On June 5, 2014, SEC Commissioner Dan Gallagher commemorated the agency’s 80th anniversary by, among other things, repeating the criticisms of the various nonfinancial disclosures that companies are compelled to make by law or asked to make through shareholder proposals. In his view, “companies’ disclosure documents are being cluttered with non-material information that can drown out or obscure the information that is at the core of a reasonable investor’s investment decision.  The Commission is not spending nearly enough time making sure that our rules elicit focused, meaningful disclosures of material information.” I assume that he is referring to the various environmental, social and governance proposals (“ESG”) brought by socially responsible investors and others. I’m writing this blog post while taking a break from reviewing dozens of these proposals for an article that I am writing on how consumers and investors evaluate ESG disclosures and those required in other countries in the human rights context.

Citing Chair White’s quote about “information overload,” last week the US Chamber of Commerce’s Center for Capital Markets Competitiveness released a list of relatively non-controversial recommendations on how the SEC can modernize the current disclosure regime so that it can better serve the investing public. For a great discussion of what led to this latest round of disclosure reform see here. Some of the recommendations concern items that technology can handle. Others concern repetition and relate to factors that the SEC does not require but are there to avoid litigation. The report, entitled “Corporate Disclosure Effectiveness: Ensuring a Balanced System that Informs and Protects Investors and Facilitates Capital Formation,” focuses on near-term improvements to Regulation S-K that the Chamber believes would likely garner widespread support. The report also discusses longer-term proposals, but does not discuss in any detail the kinds of issues that Chair Gallagher and others raise. You can also watch an entire webcast of the panel discussion releasing the report featuring, among others, two former SEC Commissioners, current SEC Director of the Division of Corporate Finance Keith Higgins, and issuers counsel, including my former colleague from Ryder, Flora Perez, here (start at minute 19:45).  

Full disclosure– I was part of the working group that reviewed some of the recommendations and gave comments before the report’s release, and while I also oppose the conflict minerals disclosure because I don’t think it should be within the SEC’s purview and didn’t take into account some of the realities of the modern supply chain, I don’t have a complete aversion to corporate disclosure of ESG or other risk factors to investors and the public. The who, what, why, how, where and when are the key questions.

Below is a list of all of the recommendations for reform taken directly from the Chamber’s one-pager:  

Near Term Improvements:

 The requirement to disclose in a company’s Form 10-K the “general development” of a business, including the nature and results of any bankruptcy, acquisition, or other significant development in the lifecycle of a business (Item 101(a)(1) of Regulation S-K)

 The requirement to disclose financial information for different geographic areas in which a company operates (Item 101(d) of Regulation S-K)

 The requirement to disclose whether investors can obtain a hard copy of a company’s filings free of charge or view them in the SEC’s Public Reference Room (Items 101(e)(2) and (e)(4) of Regulation S-K)

 The requirement to describe principal plants, mines, and other materially important physical properties (Item 102 of Regulation S-K)

 The requirement that companies discuss material legal proceedings (Item 103 of Regulation S-K)

 The requirement to disclose which public market a company’s shares are traded on and the high and low share prices for the preceding two years (Items 201(a)(1)(i), (ii), (iii), and (iv) of Regulation S-K)

 The requirement to disclose the frequency and amount of dividends for a company’s stock during the preceding two years (Item 201(c) of Regulation S-K)

 The requirement to display a graph showing the company’s stock performance over a period of time (Item 201(e) of Regulation S-K)

 The requirement to disclose any changes in and disagreements with accountants (Item 304 of Regulation S-K)

 The requirement to disclose certain transactions with related parties (Item 404(a) of Regulation S-K)

 The requirement to disclose the ratio between earnings and fixed charges (Item 503(d) of Regulation S-K)

 The requirement to file certain exhibits (Item 601 of Regulation S-K)

 The requirement to disclose recent sales of unregistered securities and a description of the use of proceeds from registered sales (Item 701 of Regulation S-K)

Longer Term Improvements:

 Compensation Discussion & Analysis (CD&A)

 Management’s Discussion and Analysis (MD&A)

 Repetition

 Risk Disclosure

 A Revised Delivery System

Take a look at the list, read the report which describes the Chamber’s rationale, and if you have time watch the webcast, which provides some real-world context. What’s missing from the list? What shouldn’t be on the list? Have you seen anything in your practice or teaching that could inform the debate? I look forward to seeing your feedback on this site or via email at mnarine@stu.edu

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Last week on this blog, I wrote about the revived trend of corporate inversions where, through a merger transaction a US company re-domiciles outside of the US for business reasons, including the desire to avoid paying US corporate taxes.  Walgreens was rumored to be negotiating with Alliance Boots, a UK company in which the US drugstore chain already held 45%.  The merger announcement today, in a deal valued at $5.27 billion for the other 55% of Alliance Boots will keep the merged company’s headquarters in Chicago.   Citing, in part to public reaction and the drug store’s brand here in the US, “The company concluded it was not in the best long-term interest of our shareholders to attempt to re-domicile outside the U.S.”

The full article in the DealBook is available here.

-Anne Tucker

This doesn’t have a lot to do with Business Law, though I would submit there’s a lot to be learned from reading outside the field.  Now that I live in West Virginia, and my wife suggested I read it, I propose: Bill Bryson, A Walk in the Woods: Rediscovering America on the Appalachian Trail, which seemed appropriate for a summer read.  She was right.  So far, it’s great.  I recommend it, and to support my claim, here’s a few quotes to tease you: 

“I know a man who drives 600 yards to work. I know a woman who gets in her car to go a quarter of a mile to a college gymnasium to walk on a treadmill, then complains passionately about the difficulty of finding a parking space. When I asked her once why she didn’t walk to the gym and do five minutes less on the treadmill, she looked at me as if I were being willfully provocative. ‘Because I have a program for the treadmill,’ she explained. ‘It records my distance and speed, and I can adjust it for degree of difficulty.’ It hadn’t occurred to me how thoughtlessly deficient nature is in this regard.” 
….

“Black bears rarely attack. But here’s the thing. Sometimes they do. All bears are agile, cunning and immensely strong, and they are always hungry. If they want to kill you and eat you, they can, and pretty much whenever they want. That doesn’t happen often, but – and here is the absolutely salient point – once would be enough.” 

Happy reading!

The New York Times spotlighted Michigan State’s Reinvent Law Laboratory and Entrepreneurial Startup Competition in this article.

“[P]ushing its students to understand business and technology so that they can advise entrepreneurs in coming fields. The school wants them to think of themselves as potential founders of start-ups as well, and to operate fluidly in a legal environment that is being transformed by technology.”

The article also highlights University of Colorado’s Tech Lawyer Accelerator.

Fascinating stuff.  What is your school doing, if anything, on this front?

-Anne Tucker

Many of us are in the process of (perhaps frantically) wrapping up our summer scholarly activity and re-focusing our primary professional attention on teaching.  As always, I am using the annual conference sponsored by the Southeastern Association of Law Schools (SEALS) to help me make this transition.  Yesterday, I attended a discussion session led by law school associate deans and faculty who focus on faculty development–scholarship and teaching.  It was an incredibly interesting and wide-ranging discussion.

Part of the conversation centered around summer research stipends, a topic that has been in the national news a bit over the past few years.  Various participants in the discussion session addressed, each from his or her individual institution’s vantage point, the reasons for/purposes of summer research stipends (which not every school represented at the session currently has) and how summer stipends actually work or should/could optimally work.  I was surprised by the variations in approaches and ideas from school to school.  While the individual models are too numerous to capture here, I summarize below the fold some of the top-level points made and thoughts shared during the discussion.

Continue Reading Law Faculty Summer Research Stipends: Why and How?

One of the reasons you read this blog is to keep up with developments related to business law and to read commentary on those developments. But how do we, the editors of this blog, keep up with new developments ourselves? What blogs and other sources do we follow?

I realize that, as a law professor, I probably have both more time and perhaps a greater professional obligation to keep up with law-related events and scholarship. And what I read is necessarily idiosyncratic, dependent in part on my particular interests and foibles. For some unknown reason, not everyone is interested in the latest from the SEC’s Division of Investment Management. And individual tastes vary; commentators I find interesting and informative, you might find banal, and vice versa.

But, with those disclaimers, here’s my list, for what it’s worth. I have divided it into four categories: blogs and RSS feeds, subscription services, daily news, and print resources. (Remember print? Those non-electronic things we used to hold in our hands.) I hope you’ll find something useful.

Blogs and RSS Feeds

To begin, let me admit that this list is incomplete. I only read blogs that offer RSS feeds. If they won’t deliver it to me, I’m too lazy to seek it out. Second, the order here means nothing; they’re in the order in which they appear on my RSS reader. I was too lazy to alphabetize. (Beginning to notice a theme?)

General Law

Wall Street Journal: Law Blog
Brian Leiter’s Law School Reports
Concurring Opinions
Legal Scholarship Blog
Lowering the Bar
Overlawyered
PrawfsBlawg
TaxProf Blog (The non-tax feed only. No tax; I’m not a masochist.)
Volokh Conspiracy

Corporate and Securities Law

SEC Materials (The list of RSS feeds is here.)

Press Releases
Division of Investment Management News
SEC.Gov Updates: Proposed Rules
SEC.gov Updates: What’s New in the Division of Corporation Finance

SEC Actions
FINRA Newsroom
Business Law Prof Blog (Of course! You should read each post 2-3 times a day.)
CLS Blue Sky Law Blog
Conglomerate
Delaware Corporate and Commercial Litigation Blog
The Conference Board Governance Center Blog
M&A Law Prof Blog
ProfessorBainbridge.com
Securities Law Prof Blog
The D&O Diary
Harvard Law School Corporate Governance Blog
The Venture Alley
The Race to the Bottom
Truth on the Market

Economics and Accounting

Carpe Diem
Freakonomics
Greg Mankiw’s Blog
Marginal Revolution
The Summa

Business

Business Week.com:

Finance
Small Business
Technology
Top News
Tech Beat
The New Entrepreneur

The Economist (All of its RSS feeds are available here.):

Books and Arts
Business
Finance and Economics
Science and Technology
Special Reports
United States

CNN Money.com: Business and Financial News
Forbes:

Business
Entrepreneurs

Inc.com
Small Business Trends
Harvard Business Review
Robert Salomon’s Blog
Under30CEO

Education

CALI (Center for Computer-Assisted Legal Education) Spotlight
Best Practices for Legal Education
Law School Innovation
Educause Review
Foundation for Individual Rights in Education
Inside Higher Education:

Blog U
News
Views

General News and Opinions

Just to be complete, here are the other RSS feeds I receive that don’t directly relate to what I post on this blog: the Daily Dilbert, Boing Boing, Lifehacker, Slate Magazine, Mental Floss, Reason Magazine, TEDTalks, Wired Top Stories, Dave Barry’s Blog, and NASA Astronomy Picture of the Day. Most of those are guilty pleasures, but all of them except for the NASA picture of the day have at one time or another provided me with something to use professionally. Someday I will find a way to use one of the NASA pictures in class. (I don’t think the the Milky Way picture with the “you are here” arrow that I posted on my office door really counts as academic use.) I also subscribe to some local news feeds, but I doubt many of our readers have any interest in Nebraska or Nebraska football, so I’ll leave those out. (Go Huskers!)

Subscriptions

I also have email subscriptions to a number of Bloomberg BNA daily and weekly reports: Broker-Dealer Compliance; Corporate Law & Accountability;  Mergers & Acquisitions Law; Securities Law; U.S. Law Week; and White Collar Crime. I also receive two weekly updates provided by Practical Law: Corporate and Securities; and Finance. I also receive a couple of daily reports offered by the Chronicle of Higher Education: Wired Campus and Academe Today. All of these require a paid subscription, unfortunately.

But the best place to keep up with cutting edge legal scholarship is on SSRN, the Social Science Research Network. As I noted in an earlier post, most articles are posted on SSRN long before they are published in print. SSRN offers a number of “e-journals” that include abstracts of, and links to, these articles. I subscribe to the following SSRN e-journals:  Corporate and Financial Law: Corporate and Takeover Law: Interdisciplinary Approaches; Corporate Governance; Law and Finance; Law Educator: Courses, Materials & Teaching; Legal Education; Legal History; LLCs, Close Corporations, Partnerships, & Other Private Enterprises; Securities Law.

Just in case I miss something on SSRN, I also subscribe to SmartCILP, a listing of law review publications offered by the law library at the University of Washington. Unfortunately, it’s fee-based.

Daily News

Finally, I read the online versions of the Wall Street Journal (subscription required); the New York Times (limited access, but it’s easy to get around); and CNN.com, in addition to my local papers, on a daily basis. I also look at Google News from time to time.

Print Resources

Not all of my reading is online. I still read a few print journals that either don’t publish digitally or that our law library doesn’t have digital subscriptions to: the Business Lawyer; the National Law Journal; the American Lawyer; the Securities Regulation Law Journal; and the Review of Commodities and Securities Regulation. But, as I have mentioned earlier, most of my reading is now straight off the computer. Few print resources find their way to my in-box anymore.

What Am I Missing?

That’s it. It looks a little overwhelming, but it can’t be that bad because I don’t work that hard (remember the lazy theme above?) and I keep up with it.

I hate to throw out this question, because I really don’t want to add to my list. (Once again, not the parenthetical theme.) But if you regularly read something online that I’m missing, feel free to add it in a comment. And I’m also hoping my co-bloggers will chime in to add to the list.

(Correction: In an earlier version of this post, I implied that SSRN e-journal subscriptions are free. They generally are, for those with an institutional account, but many of them are fee-based if you don’t have an institutional account.)

Market efficiency is a concept used by economists to describe markets with certain theoretical characteristics.  For example, a “weak-form” efficient market is one where historical prices are not predictive of future prices, and therefore excess profits cannot be earned by using strategies based on historical pricing.  A “semi-strong” efficient market is one where public information is reflected in stock price to the point where it is impossible to earn excess returns by trading public information.

Market efficiency is also a legal concept, which, it must be said, only roughly tracks the economic definition.  In particular, in Section 10(b) litigation, an “efficient” market is one that absorbs information with sufficient speed and thoroughness to justify allowing plaintiffs to bring claims using the fraud on the market theory to satisfy the element of reliance.

The exact degree of speed/thoroughness that’s required for Section 10(b) litigation is something of a theoretical muddle (as Donald Langevoort has written extensively about) – although the Supreme Court’s recent Halliburton decision may provide more guidance on that (see discussion here and here).

For now, though, most courts try to assess “efficiency” by reference to what are known as the Cammer factors, taken from the case of Cammer v. Bloom, 711 F. Supp. 1264 (D.N.J. 1989).  These factors include weekly trading volume (with higher volume taken as an indicator of efficiency), the number of analysts reporting on the security, the number of market makers, and the cause-and-effect relationship between the disclosure of new information, and changes in the security’s price.  Some courts also consider additional factors such as the size of the bid-ask spread and the number of institutional owners.

These factors have frequently been criticized as duplicative or uninformative.  See e.g.,  Geoffrey Christopher Rapp, Proving Markets Inefficient: The Variability of Federal Court Decisions on Market Efficiency on Cammer v. Bloom and its Progeny.  Some commenters have speculated that a few of the factors are counterproductive, and in certain markets might indicate less efficiency.  See, e.g.,  William O. Fisher, Does the Efficient Market Theory Help Us Do Justice in a Time of Madness? (2005).

There’s a new paper that tests this claim, and concludes that the commenters are right, and at least some of these factors really are counterproductive.

[More under the jump]

Continue Reading How can you tell if a market is efficient?

This year, I will be teaching undergraduate, MBA, and law students at Belmont University.  As an undergraduate professor, I often advise students considering law school.

I focus on helping prospective law students make an informed decision.  Formally or informally, I usually walk the students through a simple cost/benefit analysis.  Even with all the information about law schools out there now, most students still need some help navigating.    

Usually, I ask prospective law students a lot of questions, including at least some of the ones below.

If readers have constructive additions to my list, please e-mail me or leave a comment.  I am always trying to improve my advising. 

  • Why do you want to go to law school? (The student’s answer can be illuminating. Answers that are essentially – to please my parents or because I don’t know what else to do or because I want to get rich – should cause the student to think a bit harder. I think there is now enough data out there that students can see that there are much better avenues to getting rich than going to law school.)
  • Do you understand the total financial cost of going to law school? (See Law School Transparency).
  • Do you understand the opportunity cost of going to law school?  (There has been a lot written about the financial cost of law school, but the opportunity cost of law school is worthy of more attention. Even if a student receives a full scholarship, they are often giving up $120,000 or more in income over the three years of law school. Also, if the student does not enjoy law school (I enjoyed it, but many don’t) then they need to factor in the cost of three painful years.)
  • Do you understand the demands of the law school curriculum?  (Some weak students are simply not well prepared for the rigors of law school.)
  • Do you understand the educational benefits of law school? (While the value of learning to “think like a lawyer” has been called into question by some, critical thinking and writing skills are clearly useful.  Whether the benefits are worth the costs is a more difficult question.)
  • Do you understand the various career paths of a law graduate? (A number of the career paths taken by law graduates are possible without the costs of a law degree. (E.g., certain government work and many business positions.))
  • Do you understand what different types of lawyers do on a daily basis?  (Interning for a legal organization (if possible in this economic environment), or at least meeting with a handful of lawyers, can help students better understand what a career in law is actually like.  Far too many students get their thoughts on the life of a lawyer from TV shows and movies.)
  • Do you understand the bi-modal distribution of entry level lawyer salaries? (Surprisingly, despite valiant efforts of many, quite a few prospective law students are still not aware of the distribution of law graduate salaries).
  • Do you know the median salary of graduates of the schools you are looking at and what percentage of graduates actually land jobs as lawyers? (See school’s ABA disclosures, e.g., Berkeley Law).

The list is a bit over-focused on the financial side of law school and law practice.  Personally, I think finding a career that allows autonomy, mastery, and purpose is more important than finding a career that pays well, but finances should not be overlooked. 

These questions are for students who are still not 100% certain they want to go to law school.  Once they are informed, and decide that they do want to attend law school, I walk them through things like a proper understanding of the US News Rankings and the strengths and weaknesses of the schools they are considering.

Warning- do not click on the first link if you do not want to see nudity.

Dov Charney founded retailer American Apparel in 1998 and it became an instant sensation with its 20-something year old consumer base. He mixed a “made in America- sweatshop free” CSR focus with a very sexy/sexual set of ads (hence the warning- – when I first created the link, the slideshow went from a topless “Eugenia in disco pants in menthe” (seriously) to a shot of adorable children’s clothing in about 10 seconds).  No wonder my 18-year old son, who leaves for art school in two weeks, appreciates the ad campaigns. Most of his friends do too- both the males and females. In fact, he indicated that although they all know about the “sweatshop free” ethos, because “it’s in your face when you walk in the stores,” that’s not what draws them to the clothes. As a person who blogs and writes about human rights and supply chains, I almost wish he had lied to me. But he’s no different than many consumers who over-report their interest in ethical sourcing, but then tend to buy based on quality, price and convenience. I am still researching this issue for my upcoming article on CSR, disclosure regimes and human rights but see here, here, here and here for some sources I have used in the past.  My son’s friends–the retailer’s target demographic– appreciate that the clothes are “sweatshop free” but don’t make their buying decisions because of it. They buy because of the clothes and to a lesser extent, the ads.

The first time I ever really thought about the store was after a 2005 20/20 expose about Charney, who was accused of, among other things, sexually harassing and intimidating numerous employees.  At the time I was a management-side employment lawyer and corporate compliance officer and thought to myself “what a nightmare for whomever has to defend him.” It’s pretty hard to shock an employment lawyer, but the allegations, which continued until his ouster last month, were pretty egregious.  After over 10 years of lawsuits, the company terminated him for breaching his fiduciary duty, violating company policy, and misusing corporate assets.

Recently, American Apparel’s employment practices liability insurance rose from $350,000 to $1 million, I can only assume, because of his actions and not due to the other 10,000 company employees. The company has been sued repeatedly by the EEOC and not just for sexual allegations. Purportedly, the company, which has never traded above $7.00 a share and today is a steal at $.97, could not get financing from some sources as long as Charney was at the helm.

My son and his friends did not know about the termination or the harassment allegations over the years, but he says that the nature of the allegations could have caused some of his friends to stop and think about whether they wanted to patronize the stores. I have some 30-something friends who refuse to shop there. Could this be why the store chose to add a female director? As I explained to a reporter last week, the company shouldn’t need a female perspective to realize that the founder is, to put it mildly, a risk. And in fact, as studies cited by my co-blogger Josh Fershee noted earlier this week, being the “woman’s voice” may minimize her perceived effectiveness. Yes, it’s true that American Apparel took more decisive action than the NFL last week, as Joan Heminway observed, but what took them so long? Is it too little too late? Where was the general counsel when Charney allegedly refused to take his sexual harassment training, which is required by law in California every two years? Where were the other board members who allowed the settlement of case after case involving Charney? I have often found that some of the most vigilant supporters of women in the workplace, especially in harassment matters, are older males who have daughters and wives and who know what it’s like for them. When did the board worry about whether the CEO’s well-publicized alleged attacks on employees contradicted the heavy corporate responsibility branding? Did the board meet its Caremark duties?

Ironically, the company’s 10-K filed two months before his termination indicated that, “In particular, we believe we have benefited substantially from the leadership and strategic guidance of Dov Charney. The loss of Dov Charney would be particularly harmful as he is considered intimately connected to our brand identity and is the principal driving force behind our core concepts, designs and growth strategy.”

So at what point between April and June did Charney’s actions go off the scale on the enterprise risk management heat map? COSO, the standard bearer for ERM, encourages boards to focus on: what the firm is willing to accept as it pursues shareholder value; a knowledge of management’s risk management processes that have identified and assessed the most significant enterprise-wide risks; a review of the risk portfolio compared to the risk appetite; and whether management is properly responding to the most significant risks and apprising the board of those risks. Could such an objective risk assessment have even occurred with Charney (the risk) in the room? How could the company have the right tone at the top when the founder/CEO failed to comply with Code of Ethics Rule #2 –“service to the Company never should be subordinated to personal gain and advantage”? The stock price has been falling for years and the company has been struggling. Did the high rates to insure Charney’s conduct finally become too hot to handle? On the other hand, would the directors have made the same decision if the shares were trading at $97 instead of .97? Some shareholders are raising concerns too about why any of the original board members remain given the appalling financial performance.

The board now has a “suitability committee,” which will review the results of an independent investigation into Charney’s actions. Even if the report clears Charney and he’s brought back, the new independent directors will have a lot of questions to answer. The question of whether there is a woman on the board seems to be almost irrelevant given the history. For the record, even though the literature is mixed on the financial benefits of gender and racial diversity, I am a strong proponent of the diversity of viewpoints, particularly those that the underrepresented can bring to the table.

But this board needs to re-establish trust among its investors and funders and then focus on what any retailer should- potential supply chain disruptions, the impact of any immigration reform, currency fluctuations, and keeping their customer base happy and out of competitors H & M and Forever 21. The last thing they need to worry about is how to pay off the victims of their founder’s latest escapades.