Apparently, there is a split of opinion on what some people believe God wants the world to do about the climate. On one side, Senator Jim Inhofe does not believe the man is responsible for climate change. He has publicly stated that, “[T]he Genesis 8:22 that I use in there is that ‘as long as the earth remains there will be seed time and harvest, cold and heat, winter and summer, day and night.’ My point is, God’s still up there. The arrogance of people to think that we, human beings, would be able to change what He is doing in the climate is to me outrageous.” When I mentioned this quote to a European audience at a conference on climate change and business in 2013, there was an audible gasp. He also wrote a 2012 book, The Greatest Hoax: How the Global Warming Conspiracy Threatens Your Future. His position did not change after the 2013 Intergovernmental Commission on Climate Change Report definitively declared that climate change was largely man made. This would all be irrelevant if Senator Inhofe wasn’t the Chair of the Senate committee that oversees the environment. Inhofe was the keynote speaker last week at the Heartland Institute’s annual conference on climate change (watch the video clip in the article in which the Catholic Church and the Pope get special mention).

On the other side of the debate, Pope Francis will enter the fray with a new Encyclical on climate change next week, and it’s expected to have some influence on upcoming UN talks on the subject. Many US politicians argue that the Pope should “mind his own business” and stick to issues that affect the poor and the faithful around the world. Climate change is actually directly related to the ability of poor people to gain access to water, grow crops, and avoid natural disasters, and thus I would argue that this is the Pope’s “business.” It’s also Senator Inhofe’s business as he’s allegedly received over $1.7 million from the oil and gas industry over his career.

Although oil and gas companies have contributed to Senator Inhofe, a number of them have already tried to be proactive in their CSR reports and other marketing efforts. The tide may be turning against climate change deniers. Norway’s $900 billion sovereign wealth fund just divested from 122 fossil fuel companies ($945 million), and that fund was largely financed by Norway’s oil wealth. In any event, I look forward to reading the Pope’s comments and seeing how foreign governments and US businesses respond to it.

 

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Mosaic Dialogue Series
13D Filing Requirements: Time is of the Essence

There has been significant controversy surrounding the required disclosures by investors acquiring a 5% stake in public companies. Under current law, investors must disclose ownership of 5% or more within 10 days. Many issuers are in favor of shortening this disclosure window, with some favoring reporting as soon as one business day after the 5% threshold is crossed. They argue that the 10 day reporting lag deprives the market of material information and can facilitate market manipulation. Shareholders argue that shortening the disclosure window effectively allows issuers to set a ceiling on the number of shares an activist may acquire. Furthermore, at some companies, a poison pill can be triggered if the 5% threshold is crossed, preventing additional accumulation of shares by an activist investor.

Should the current 13D filing requirements be amended? Does the 10 day lag result in activists obscuring their actions? Would shortening the window assist issuers in preventing accumulation of shares by investors seeking change? Join us as we answer these questions and others on this important and timely topic.

Speakers:

Andrew M. Freedman, Partner, Olshan Frome Wolosky, LLP
Kai Haakon E. Liekefett, Partner, Vinson & Elkins

Moderator:

Joan MacLeod Heminway, W.P. Toms Distinguished Professor of Law, The University of Tennessee

Tuesday, June 23rd, 3:30pm EDT
To register, click here.

 

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Corporate Governance is a Key Driver of Shareholder Returns

Oregon has done those interested in social enterprise a great service by posting a list of their benefit companies online. Oregon also has a nice page about becoming an Oregon benefit company.

By my count, the version updated 6/3/15, lists the following number of entities (for a total of 500 benefit companies):

  • 1 professional benefit corporation 
  • 74 benefit corporations 
  • 425 benefit LLCs

Oregon is one of a very few states that provides for the formation of benefit LLCs, in addition to benefit corporations. As you can see, the benefit LLCs are a good bit more popular than the benefit corporations, likely because most social enterprises are small, closely-held entities that should probably be LLCs instead of corporations.  

LLC law is generally flexible enough to allow a social purpose and Oregon’s corporation law expressly allows corporations to be formed for a social purpose, so the main draw seems to be branding/signaling based rather than law based.

These are still relatively small numbers in the grand scheme, but it was a fairly short time ago that there were fewer than 500 total benefit companies nationwide.    

Cuba has been in the news a lot lately. I’ve just returned from ten days in Havana so I could see it first hand both as a person who writes on business and human rights and as an attorney who consults occasionally on corporate issues. The first part of the trip was with the International Law Section of the Florida Bar. The second was with a group of art lovers. I plan to write two or three blog posts about the prospects of doing business in Cuba if and when the embargo is lifted. Because I do some consulting work, I want to make clear that these views are my own as an academic and should not be attributed to anyone else.

In this post I will just briefly list some basic facts about Cuba and foreign investment. Next week I will talk a bit more about investment, introduce the Cuban legal system, and talk about some of the business and compliance challenges. That’s the subject of my research this summer. The following week I will address human rights in Cuba and how various governments and businesses are addressing those issues, the subject of another article I am working on. 

Some Cuba basics:

  • The island has 11 million people
  • The average monthly wage is $25-45 per month
  • The government is just starting to develop a comprehensive tax code
  • The government is now allowing the sale of private property but the concept of mortgages is undeveloped
  • 86% of people work for the government in some form but the government is now allowing “self employment” and cooperatives (small private businesses such as agricultural farms, salons, and restaurants)
  • 5% of population has access to internet or a cell phone
  • The government is seeking foreign investment- except in health, education, or military sectors
  • Cuba is not an OECD member state. It does sit on the UN Human Rights Council
  • The GDP is 62.7 billion
  • The literacy rate is 99.8% and the country scores high on the human development index
  • The country is in the middle of the pack in terms of the Corruption Perception Index, which measures bribery
  • There are now over 60 bilateral investment treaties in place but they are not all in force
  • Most lawyers and law firms work for the Cuban government

There are now three possible methods of international investment:

1)  International Economic Association Contract (AEI). 49% of the companies in the 2015 registry are AEIs. This is a contract that does not create a new company and there is no sharing of profits. Certain changes of parties require government approval;

2) Full Foreign Capital Company. This is almost never approved but the foreign company has total control of the enterprise; and

3)  Joint venture with the Cuban government. These are 45% of the companies in the 2015 registry. Often the hotels and other EU businesses are JVs with the government.

In the preamble to Cuba’s 2014 Laws on Foreign Investment (LFI), the Cuban National Assembly makes clear that the underlying basis for the law is: “Cuba’s need to provide greater incentives to attract foreign capital, new technologies, and know-how to increase domestic production and better position Cuba to export to international markets.”  The new law halves the profits tax from 30 to 15% and exempts investors from paying it for eight years. But the new law also appears to withhold many of the tax benefits from companies that are 100% foreign-owned.

Although Cuba changed its law last year, many people believe that Cuba is not ready for investment. Clearly rule of law concerns and the lack of infrastructure are real barriers. I’ll give more of my opinion on compliance and investment challenges and opportunities next week.

 

 

Last week, I attended the National Business Law Scholars Conference at Seton Hall University School of Law in Newark, NJ.  It was a great conference, featuring (among others) BLPB co-blogger Josh Fershee (who presented a paper on the business judgment rule and moderated a panel on business entity design) and BLPB guest blogger Todd Haugh (who presented a paper on Sarbanes-Oxley and over criminalization).  I presented a paper on curation in crowdfunding intermediation and moderated a panel on insider trading.  It was a full two days of business law immersion.

The keynote lunch speaker the second day of the conference was Kent Greenfield.  He compellingly argued for the promotion of corporate personhood, following up on comments he has made elsewhere (including here and here) in recent years.  In his remarks, he causally mentioned B corporations and social enterprise more generally.  I want to pick up on that thread to make a limited point here that follows up somewhat on my post on shareholder primacy and wealth maximization from last week.

Continue Reading Random Thoughts on the Beneficiaries of Corporate Board Decision Making

Courtesy of AALS Section on Securities Regulation Chair Christine Hurt:

Call for Papers

AALS Section on Securities Regulation – 2016 AALS Annual Meeting

January 6-10, 2016 New York, NY

The AALS Section on Securities Regulation invites papers for its program on “The Future of Securities Regulation: Innovation, Regulation and Enforcement.”

TOPIC DESCRIPTION: This panel discussion will explore the current trends and future implications in the securities regulation field including transactional and financial innovation, the regulation of investment funds, the intersection of the First Amendment and securities law, the debate over fee-shifting bylaws, the ever-expanding transactional exemptions including under Regulation D, and judicial interpretations of insider trading laws. The Executive Committee welcomes papers (theoretical, doctrinal, policy-oriented, empirical) on both the transactional and litigation sides of securities law and practice.

ELIGIBILITY: Full-time faculty members of AALS member law schools are eligible to submit papers. Pursuant to AALS rules, faculty at fee-paid law schools, foreign faculty, adjunct and visiting faculty (without a full-time position at an AALS member law school), graduate students, fellows, and non-law school faculty are not eligible to submit. Please note that all faculty members presenting at the program are responsible for paying their own annual meeting registration fee and travel expenses. NOTE FURTHER, AALS has announced reduced registration fees for junior faculty for the 2016 conference.

PAPER SUBMISSION PROCEDURE: Up to four papers may be selected from this call for papers. There is no formal requirement as to the form or length of proposals. However, more complete drafts will be given priority over abstracts, and presenters are expected to have a draft for commentators two weeks prior to the beginning of the AALS conference.

Papers will be selected by the Section’s Executive Committee in a double-blind review. Please submit only anonymous papers by redacting from the submission the author’s name and any references to the identity of the author. The title of the email submission should read: “Submission – 2016 AALS Section on Securities Regulation.”

Please email submissions to the Section Chair Christine Hurt at: hurtc@law.byu.edu on or before August 21, 2015.

Recently, I received notice of the following call for papers from the French association of Law Professors in Business Schools – the Association des Professeurs de Droit des Grandes Ecoles (“APDGE”).  The theme of the conference is “Governance and Compliance in Companies: Constraints or Opportunities.” Additional information is available below and at the conference website:

——————-

TBS PDD

 3rd Conference of the Association of Law Professors of Les Grandes Ecoles/Business Schools, organized by Toulouse Business School

 

CALL FOR PAPERS

“Governance and Compliance in Companies: Constraints or Opportunities?”

December 3-4, 2015 – Toulouse Business School

Toulouse, France

Conference Website: http://www.tbs-education.fr/en/apdge-conference/

 

The taking into account of new legal rules (whether in Company Law, Banking Law, Tax Law, Environmental Law, Employment Law, Consumer Law, Digital Law, or in other fields of Law), involves increased attention to Governance and Compliance by companies, as well as by research professors.   The position of Chief Compliance Officer has become widespread within major companies, as have charters, codes of good conduct and codes of good governance.  Consequently, it is appropriate to look at Governance and Compliance in companies and to investigate whether or not they form constraints or opportunities for companies.    To what extent does the appearance of new legal and regulatory provisions represent new constraints for companies? On the contrary, may opportunities be detected in these practices in order to deal with upheavals in the Law?  What skills are necessary for lawyers in this new environment?  What are the roles of soft law and of Corporate Social Responsibility (CSR) in this context?

These two research days propose to focus discussion on constraints and opportunities for companies in the development of the new rules and practices of Governance and Compliance.

This Call for Papers seeks to explore the following questions (as illustrations, not limitations):

  • The links between Governance and Compliance, on the one hand, and Corporate Social Responsibility (CSR), on the other hand;
  • Programs to be put in place for a better compliance;
  • The role of lawyers  in Governance and Compliance;
  • Opportunities for good Governance and proper Compliance  for companies;
  • The impact of foreign laws on Governance (for example, the Sarbanes-Oxley Act);
  • The legal risks in a breach of compliance;
  • Legal monitoring and anticipation of new legal and regulatory constraints;
  • Government procurement and a company’s history of Compliance ;
  • The interface between internal control (internal auditing, reporting, etc.) and the Law;
  • The legal challenges of whistleblowing;
  • The strategic role of Compliance;
  • The interface between company lawyers, external advisors and operational staff in Governance and Compliance;
  • The theory of groups of parent companies or subsidiaries and Compliance;
  • Control of the chain of sub-contractors and subsidiaries and Compliance;
    • Analysis of the effectiveness of soft law in Compliance;
    • Investors and Governance;
    • The comparative study of Governance. 

A publication of the best papers is foreseen.

Key Dates

Proposals: June 30, 2015

Full Text: September 1, 2015

Author Notification by the Scientific Committee: October 12, 2015

[More information after the break]

Continue Reading APDGE Conference │ Toulouse, France │ December 3-4, 2015

My recent scholarship (e.g., Outside Investor & Retirement Revolution) has focused on retirement and institutional investors. On the retirement investor side, I frequently address the impact that fees have on retirement investment returns, in part, as a critique of the opacity and lack of choice in the defined contribution plans (i.e., 401K and 457 plans). A focus on fee reduction (as well as simple diversification) has driven growth in the index and electronically-traded (ETF) funds, which charge lower fees because they are passively managed.  These simple lessons in finance are not just relevant to the individual investor.  Earlier this week, CalPERS announced that it would cut fund management fees by reducing (nearly in half) the number of active fund managers overseeing the investment of its over $300 billion in assets.  The New York Times reported that:

Eliminating some external managers will help Calpers shore up its investments by reducing fees. Last year, it paid $1.6 billion in management fees, $400 million of which was a one-time payment for its real estate managers, a Calpers spokesman said.

With larger pools of assets shifted to the remaining asset managers, CalPERS should have more leverage to demand lower fees and cost savings of the chosen few.  CalPERS, as a leader in the pension world, may pave the way to increased pressure on Wall Street fees by other pension funds.

Additional coverage on the shift is available at the Wall Street Journal and at NPR.   

-Anne Tucker

Exam time has come and gone and grades are filed. I have never had any trouble, as far as a I know, with cheating in my exams.  My expectation is that most problems arise from plagiarism in writing assignments.   There may be people trying to cheat on my exams, I suppose, but I am not sure it would prove helpful.   I change my exams and take steps to try to make the exam as fair possible, so that cheaters, should there be any, can’t get much of an advantage.  

I was interested to see the report that China took proctoring to new heights this week, according to a news report in The Guardian, China deploys drones to stamp out cheating in college entrance exams:

Authorities in China are employing surveillance drones in an effort to stamp out cheating in college entrance exams.

But this year officials have unleashed a six-propeller drone, flown over two testing centres in Luoyang in Henan province on Sunday – the first day of the exam – to scan for signals being sent to devices which may have been smuggled in. No such signals were detected, local reports said.

I suppose it makes sense to add enforcement mechanisms, especially with the stake so high for the exams.  Drones sure make my walking of the aisles seems a little outdated. 

Apparently some employers are taking steps to combat cheating, too.  Potknox, a cloud-based online assessment tool, is used by some employers to screen applicants. According to the Potknox Blog, here, there are ways to combat cheaters. Among other things, the program can take random pictures of the test-taker (which can catch them on the phone) and random screenshots (checking Wikipedia).  

Law schools that use exam software can lock out the internet, which can help limit such things, though I wonder just how much smartphones have changed the game.  I have never caught anyone looking at a phone during an exam, but these days, one could get a basic definition of the business judgment rule or the Howey Test pretty quickly, I suppose. I’d be shocked if anyone could cheat their way to a high grade on my exams, but one who is struggling might find it useful to get by.

I’ll have to give some thought about other ways to catch cheating. I have almost no interest in catching cheaters, because that’s awful for everyone.  However, I have zero interest in sending people out into the legal profession who would do such a thing, so I’ll keep looking.