This just in from Steven Davidoff Solomon:

Berkeley is looking to fill a one-year (possibly w/renewal) research fellowship position at the Berkeley Center for Law, Business, and the Economy.  Looks like  great opportunity for some of our readers.  Early applications are encouraged, so get right on it!

 

I serve on the Tennessee Bar Association Business Entity Study Committee (BESC) and Business Law Section Executive Committee (mouthfuls, but accurately descriptive).  The BESC was originated to vet proposed changes to business entity statutes in Tennessee.  It was initially populated by members of the Business Law Section and the Tax Law Section, although it’s evolved to mostly include members of the former with help from the latter.  The Executive Committee of the Business Law Section reviews the work of the BESC before Tennessee Bar Association leadership takes action.

Just about every legislative session of late, these committees of the Tennessee Bar Association have been asked to review proposed legislation on benefit corporations (termed variously depending on the sponsors).  A review request for a bill proposed for adoption for this session recently came in.  Since I serve on both committees, I get to see these proposed bills all the time.  So far, the proposals have pretty much tracked the B Lab model from a substantive perspective, as tailored to Tennessee law.  To date, we have advised the Tennessee Bar Association that we do not favor this proposed legislation.  Set forth below is a summary of the rationale I usually give.

Continue Reading Benefit Corporations: What am I Missing–Seriously?

Seitz

The Chancery Daily reports that Governor Markell has nominated Collins “C.J.” Seitz, Jr. to the Delaware Supreme Court. The January 31, 2015 retirement of Justice Henry duPont Ridgely created the vacancy.

C.J. Seitz, Jr. has over thirty years of corporate/commercial/IP litigation experience and is a respected, influential member of the Delaware bar. He has also served as mediator, arbitrator, or special master in numerous cases.  He currently serves as a founding partner of Seitz Ross Aronstam & Moritz LLP.

I’m a big fan of Ernest Hemingway. I love his writing style. I’m currently rereading all of his novels, and I ran across a quote that I think every lawyer and law professor should read and take to heart.

I don’t think Hemingway was a fan of lawyers. The only lengthy portrayal of a lawyer in his fiction is in To Have and Have Not, and that lawyer is a crooked, double-crossing sleaze. I’m reasonably sure he never wrote or said anything specifically about legal writing. But the following passage from The Garden of Eden captures the essence of good legal writing:

Be careful, he said to himself, it is all very well for you to write simply and the simpler the better. But do not start to think so damned simply. Know how complicated it is and then state it simply.

No legal writing instructor could have said it better than Papa.

One of the enduring debates in corporate law concerns whether shareholder empowerment promotes short-termism – i.e., temporary boosts in stock prices that can only be achieved at the expense of longer-term value-building projects, like research and development.  Related to this debate is the argument – championed by, among others, Margaret Blair and Lynn Stout – that directors cannot/should not be solely concerned with shareholder wealth maximization; instead, their role is to mediate among various firm stakeholders.  This is because a firm cannot thrive unless it offers a credible commitment to its employees and other corporate constituents  that they will not be ousted the moment it appears profitable to do so.  In other words, in order to induce employees and other stakeholders to invest valuable human capital in the firm, these actors must believe that the firm is committed to them – that shareholders are barred from, for example, insisting on downsizings or outsourcings or what-have-you the moment it appears that doing so will create a share price bump. 

Martijn Cremers and Simone Sepe weigh in on this debate in a new paper, Whither Delaware? Limited Commitment and the Financial Value of Corporate Law(summarized here), where they conclude that protections for incumbent management – in the form of strong antitakeover statutes – are associated with higher firm values, in firms where long-term commitment is particularly necessary for profitability.  In particular, they classify Delaware as a state where antitakeover protections are not strong, and find that incorporation in Delaware reduces firm value for companies that rely on long-term relationships, as compared to states where antitakeover protections are stronger.  The basic idea here is that when management is insulated from shareholder pressures and the market for corporate control, management can more credibly commit to longer term projects and relationships that may not be immediately profitable.

The findings are, of course, extremely interesting and merit further analysis, but I have some difficulty with the premise that underlies their study, namely, that Delaware’s antitakeover protections are weaker than those in the comparator states.  Most obviously, one of the ways that the study classifies a state as “managerial” is if it has a business combination statute that prohibits transactions between an acquirer and target for 5 years.  While it’s true that Delaware’s antitakeover statute is not quite as draconian – Delaware prohibits combinations for only 3 years as opposed to 5, and can be avoided if the acquirer increases its holdings from under 15% of the target to 85% in a single tender offer – the reality is, as has been documented elsewhere, Delaware’s antitakeover law is more than sufficient to block hostile acquisitions. 

Given that, antitakeover statutes that are even more extreme than Delaware’s because they include a 5 year limitation instead of a 3 year one are gilding the lily;  it’s  not clear why firms incorporated in those states should offer any more of a credible commitment to long-term stakeholders than firms incorporated in Delaware.  And by my count, the study classifies 10 states as “managerial” based solely on this criterion, including New York and New Jersey.*

Additionally, the study is based on an analysis of firm value before and after reincorporation – in and out of Delaware, or in and out of the comparator states.  But most reincorporations are associated with particular transactions that can be expected to affect firm value (a point which has been used to criticize post-reincorporation-value studies in the past, as Cremers and Sepe acknowledge in their paper).  So I have to wonder whether there are some other factors that are driving the reincorporations and the selection of jurisdiction, and those other factors are having the observed effect.

 

*32 states have business combination statutes along these lines, making it even more unlikely that the 10 states identified as “managerial” according to this criterion (i.e., based on the 5 year rather than 3 year limit) actually offer any special signaling value regarding management’s long-term commitments.

I have just finished a draft of an article arguing that disclosures don’t work because consumers and investors don’t read them, can’t understand them, don’t take any real action when they do pay attention to them, and fail to change corporate behavior when they do threaten boycott. I specifically pointed out the relative lack of success of consumer protests over the years. I also noted that Wal-Mart continues to get bad press for how it treats its employees despite the fact the Norwegian Pension Fund divested hundreds of millions of dollars due to the company’s labor practices, prompting other governments and cities to follow. My thesis—it takes a lot more than divestment and threats of boycott to change company behavior. But perhaps I’m wrong. Yesterday, Wal-Mart CEO Doug McMillon announced a significant wage increase declaring:

We’re strengthening investments in our people to engage and inspire them to deliver superior customer experiences… We will earn the trust of all Walmart stakeholders by operating great retail businesses, ensuring world-class compliance, and doing good in the world through social and environmental programs in our communities.

The letter to Wal-Mart associates is here. I don’t know which was more striking, the $1 billion dollar move to $9 and then eventually $10 per hour or the fact that he used the word “stakeholders.” Wal-Mart also announced changes that would affect health insurance and shift scheduling, but the main headline concerned the wage hike. Main Street may be happy but Wall Street was not, and the stock price fell after the announcement. Others pointed out that the pay raise is still not enough to pull workers out of poverty.

Does this move mean that boycotts and advocacy really do work and that we will see more of them? Do I have to edit my article or will this be an anomaly? Will other big retailers or fast food chains follow? Will socially responsible investors reinvest in Wal-Mart? Is Wal-Mart trying to pre-empt government regulation on the minimum wage? Is Wal-Mart signaling to regulators in foreign countries that it cares about workers so should be allowed to operate there more freely? 

I will be teaching a course in transnational business and international human rights in the Fall and Wal-Mart will be a case study. A few years ago, I used the company’s CSR report in my corporate governance, compliance, and social responsibility seminar.  I asked the students to consider why Wal-Mart’s report looked and felt so different from Target’s, which essentially has many of the same labor issues. I wanted them to think about the marketing behind CSR from a reputational and regulatory perspective. I posited that Wal-Mart’s CSR report was written for regulators. Two weeks later, the company announced its massive and still ongoing bribery investigation. I’m happy for the workers but a bit curious as to what caused the company to make this announcement now. In the meantime, I will be watching the reaction from advocates, the markets, and other companies closely.  

Joan Heminway and I must be thinking similar thoughts because before I even saw her helpful post on business law jobs, I asked my former research assistant Samuel Moultrie to share his thoughts and advice on finding legal employment in this economic environment.

Sam is one of the hardest workers I know and took his job search seriously. He also took a big risk by going beyond the typical employers we had recruiting on campus when we were at Regent Law – mostly non-profits, government agencies, and a few VA and NC law firms. Sam wanted to practice in the state that has the greatest influence on U.S. corporate law and has made it happen. His journey was not and is not easy, but I thought his story might be inspiring. Recently, Sam was also selected as a 2015 Leadership Delaware Fellow. Sam’s thoughts on finding legal employment are reproduced below. 

———————————–

By: Samuel L. Moultrie

The job market for recent law school graduates is, without a doubt, miserable.  While the statistics seem to vary, I think it is safe to say that the supply of new law school graduates exceeds the number of legal job openings.  Nevertheless, graduates should not lose all hope.  Any law school graduate can find a job, if they are motivated, willing to work hard, and take steps to distinguish themselves. 

[More after the break]

Continue Reading Moultrie on Legal Employment

My colleague at Georgia State, Cass Brewer, posted on SOCENT (social enterprise) Law, an update to his incredibly useful social enterprise map.  On this blog and in other fora, I have discussed with many of you teaching BA whether you cover social enterprises and, if so, to what extent.  This is a great resource if you do anything in the area.  

How cool is this?

 

-Anne Tucker