main motivation in passing these amendments was to make it easier for Etsy (among other companies) to become a Delaware PBC. These amendments are effective as of August 1, 2015.

As mentioned in a previous post, Etsy is a certified B corporation and a Delaware C-corporation. According to B Lab’s terms for certified B corporations, Etsy will have to convert to a Delaware PBC by August 1, 2017 or forfeit its certification. This assumes that B Lab will not change its requirements or make an exception for publicly-traded companies.

The amendments to the PBC law are summarized below:

  • Eliminates requirement of “PBC” or “Public Benefit Corporation” in the entity’s formal name. This amendment makes it easier and less costly for existing entities to convert, but the amendment also makes it more difficult for researchers (and the rest of the public) to track the PBCs. In addition to the cost of changing names, Rick Alexander notes in his article below that the previous naming requirement was causing issues when PBCs registered in other states because “[s]ome jurisdictions view the term as referring to nonprofit corporations. Other jurisdictions view the phrase ‘’PBC’’ as insufficient to signal corporate identity.”
  • Reduces amount of shareholders that must approve a conversion from a traditional corporation to a PBC from 90% to 2/3rds of shareholders. This amendment brings Delaware PBC law in line with most of the benefit corporation statutes and gives Etsy a more realistic shot at converting. The requirement in Delaware to convert from a PBC to a traditional corporation was already approval by 2/3rds of shareholders.
  • Provides a “market out” exception to appraisal rights when a corporation becomes a PBC. This amendment brings the Delaware PBC law in line with their general appraisal provision in DGCL 262. This amendment also means that Etsy shareholders would not receive appraisal rights if Etsy converts to a PBC.

Additional posts about the amendments are available below:

Bridget Crawford (Pace Law) has posted an extensive list of law school professors on Twitter that is available here.

Previously, I compiled a list of business law professors, in both business schools and law schools, but to avoid overlapping with Bridget’s list, I am only including business school legal studies professors in this updated list.

I will update the list from time to time. Updated: August 8, 2020.

Thomas Baker III (Georgia) – @DrTab3

Perry Binder (Georgia State) – @Perry_Binder

Jody Blanke (Mercer) – @JodyBlanke

Liz Brown (Bentley) – @proflizbrown

Seletha Butler (Georgia Tech) – @ProfSButler

Kabrina Chang (Boston University) – @ProfessorChang

Peter Conti-Brown (Penn/Wharton) – @PeterContiBrown

Greg Day (Georgia) – @gregrrday

Laura Dove (Troy) – @LauraRDove

Marc Edelman (CUNY) – @MarcEdelman

Leora Eisenstadt (Temple) – @LeoraEisenstadt

Adam Epstein (Central Michigan) – @AdamEpstein

Kevin Fandl (Temple) – @kfandl

Jason Gordon (Georgia Gwinnett) – @JMGordonLaw

Nathaniel Grow (Indiana) – @NathanielGrow

Enrique Guerra-Pujol (Central Florida) – @lawscholar

Lori Harris-Ransom (Caldwell) – @HarrisRansom

Laura Pincus Hartman (DePaul) – @LauraHartman

John Holden (Oklahoma State) – @Johnsportslaw

David Jess (Michigan) – @ProfessorHess

Lindsay Jones (UGA) – @profsainjones

Debbie Kaminer (CUNY) – @dkaminer2

Kathryn Kisska-Schulze (Clemson) – @ KKisska13

Mike Koval (Salisbury) – @MikeKoval123

Jeremy Kress (Michigan) – @Jeremy_Kress

Tanya Marcum (Bradley) – @Marcumland

Jennifer Merton (UMASS Amherst) – @JenniferMerton

Stephanie Moore (Indiana) – @AdvocateMoor

Haskell Murray (Belmont) – @HaskellMurray

Phil Nichols (Penn) – @PrPhilNichols

David Orozco (Florida State) – @ProfessorOrozco

Eric Orts (Penn)– @EricOrts

Jennifer Pacella (Indiana) – @ProfPacella

Amy Parrish (Creighton) – @AmyJParrish

Nizan Geslevich Packin (CUNY) – @NizanGP

Marisa Pagnattaro (Georgia) – @pagnattaro

Joshua Perry (Indiana) – @ProfJoshPerry

Jamie Prenkert (Indiana) – @jprenkert

Matthew Phillips (Wake Forest) – @mtppilot

Griffen Pivateau (Oklahoma State) – @pivateau

Angie Raymond (Indiana) – @AngRaymond

Susan Samuelson (Boston University) – @bizlawupdate

Tim Samples (Georgia) – @TimRSamples

Inara Scott (Oregon State) – @NewEnergyProf

Mike Schuster (Georgia) – @Prof_Schuster

Abbey Stemler (Indiana) – @MillennialProf1

Donna Steslow (Kutztown) – @BusLawProf

Adam Sulkowski (Babson) – @adam_sulkowski

Peter Swire (Georgia Tech) – @peterswire

Charles Thomas (Cal. State) –@CSUDHLaw

Jennifer Cordon Thor (Oakland) – @jenthor2000

Gregory Voss (Toulouse) – @wgvoss

Whitney Westrich (Cincinnati) – @WhitneyWestrich

Eric Yordy (No. Arizona) – @EricYordy

Kelley

The Kelley School of Business at Indiana University has multiple open positions in their Business Law and Ethics Department.

Kelley is well known in business school circles for having a strong legal studies program. Among the many fine faculty members are my ALSB mentor Jamie Prenkert (department chair) and BLPB guest-blogger Todd Haugh. 

Information about these positions is available after the break.

Continue Reading Kelley School of Business at Indiana University – Law and/or Ethics Professor Positions

It’s barely July and I have received a surprising number of emails from my incoming business association students about how they can learn more about business before class starts. To provide some context, I have about 70 students registered and most will go on to work for small firms and/or government. BA is required at my school. Very few of my graduates will work for BigLaw, although I have some interning at the SEC. I always do a survey monkey before the semester starts, which gives me an idea of how many students are “terrified” of the idea of business or numbers and how many have any actual experience in the field so my tips are geared to my specific student base. I also focus my class on the kinds of issues that I believe they may face after graduation dealing with small businesses and entrepreneurs and not solely on the bar tested subjects. After I admonished the students to ignore my email and to relax at the beach during the summer, I sent the following tips:

If you know absolutely NOTHING about business or you want to learn a little more, try some of the following tips to get more comfortable with the language of business:

1) Watch CNBC, Bloomberg Business, or Fox Business. Some shows are better than others. Once we get into publicly traded companies, we will start watching clips from CNBC at the beginning of every class in the “BA in the News” section. You will start to see how the vocabulary we are learning is used in real life.

2) Read/skim the Wall Street Journal, NY Times Business Section or Daily Business Review. You can also read the business section of the Miami Herald but the others are better. If you plan to stay local, the DBR is key, especially the law and real estate sections.

3) Subscribe to the Investopedia word of the day- it’s free. You can also download the free app.

4) Watch Shark Tank or The Profit (both are a little unrealistic but helpful for when we talk about profit & loss, cash flow statement etc). The show American Greed won’t teach you a lot about what we will deal with in BA but if you’re going to work for the SEC, DOJ or be a defense lawyer dealing with securities fraud you will see these kinds of cases.

5) Listen to the first or second season of The Start Up podcast available on ITunes.

6) Watch Silicon Valley on HBO- it provides a view of the world of  re venture capitalists and funding rounds for start ups.

7) Read anything by Michael Lewis related to business.

8) Watch anything on 60 Minutes or PBS’ Frontline related to the financial crisis. We will not have a lot of time to cover the crisis but you need to know what led up to Sarbanes-Oxley and Dodd-Frank.

9 Watch the Oscar-winning documentary “Inside Job,” which  is available on Netflix.

10) Listen to Planet Money on NPR on the weekends.

11) Listen to Marketplace on NPR (it’s on weekday evenings around 6 pm).

12) Read Inc, Entrepreneur, or Fast Company magazines. 

13) Follow certain companies that you care about (or hate) or government agencies on Twitter. Key agencies include the IRS, SEC, DOJ, FCC, FTC etc. If you have certain passions such as social enterprise try #socent; for corporate social responsibility try #csr, for human rights and business try #bizhumanrights. For entrepreneurs try #startups. 

14) Join LinkedIn and find groups related to companies or business areas that interest you and monitor the discussions so you can keep current. Do the same with blogs. 

As I have blogged before, I also send them selected YouTube videos and suggest CALI lessons throughout the year. Any other tips that I should suggest? I look forward to hearing from you in the comments section or at mnarine@stu.edu.

As I earlier noted, on June 23rd, I moderated a teleconference on proposals to shorten the Section 13(d) reporting period, currently fixed by statute and regulation at 10 days.  If you don’t mind registering with Proxy Mosaic, you can listen to the program.  The link is here.

The discussion was lively–as you might well imagine, given that one of the participants represents activist shareholders and the other represents public companies.  A number of interesting things emerged in the discussion, many (most) of which also have been raised in other public forums on Schedule 13D, including those referenced and summarized here, here, and here, among other places.

  • Exactly how does the Section 1d(d) reporting requirement protect investors or maintain market integrity or encourage capital formation?  Or is it just a hat-tipping system to warn issuers about potential hostile changes of control, chilling the potential for the market for corporate control to run its natural course?  Of course, the answer to many questions about Section 13(d) depends on our understanding of the policy interests being served.  It’s hard to tinker with the reporting  system if we cannot agree on the objectives it seeks to achieve . . . .  (Read the remaining bullets with this in mind.)
  • We’re not in the 1960s, 1970s, or 1980s any more.  If market accumulations are deemed to present dangers to investors today (and that case needs to be made), why are they not just an accepted risk of public market participation?  Shouldn’t every investor know that market accumulations are a risk of owning publicly traded securities?  And how does the reporting requirement really protect them from harm?  Is this just over-regulation that treats investors as nitwits?
  • Not all activist investors are the same.   Some act or desire to act as a Section 13(d) group; others don’t.   Some seek effective or actual control of an issuer; some don’t.
  • Provisions within the Section 13(d) filing requirements interact.  So, can we really talk about decreasing disclosure time periods without also talking about triggering thresholds and mandatory disclosure requirements?
  • Why is 5% beneficial ownership the triggering threshold for reporting?  What’s the magic in that number–and if it were to be changed, should it be lower or higher?
  • Schedule 13D is a disclosure form fraught with complexity.   Many important judgment calls may have to be made in completing the required disclosures accurately and completely, depending on the circumstances.  Is all this complexity needed?  In particular, can the Item 4 disclosure requirement be simplified?  And is the group concept necessary?
  • What is the value, if any, in looking at the issue from a comparative global regulatory viewpoint?  Toward the end of the call, international comparisons were increasingly being made and used as evidence that a change in U.S. regulation is needed or desirable.  But are other markets and systems of regulation enough like ours for these comparisons to work?  E.g., although other countries require Schedule 13D-like filings fewer days after attainment of a triggering threshold of ownership, does that mean we also should reduce the time period for mandatory disclosure here in the U.S.?

Lots of questions; I am beginning to think through answers.  Regardless there’s much food for thought here.  Any reactions?  What do you think, and why?

Last week Kent Greenfield and Adam Winkler published “The U.S. Supreme Court’s Cultivation of Corporate Personhood,” in the Atlantic discussing two recent Supreme Court opinions.  Greenfield and Winkler covered the ruling in Horne v. Department of Agriculture  where the Court held  “a federal program requiring raisin growers to set aside a percentage of their crops for government redistribution was an unconstitutional ‘taking’ under the Fifth Amendment.”  The second case addressed was Los Angeles v. Patel where the Court extended Fourth Amendment privacy protections “invalidating a city ordinance (similar to laws around the country) allowing police to search [hotel] guest registries without a warrant.”

While they distinguish certain rights, like political speech, that are “more appropriate for people than for corporations,” Greenfield and Winkler acknowledge that some constitutional protections should be extended to corporations.  

“A corporate right to be free from government takings, for example, makes sense both as a matter of constitutional law and of economics. Government overreach is problematic whether the raisin grower is a family farm or a business corporation. And corporations left exposed to government expropriation would find investors reluctant to take that risk, undermining the basic social purpose of the corporation, to make money.” 

-Anne Tucker

Last week, S.E.C Commissioner Daniel M. Gallagher, gave a speech, Activism, Short-Termism, and the SEC: Remarks at the 21st Annual Stanford Directors’ College. I agree with many of Commissioner Gallagher’s views on short-termism, and (I will semi-shamelessly note) he cited one of my earlier posts about the role of activists on board decision making. In his remarks, he said, with regard to short-termsim (i.e., companies operating for short term rather than long-term gains):

The current picture is bleak . . . 

Clearly, there’s a way for all the parties . . . to co-exist peacefully. The SEC sets a level playing field; companies manage themselves for the long-term with the vigorous oversight of the board; and activists put pressure on those companies that fall short of that ideal.[47] Unfortunately, we are not in that happy place. Rather, there seems to be a predominance of short-term thinking at the expense of long-term investing. Some activists are swooping in, making a lot of noise, and demanding one of a number of ways to drive a short-term pop in value: spinning off a profitable division, beginning a share buy-back program, or slashing capital expenditures or research and development expenses. Having inflated current returns by eliminating corporate investments for the future, these activists can exit their investment and move on.

. . . .

[47] See, e.g., Joshua Fershee, Shareholder Activists Can Add Value and Still Be Wrong (Apr. 28, 2015) (positing that activists can signal to boards when the company’s strategy may be inefficient; it is then the board’s responsibility to “use the tools before it to make decisions in the best interests of the entity” — that shareholder activists can improve long-term value even if following their recommendations blindly would not).

I absolutely agree with the Commissioner that too many companies are using a short-term philosophy to guide their decision making and that directors are allowing non-controlling institutional investors too much influence in the boardroom.  But, as a believer in director primacy, I see that as a director failure, not an S.E.C. failure or an institutional investor/activist failure. Directors need to make the decisions for the entity based on their view of what is best for the entity, not on someone else’s  view. 

Commissioner Gallagher is spot on when he notes his concern “that some institutional investors are paying insufficient attention to their fiduciary obligations to their clients when they determine whether to support a particular activist’s activity.”  

That concern, though, has nothing to do with how the board of a company responds to its activist institutional investors that urge short-termist actions.  The institutional investor activist in that case should be held accountable to its clients, and perhaps it should not be urging such behavior, but that is not relevant to how a board of a company in which an institutional investors owns stock responds to such pressure.  

It could be that some boards really believe that short-termism is how best to run a company.  The level of complaining about activists suggests otherwise, but then it is up to boards to reject the activist’s requests.  If boards are being unduly influenced by non-controlling outside forces, then shareholders need to take a break from their rational apathy, and do something.  If controlling shareholders are pushing short termism to the detriment of non-controlling shareholders, boards should not follow the controlling shareholder’s request or (again) non-controlling shareholders need to push back to ensure the board and the controlling shareholders are honoring their fiduciary obligations.  

If it’s just that directors like short termism as a strategy, though, and it’s not a decision made for any other reason than directors think it’s the right one, I believe those directors are wrong.  But that’s not my call. I’m not on the board. 

I was traveling to the annual CALI Conference on Law School Computing when this happened, but I thought I would share it, in case you haven’t seen it yet.

Two police officers showed up at the annual meeting of PNE Wind AG, a German company focusing on renewable energy. They sealed the room where votes were tabulated and seized documents, apparently to investigate vote-tampering charges filed by two of PNE Wind’s supervisory board members.

Not surprisingly, the company’s stock price dropped more 13% in the two days following the meeting. It rebounded afterward but, curiously, has dropped another 6% in the week since authorities announced that no further investigation was warranted. But a few other things have been going on in Europe in the last week, so the second drop may not have anything to do with the investigation.

Put this at the top of your list of things that can go wrong at the annual meeting.
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I was at the CALI meeting to speak on How to Ruin a Presentation with PowerPoint. All the CALI presentations will be posted on YouTube, so I’ll let you know when links are available, if you want to see it or any of the other presentations.