I have posted the first rough draft of my latest project, “Corporate Social Responsibility & Concession Theory,” on SSRN.  Here is the abstract:

This Essay examines three related propositions: (1) Voluntary corporate social responsibility (CSR) fails to effectively advance the agenda of a meaningful segment of CSR proponents; (2) None of the three dominant corporate governance theories – director primacy, shareholder primacy, or team production theory – support mandatory CSR as a normative matter; and, (3) Corporate personality theory, specifically concession theory, can be a meaningful source of leverage in advancing mandatory CSR in the face of opposition from the three primary corporate governance theories. In examining these propositions, this Essay makes the additional claims that Citizens United: (A) supports the proposition that corporate personality theory matters; (B) undermines one of the key supports of the shareholder wealth maximization norm; and (C) highlights the political nature of this debate.

On Wednesday, the Supreme Court heard oral arguments in Halliburton Co. v. Erica P. John Fund, Inc., 13-317 (Halliburton II), where it was being urged to overturn, or curtail, the fraud on the market presumption approved in Basic, Inc. v. Levinson (1988).  Judging by the transcript, and as numerous reports indicated, it seems as though the Justices were attracted to the idea of tweaking Basic to require that plaintiffs prove the “market impact” of a particular false statement.  Most surprisingly, although this was the fallback position urged by the defendants, it was also endorsed by Malcolm Stewart of the Solicitor General’s office, who was nominally arguing on the plaintiff’s side.  Though one can never tell what will happen in the end, it does seem like this may be the direction in which the Court is headed – and if so, it could have significant implications for fraud-on-the-market cases in the future.

[More under the cut]

Continue Reading The Impact of Price Impact

Most professors I know are asked some version of the title question by their students on a relatively regular basis.

  • Will this be on the exam?
  • Will this in-class exercise be graded?
  • Will we get extra credit for this outside event you recommended?

When I was a student I may have asked some of these same questions, and as a professor, I gladly answer these questions.  For some reason, however, I have a silent, negative visceral reaction to these questions, and I know many other professors who feel similarly.

This week, with my family on spring break in North Carolina, I have been pondering why I have such a negative reaction. I think my reaction is not because there is anything inherently wrong with the questions, but because I desperately want my students to understand that, ultimately, our classes are (or should be) about something much more important than just a grade.  A grade should approximate the level of mastery and the components of the grade should be as clear as possible, but many of the things that students should be developing — critical thinking, intellectual curiosity, compassion, perseverance, professionalism, ethics, etc. — are difficult to fully capture in a grade.

As I pondered my reaction to the student questions, I realized that many professors ask a similar question:

  • Does it count for promotion and tenure?

Better for us to ask if our teaching, research and service is positively affecting our students, our colleagues, and society in general.  

Directors and officers of public corporations also tend to ask a similar question:

  • How does it affect earnings per share?

Better for directors and officers to ask if the corporation is contributing to human flourishing.  See Professor Scott Pryor’s recent post (and the embedded links, especially this one) for some additional thoughts on corporate purpose.  For the record, my post from earlier today was meant to be a descriptive, not normative.

We all know, I think, that there are bigger, deeper, more important questions that we should ask, but the bullet-pointed questions above capture a large percentage of our attention.  At least part of the reason these items often attract myopic focus is because the subject matter is relatively easy to quantify. Something in us loves to measure and compare accomplishments.  

Recently, I nominated a mentor of mine for a lifetime achievement award.  She has spent over 35 years of her life as a professor, and she is one of the people who helped me break into this academic world that I love.  In my nomination letter I wrote that she is the type of professor who gives of her time “even when she has no reason to expect recognition or another line on her resume.”

Like my mentor does, I hope that my students and I will focus our attention on the most important issues, even if we cannot fully capture the results of our efforts on a report card, resume, or spreadsheet.    

Are the directors of Hobby Lobby and Conestoga Wood breaching their fiduciary duties by challenging the contraceptive mandate, seemingly without serious regard to the financial consequences?

Mark Underberg says “perhaps”.

Stephen Bainbridge says “no”.

Professor Bainbridge focuses on the facts that both Hobby Lobby and Conestoga Woods are family-owned, closely-held corporations, and that Conestoga Woods is incorporated under Pennsylvania law, which has a nonshareholder constituency statute.  I am not going to jump into their disagreement directly, but, instead, will use a story I saw about Apple to extend the conversation.

Unlike Hobby Lobby and Conestoga Woods, Apple is a publicly-traded, California corporation.  California does not have a constituency statute.  Recently, Apple CEO and director, Tim Cook, discussed the company’s commitment to the environment, the blind, and making the world a better place.  Cook supposedly told investors:

If you want me to do things only for ROI reasons, you should get out of this stock.

More forcefully, Cook said:

When we work on making our devices accessible by the blind, I don’t consider the bloody ROI.

In Cook’s first statement, he seems to be saying that ROI is one of the reasons (just not the only reason) Apple makes decisions.  This appears to be a perfectly acceptable statement for a director in the day-to-day decision-making process to make.  Could, however, Apple’s board of directors properly completely disregard ROI, as Cook’s second statement suggests? 

While Apple is a California corporation, many states take their cues from Delaware on issues of corporate law.  Two-former Delaware Chancellors, one of whom is the new Chief Justice of the Delaware Supreme Court, have reiterated the importance of considering shareholder value, at least for directors of Delaware corporations.

In eBay v. Newmark, former-Chancellor William Chandler stated that:

Having chosen a for-profit corporate form, the Craigslist directors are bound by the fiduciary duties and standards that accompany that form. Those standards include acting to promote the value of the corporation for the benefit of its stockholders. 

In a similar vein, Chief Justice Leo Strine has written that:

[A]s a matter of corporate law, the object of the corporation is to produce profits for the stockholders…. the social beliefs of the managers, no more than their own financial interests, cannot be their end in managing the corporation.

(I note that a number of academics think the former-Chancellors’ focus on shareholders is misplaced).

How much leeway does corporate law provide directors in focusing on non-shareholder interests?  One might convincingly argue that even directors of public, Delaware-corporations are likely to avoid liability if they can make an argument that the decision could (possibly) lead to long-term value for the shareholders.  Making such an argument would be relatively easy for Apple – likeminded customers, shareholders, and employees may become more committed to Apple following Apple’s society-focused decisions.  These likeminded shareholders may buy more shares and sue less frequently.  Customers may buy more Apple products and goodwill may increase.  Employee turnover may be reduced.  All of this may increase profitability in the long-term.  While a court is unlikely to challenge such an argument from Apple’s directors, is the argument an honest one?  Are Apple’s directors really making those decisions with a focus on profitability?

Could Apple’s directors argue, without fear of liability, that they made the society-focused decisions simply because it was the right thing to do, and openly admit that they knew that shareholders were going to suffer in both the short and long-term?  I am not sure they could, and I believe that it is that uncertainty in traditional corporate law that benefit corporation statutes attempt to address.  (Granted, I admit that the current benefit corporation statutes are far from perfect.)   

Update: Professor Bainbridge posted a reply.  Thanks to him for the detailed response, and I agree with much of what he writes.  To clarify, my point was not about the likelihood of a breach, but rather the possibility of a breach.  Also, while I appreciate the protection of the business judgment rule and the Shlensky v. Wrigley case, I think my hypthetical is different than Shelensky.  In my hypothetical, the directors openly admit that nonshareholders were the focus of the decision and that shareholders would be hurt in the short and long run.  While the court in Shlensky generously provided reasons for why not adding stadium lights might help the Cubs in the long run, I don’t remember any direct statements by the defendants about shareholders being purposefully ignored. 

Granted, my hypothetical might be a bit far-fetched.  Any director with good attorneys may be able to just keep silent or mention the possible long-term benefits of their decisions.  That said, in both Dodge v. Ford and eBay v. Newmark, the defendants seemed to insist on telling the court that they were not focused on the shareholders.  Some egos may have been involved.  I know some professors (such as Professor Gordon Smith) think the rules in those two cases are regulated to closely-held corporations, and while I am not convinced that the general rules are so limited, I do note that the chance of a majority of a public company board openly admiting that shareholder interests were ignored is extremely close to zero. 

In the end, I agree with Professor Bainbridge that a breach is highly unlikely, but that Cook  “would have been wise to be more temperate in his remarks.”  Where Professor Bainbridge and I may part company is that I maintain that there is a possibility of a breach if the directors (of a corporation incorporated in a state without a constituency statute) openly admit completely disregarding shareholder interests.

I previously mentioned a conference on crowdfunding being held at the University of Cincinnati on March 28, and promised to provide a link to the conference announcement when it became available. It’s here.

This should be an interesting conference; some of the leading experts on securities crowdfunding are going to be speaking. And it’s not just academics; the list of speakers includes practitioners, regulators, and people from the crowdfunding industry. (I’m speaking, but you can take a coffee break to avoid that.)

If you can’t make it to Cincinnati, the conference will also be webcast. Of course, you’ll miss out on that weird chili and spaghetti concoction that people in Cincinnati eat.

 

This week in Lawson v. FMR, LLC the Supreme Court extended the reach of Sarbanes-Oxley to potentially millions more employers when it ruled that SOX’s whistleblower protection applies to employees of private employers that contract with publicly-traded companies. In 2002, Congress enacted SOX with whistleblower protection provisions containing civil and criminal penalties. The law clearly protects whistleblowers who work for publicly-held companies, and courts have generally ruled against employees who work for privately-held firms. But the Department of Labor’s Administrative Review Board has ruled that contractors at public companies enjoy whistleblower protection as well. The Supreme Court agreed with that assessment, with Justice Ginsburg writing for the majority. The dissent, written by Justice Sotomayor, noted the “stunning reach” based on the majority’s interpretation and opined that the extension was not what Congress intended.  The plaintiffs in Lawson did not work for Fidelity, but were contracted to provide advice to Fidelity Mutual Fund customers. Plaintiffs voiced concerns to management regarding problems with cost-accounting methodologies and the alleged improper retention of millions of dollars in fees. Because Fidelity has no employees of its own, it was not a party to the suit.

This development will likely be among the many that the Whistleblower Protection Advisory Committee will discuss at our meeting next week. I sit on a 12-person committee comprised of management, labor and the public for a two-year term, and we are reviewing two dozen laws that OSHA enforces to protect employees. SOX is just one of the financial laws covered by OSHA for whistleblower purposes. Although the comment/question period for the committee meeting is officially closed, those who want to submit comments or questions can still do so through http://www.regulations.gov. The meeting is open to the public on March 11th from 9 a.m. – 5 p.m. in Room N-3437 A-C, U.S. Department of Labor, 200 Constitution Ave., NW, Washington, DC 20210

 

 

 

 

 

Some law professors may remember when Justices Roberts and Kennedy opined on the value legal scholarship. Justice Roberts indicated in an interview that law professors spend too much time writing long law review articles about “obscure” topics.  Justice Kennedy discussed the value he derives from reading blog posts by professors who write about certs granted and opinions issued. I have no doubt that most law students don’t look at law review articles unless they absolutely have to and I know that when I was a practicing lawyer both as outside counsel and as in house counsel, I almost never relied upon them. If I was dealing with a cutting-edge issue, I looked to bar journals, blog posts and case law unless I had to review legislative history.

As a new academic, I enjoy reading law review articles regularly and I read blog posts all the time. I know that outside counsel  read blogs too, in part because now they’re also blogging and because sometimes counsel will email me to ask about a blog post. I encourage my students to follow bloggers and to learn the skill because one day they may need to blog for their own firms or for their employers.

Blogging provides a number of benefits for me. First, I can get ideas out in minutes rather than months via the student-edited law review process. This allows me to get feedback on works/ideas in progress. Second, it forces me to read other people’s scholarship or musings on topics that are outside of my research areas. Third, reading blogs often provides me with current and sophisticated material for my business associations and civil procedure courses. At times I assign posts from bloggers that are debating a hot topic (Hobby Lobby for example). When we discuss the Basic v. Levinson case I can look to the many blog posts discussing the Halliburton case to provide current perspective. 

But as I quickly learned, not everyone in the academy is a fan of blogging. Most schools do not count it as scholarship, although some consider it service. Anyone who considers blogging should understand her school’s culture. For me the benefits outweigh the detriment. Like Justice Kennedy, I’m a fan of professors who blog.  In no particular order, here are the mostly non-law firm blogs I check somewhat regularly (apologies in advance if I left some out): 

http://www.theconglomerate.org/  (thanks again for giving me first opportunity to blog a few months into my academic career!)

http://socentlaw.com/

http://www.fcpaprofessor.com/

http://law.wvu.edu/the_business_of_human_rights (currently on a short hiatus)

http://www.professorbainbridge.com/

https://www.businesslawprofessors.com/civpro/

http://prawfsblawg.blogs.com/prawfsblawg/

http://taxprof.typepad.com/

https://www.businesslawprofessors.com/securities/

http://www.thecorporatecounsel.net/blog/index/

http://blogs.law.harvard.edu/corpgov/

http://www.delawarelitigation.com/

http://www.dandodiary.com/

 https://www.businesslawprofessors.com/whitecollarcrime_blog/

https://www.businesslawprofessors.com/mergers/

https://www.businesslawprofessors.com/laborprof_blog/

http://www.thefacultylounge.org/

http://opiniojuris.org/

I would welcome any suggestions of must-reads.

 

 

 

 

 

 

 

 

 

 

 

 

 

The University of St. Thomas Law Journal hosts its spring symposium on April 11, 2014 on the issue of Sustainable Financial Regulation.  Registration is available here, and the the list of speakers is top-notch including Roberta Romano, Steven Schwarcz, Eric Gerding, Richard Painter, Claire Hill and Jennifer Taub.  Kudos to Wulf Kaal, a fellow corporate law professor at St. Thomas,  for putting together a very promising panel on experts.

SOL044314_Spring_Symposium_banner_lyris

 

-Anne Tucker

West Virginia University has a new LLM program in Energy & Sustainable Development Law. At the moment, the program is open only to those with a U.S. law degree.  The degree program capitalizes on a wide and deep range of expertise at WVU Law in a one of the nation’s most energy-rich states.  (Full bias  disclosure: I direct the program.)

All students in the program are required to take both the Energy Law Survey and the Environmental Protection Law course. This is because we firmly believe that all lawyers connected to the energy sector need to have a firm grasp on both energy law issues and  envirnonmental law issues. Both courses touch on each other’s area, but having both courses as a base will lead to better prepared professionals, whether the graduate wants to work for industry, an NGO, or a regulator. 

We also require some form of experiential learning, a portfolio of written work, and a Research Paper or Field-Work Project. Full details of the program are here.  For this venue, and in my area of interest, I will note our business offerings.  I teach my Energy Business: Law & Strategy course, details here, in addition to my Business Organizations course and the Energy Law Survey.  We also have great variety of courses in energy law, environmental law, and sustainable development law.  

In addition, we have a fellowship opportunity in the Land Use and Sustainable Development Clinic. This fellowship is a part-time (at least twenty hours per week), two-year position from August 2014 through July 2016. The Fellow will receive an annual stipend of $20,000 and tuition remission for the LL.M. program. The Fellow would take 6-7 credits per semester allowing time for part-time work at the Clinic.  Details available here. 

In a world where the Future of Business is the Future of Energy, this program is one option to consider. 

On Sunday, the Boston Globe published a cogent, concise and compelling op-ed by Kent Greenfield  on the issue of religious exemptions for corporations as raised in the Hobby Lobby case.

Professor Greenfield argues that corporations can have a conscious, but that corporations should not use religion to avoid regulations — and thus gain a competitive advantage — “claims of religious conscience could liberate companies to become bad actors in the economy and society at large. Instead of sacrifice, corporate conscience could devolve to sacrilege.”

In last week’s post, I took a similar position in my post on Hobby Lobby, “More or Less?”.

-Anne Tucker