Whether it’s energy policy or financial policy, “people” want to be protected from bad things.  Things like blackouts, high gas prices, housing bubbles and failed credit markets.  But we also, apparently, want these things to occur cost free.  It’s not clear to me whether “people” are the masses or our representatives in government, but it doesn’t seem to matter. 

Take, for example, discussions about cybersecurity.  One report indicates that at least some in Congress believe our greatest national security threat is to the electric power grid.  In testimony before the House Energy and Commerce Subcommittee, ABC News quotes Rep. Trent Franks, R-Ariz. as saying the following about a national grid cyber attack:  

The sobering reality is this vulnerability, if left unaddressed, could have grave, societal-altering consequences. We face a menace that may represent the gravest short term threat to the peace and security of the human family in the world today.

Wow. That’s a huge deal. And I agree it is a serious threat, even though I wouldn’t go quite that far.  

To address these concerns, one of the legislative proposals is the GRID Act (H.R. 5206), proposed last year. That act:

Amends the Federal Power Act to authorize the Federal Energy Regulatory Commission (FERC), with or without notice, hearing, or report, to issue orders for emergency measures to protect the reliability of either the bulk-power system or the defense critical electric infrastructure whenever the President issues a written directive or determination identifying an imminent grid security threat. 

The Congressional Budget Office says the bill’s “Statutory Pay-As-You-Go Impact” would be $0 over the next five years, and cost a little less than $7 million per year between 2015 and 2120. (See pdf here.) Pretty modest costs for the “gravest short term threat to the peace and security of the human family in the world today.”

Similarly, Americans, and people around the world, support green energy, but are suspect of the cost. A June 2010, a Pew Research/National Journal Congressional Connection Poll found that 87% of those polled supported requiring “utilities to produce more energy from renewable sources.” However, as a Financial Times/Harris poll found in October 2010 (press release pdf here), “When those who pay energy bills were asked how much more they would be willing to pay for renewable energy, most people in all countries said either no more or only 5% more.” Interestingly, more people in the United States were willing to pay more than 5% for clean energy than those polled in Italy, Spain, France, Great Britain, and the United Kingdom. Australians also prefer green energy, according to The Economist, “So long as it doesn’t cost too much.”

What does this tell us?  Well, a few things. First, we have great intentions on a lot of fronts, but those intentions are limited by our pocketbooks.  It’s nice to want things, including safety, but we need to be willing to pay for them, too.  

Second, it appears Americans are more willing to pay more for some of these things in the energy context than many of our European counterparts, who are often held up as the great green societies. Of course, our European friends pay significantly more than we do for gasoline and diesel fuel.  But maybe that’s the trade off. We’re willing to pay more for electricity; they’re willing to pay more for fuel. (Maybe those in Congress will pay attention to this dichotomy and focus efforts on places where they can actually effect change.)

Third, it sheds some lights on financial policies, too. We say we want to be protected from bad actors in the financial industry, but we don’t seem to want to spend too much on that protection.  We’d rather (it appears) have some high-profile crackdowns on companies bribing foreign officials and those engaged in insider trading. 

Ultimately, it is possible that the political market is working and we’re getting exactly what we want on both fronts. But that’s not my sense, and the polls bear that out.  Then again, maybe polls just make us dumb.

–JPF 

Robert Krulwich, on his NPR blog, writes that that people are “pattern-finding animals.”  He goes on to say:

Do any of us live beyond pattern? Do great musicians, breakthrough artists, great athletes operate pattern free? Pattern indifferent?

I don’t think so. Artists may be, oddly, the most pattern-aware. Case in point: The totally unpredictable, one-of-a-kind novelist Kurt Vonnegut (Slaughterhouse-Five, Cat’s Cradle, God Bless You, Mr. Rosewater) once gave a lecture in which he presented — in graphic form — the basic plots of all the world’s great stories. Every story you’ve ever heard, he said, are reflections of a few, classic story shapes. They are so elementary, he said, he could draw them on an X/Y axis.

The site then has a link (here) to a short excerpt of a talk from Kurt Vonnegut that is worth a look. (I think, anyway, but I am huge Vonnegut fan.) 

What does this have to do with business law?  Well, maybe not that much, but it seems relevant to me in the context of the discussion about the recent, but not new, concerns about law reviews Steve Bradford, Stephen Bainbridge, and others are talking about.  The current focus of discussion is the concept of “specialty journals” and, as Steve wondered: “[W]hy are mainstream courses like tax and business associations considered “specialty” topics, unlike the constitutional law and jurisprudence articles that seem to fascinate law review editors so much?”  

As someone who writes primarily on corporate law and energy law issues, I am well aware of the specialty journal concern. And I, too, find it frustrating sometimes.  But maybe it is just that law review editors are pattern-finding animals, just like the rest of us. 

As an aside, I’m always torn on the heavy critique of law reviews and the law review process. As a former editor in chief, I found the Law Review experience to be invaluable, and a major reason why I do what I do today. I learned something about scholarship; I learned something about process. I learned about how I wanted to be an author (and how I didn’t want to be as an author). I learned I wanted to be law professor. And I know that learning almost certainly came at some expense to our largely outstanding group of authors. I think we were professional, and courteous, and careful. That was always our goal. But I also know I would have been a lot better at it the second of third time around.  

I am now on the Board of Advisory Editors for the Tulane Law Review, and I sit on a board for the Tulane Law Review Alumni Association, a 501(c)(3) a group of us started to help support the law review.  I am also proud to be the North Dakota Law Review faculty advisor.  I spend so much time on this because still believe it is an invaluable experience for students, and it can be a very good experience from the author side, too. Maybe it is that the student value is the primary value.  I think it’s more than that, but I appreciate others have different views.

One way or another, the patterns are set in place, and we seem to follow them.  Despite my frustrations with the process, I do think there are a lot of upsides to the law review and law journal system.  And I don’t think we should forget that either.  

Lewis Lazarus recently posted Directors Designated By Investors Owe Fiduciary Duties to the Company as a Whole and Not to the Designating Investor at the Delaware Business Litigation Report.  In his article, he explained

[The Delaware] cases teach that directors designated by particular stockholders or investors owe duties generally to the company and all of its stockholders.  Where the interests of the investor and the company and its common stockholders potentially diverge, the directors cannot favor the interests of the investor over those of the company and its common stockholders.

Professor Bainbridge weighs in (here), agreeing that the above is the general rule, but that in some cases that may not be best.  He gives a few examples, such as a struggling company granting a union nominee a board position or a time when preferred shareholders can elect a board majority because no dividends were paid for a sufficient period of time. He then notes that a director’s “sponsor might reasonably expect the directors not just to ‘advocate’ for the shareholder’s position, but to vote for it and take other action.”  Professor Bainbridge concludes that he still doesn’t “think the sponsor should be able to punish the directors for failing to” vote as the sponsor desired and that such cases should be viewed “contextually.”

This all got me thinking about VGS, Inc. v. Castiel, 2000 WL 1277372 (Del. Ch.), which I recently covered in class.  That case involved a manager-managed LLC, with a three-person Board of Managers.  Castiel named himself and Quinn to the Board, and Sahagen added himself. Sahagen and Castiel got into a feud, and Quinn defected to Sahagen’s side. Quinn and Sahagen then merged the LLC into VGS, Inc., without notice to Casteil, via written consent. (This case is also a great lesson into the perils of poor drafting.)  

Despite the plain language of the LLC agreement, the court bails out Castiel (and his lawyers) finding that 

As the majority unitholder, Castiel had the power to appoint, remove, and replace two of the three members of the Board of Managers. Castiel, therefore, had the power to prevent any Board decision with which he disagreed. 

. . . .

Notice to Castiel would have immediately resulted in Quinn’s removal from the board and a newly constituted majority which would thwart the effort to strip Castiel of control. Had he known in advance, Castiel surely would have attempted to replace Quinn with someone loyal to Castiel who would agree with his views. 

This is not how we tend to react in the corporate context.  Sponsors generally can’t bind directors to a specific vote, and they don’t usually require notice of a director’s intended votes.  Think Ringling Bros-Barnum & Bailey Combined Shows v. Ringling, 53 A.2d 441 (Del. Sup. Ct. 1947); McQuade v. Stoneham, 263 NY. 323 (1934); or even perhaps Ramos v. Estrada, 8 Cal. App. 4th 1070 (1992). 

In VGS, it seems to me the court should have determined this action was improper (if it was) because Sahagan and Quinn were acting in a way that implicates a conflict of interest and that they were inappropriately taking something that wasn’t theirs.  That is, it was an act of fraud, self-dealing, or a conflict of interest.  At least then Quinn and Sahagan could defend their decision-making process and the decision itself.  

I have been working on a short piece arguing that the courts may be developing rules that respect LLCs as unique entities.  Professors Ribstein and Bainbridge, among others, have long advocated that courts apply rules appropriate for LLCs rather than blindly adopting corporate or partnership rules, and I would advocate a similar position here.  In VGS, however, my decision would place far more weight on the contract itself and respect the powers granted to the board. That is, I might allow Castiel the authority he sought and was granted in this case in the LLC context, even though that power is in conflict with general corporate law directors’ rules.  But, I would only grant the power if Castiel expressly acquired that power on the front end.  Here, Castiel did not, and absent fraud or self-dealing, I think he should have lost.

Chancellor Chandler issued his ruling yesterday upholding the poison pill Airgas, Inc.’s board of directors adopted in response to Air Products and Chemicals, Inc.’s $5.8 billion hostile takeover ($70/share, all cash). Chancellor Chandler determined that the Airgas board of directors “acted in good faith and in the honest belief that the Air Products offer, at $70 per share, is inadequate.”  (PDF of the case here, thanks to Francis G.X. Pileggi.)

One reason this decision bugs me is that I suspect a good number of people who don’t like insider trading restrictions would be supportive of this decision.  To me, it’s the same question:  What does the shareholder want for his or her shares?  Period.  

For some who don’t like insider trading restrictions, they argue that, at least in non-face-to-face insider trading transactions, the sharedholder did not suffer harm. (See, e.g., Henry Manne.) Sharedholders were offered a price they deemed acceptable, and sold.  Who cares who was on the other side of the transaction?  I find parts of this rationale compelling, although I also find the property rights concerns related to insider trading even more compelling. (See, e.g., Professor Bainbridge.)

For me, the anti-insider-trading rationale holds true in this case, too.  If shareholders would accept the price, and there is no concern about the value of the payment (and there can’t be in an all-cash offer), the board should make their case and get out of the way. 

The board is supposed to facilitate profit maximizing for shareholders. This can take many forms, and the process is subject to legitimate board decisions to balance short- and long-term prospects. Thus, there should be a lot of latitude for the board to exercise their authority, expertise, and judgment.  

That said, I can’t see a good justification for not presenting an all-cash offer to shareholders once (as was the case here) ample time has been given to entice other potential bidders into the game. That’s one decision that should always be the sharedholder’s call.  

I continue thinking about Chancellor Chandler’s opinion in eBay v. Newmark, and I still find myself troubled by the determination that, by embracing it’s “community service mission,” craigslist was being run improperly as corporate entity (see my prior post here).  To recap, Chancellor Chandler explained that by choosing “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.”

As I mentioned before, in apparent contrast to Chancellor Chandler, I don’t think it necessarily follows that embracing a “community service mission” is inconsistent with “promot[ing] the value of a corporation for the benefit of its stockholders.”  In fact, it may be that the community service mission is the precise reason that stockholders are gaining the benefit.  Take, for example, Ben and Jerry’s Ice Cream. Ben and Jerry’s began as a small start-up looking to expand its business.  Over time, the company began to grow, and along with this growth, embraced environmental causes and created a foundation giving 7.5% of pretax profits for distribution to worthy causes.  (See Ben & Jerry’s History here.)  Of course, the company would not likely have any value if the ice cream were bad (just as craigslist would have no value if it did not work to sell things), but the company philosophy helped build the brand.  

Ben & Jerry’s grew to the point that it is now a wholly owned subsidiary of Unilever. The company has three-tiered mission statement, with a social mission, a product mission, and an economic mission.  The economic mission is of Ben & Jerry’s is:

To operate the Company on a sustainable financial basis of profitable growth, increasing value for our stakeholders and expanding opportunities for development and career growth for our employees.

Furthermore, the company explains:

Capitalism and the wealth it produces do not create opportunity for everyone equally. We recognize that the gap between the rich and the poor is wider than at any time since the 1920’s. We strive to create economic opportunities for those who have been denied them and to advance new models of economic justice that are sustainable and replicable.

Is Ben & Jerry’s just as vulnerable as craigslist to a shareholder complaint? Obviously not directly, because Unilever owns all the shares.  But should Unilever be permitted to allow Ben & Jerry’s to operate in this manner?  It seems to me that Unilever shareholders would have a legitimate complaint.  After all, if the use of the corporate form for such goals is improper, it should be an improper use of Unilever’s assets, too. Unilever could seek to accomplish Ben & Jerry’s goals through a variety of other mechanisms, such as the use of gifts to a nonprofit entity See, e.g., A.P. Smith Mfg. Co. v. Barlow, 98 A.2d 581 (N.J. 1953). But if the use of the corporate form to pursue Ben & Jerry’s goals without the primary goal of profiting for the shareholders is improper, this is a place that form should triumph over substance.  

Perhaps the answer instead lies in the size of the investment or the amount of money available to be made.  That is, Ben & Jerry’s is a small portion of Unilever, so Unilever shareholders should not have much to complain about. Regardless of the decision, it’s small potatoes. Chancellor Chandler noted that “[i]f Jim and Craig were the only stockholders affected by their decisions, then there would be no one to object. eBay, however, holds a significant stake in craigslist, and Jim and Craig’s actions affect others besides themselves.”  Perhaps it is this “significant stake” that is the problem.  That is, if the decision pursued seems significant enough (or the potential loss of not pursuing the apparently more profitable end is great enough), then the Delaware court will step in and provide its own judgment.   

If so, it seems to mean that the business judgment rule can be rebutted in another way, in addition to showing fraud, self-dealing, and illegality:  by showing the likely profitability of choosing another course.  

According to Paul Volcker, the “financial system is broken.”  Furthermore, with regard to limits on the abilities of regulators, he says: “Relying on judgment all the time makes for a very heavy burden whether you are regulating an individual institution or whether you are regulating the whole market.” 

He’s right on that.  If we like markets (and I think we do), then we need to recognize we can’t always regulate (or, for that matter, buy) our way out of some of these messes.  I am now firmly of the mind that we should have a five-year moratorium (minimum) on financial regulation.  This goes both ways — nothing can be repealed and nothing can be added. 

I am of a mixed mind on the new financial regulations, but since they already passed, I say leave them alone and let the market adjust. Similarly, with regard to Sarbanes-Oxley, regardless of whether one likes it, it’s part of the current market, and companies have adjusted to it.  So – leave it all alone. Regulators need to work with what they have, and businesses have to work with what is there.

I happen to think that we have a fairly solid system in place, but there are clearly some inherent potential pitfalls built into that system. I just think those pitfalls are primarily because the financial system is a (relatively) open market.  Markets involves people, which means that at every level (as a consumer, a seller, or a regulator) we are still, as Mr. Volcker puts it, “[r]elying on judgment all the time.”  And no matter what we do, that’s part of the problem.  

Unless, of course, we’re living in The Matrix.  Then, who cares?

–Joshua Fershee

When Chancellor Chandler decided eBay v. Newmark (pdf) (aka “the craigslist case”), the case triggered all kinds of discussions, including the implications of poison pills and analogies to Dodge v. Ford. I remain interested in the Dodge v. Ford angle and the role of philanthropic goals of a corporation.

There are some who see the craigslist case as an adoption of the Sen. Al Franken version of a corporation’s obligations to shareholders: “[I]t is literally malfeasance for a corporation not to do everything it legally can to maximize its profits.” Of course, there are others who disagree. The Franken-like argument seems be that Delaware’s Revlon duty (as explained in Time, Inc. – pdf) of requiring the “board to enhance short-term shareholder value” now applies all the time, not just when the board puts the company up for sale. While that makes for good sound bites, and I suppose it is a plausible interpretation, that’s pretty clearly not what Chancellor Chandler meant.

Instead, the Chancellor stated that craigslist’s majority owners “prove[d] that they personally believe craigslist should not be about the business of stockholder wealth maximization, now or in the future.” Thus, he concluded, “The corporate form in which craigslist operates . . . is not an appropriate vehicle for purely philanthropic ends, at least not when there are other stockholders interested in realizing a return on their investment.” As such, corporations clearly can do at least some things that are philanthropic; it’s just that they can’t be “solely” philanthropic – thus the Dodge v. Ford connection.

Okay, but I have a problem with this on two fronts. Regardless of their stated view, craigslist is not a nonprofit, and as I understand it, files and pays taxes like any other (proper, for-profit) corporation. According to a BusinessWeek article, the company has been profitable since 1999. That said, it is also true that the company’s leaders make clear that they are not trying to takeover the world or maximize wealth. I’m not clear that’s a problem any more than it is inherently a problem for a company to decide to grow to fast and fail miserably (I’m looking at you, Krispy Kreme and Boston Market.)

Second, under the Delaware General Corporation Code § 101(b), “[a] corporation may be incorporated or organized under this chapter to conduct or promote any lawful business or purposes . . . .” Certainly there is nothing there that indicates a company must maximize profits or take risks or “monetize” anything. I think Chancellor Chandler concedes as much when he notes that it is at least conceivable that a philanthropic company may be okay when there are no “other stockholders interested in realizing a return on their investment.”

Thus, it seems to me, the next question should be what it means to say there was a stockholder “interested” in realizing a return on their investment. As I noted in an earlier post, eBay knew the kind of company in which they were buying shares (and taking a minority position. craigslist is operating exactly with the same philosophy as they had before eBay bought in to the company. And, in fact, that philosophy is probably why eBay decided to reserve its right to compete.

If that’s the case, why did eBay buy in? I think it’s pretty clear it is not primarily because they had any specific expectation of a return on investment. I think eBay invested as something of a hedge — they recognized that if craigslist were to monetize itself, it would likely be a huge revenue source and they wanted to ensure eBay was part of that process if (not necessarily when) that were ever to happen. They reserved the right to compete in case eBay figured out a way to monetize a similar product. (And note that it’s not clear they were not getting a return; it’s simply a lower return than some people think that return could be.) As such, it would be improper to allow eBay, simply by virtue of being a shareholder, to require a change in the way in which the craiglist operates.  This is not a bait and switch where craiglist changed the rules of the game (at least with regard to their corporate philosophy) after cashing eBay’s check.

I guess I simply don’t agree with Chancellor Chandler’s assessment that craigslist is operating as a “purely philanthropic” corporation, and I don’t think eBay is being deprived of any expected potential return on investment. Just because craiglist’s majority owners use a lot of pro-philanthropic language, I see a market leader who is seeking to perpetuate that position. At the end of the day, then, craigslist is a “largely” philanthropic entity, and it is exactly the kind of small-but-profitable entity eBay bought a portion of in the first place. And that, to me, is just fine under Delaware law.  At least, it should be.  

At The Conglomerate, Gordon Smith notes some comparisons between Dodge v. Ford (pdf here) and eBay v. Newmark (pdf here). I certainly see the comparison (and I think his post here on the case and Christine Hurt’s earlier post here are great).  Still, I think I am a little more critical of the Dodge v. Ford analogy than Professor Smith. Here’s why:

In Dodge v. Ford, Henry Ford stated clearly that he was operating the business as he saw fit and that he was changing toward supporting philanthropic purposes. As the Dodge v. Ford opinion notes:

‘My ambition,’ declared Mr. Ford, ‘is to employ still more men; to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes. To do this, we are putting the greatest share of our profits back into the business.”

. . . .

The record, and especially the testimony of Mr. Ford, convinces that he has to some extent the attitude towards shareholders of one who has dispensed and distributed to them large gains and that they should be content to take what he chooses to give. His testimony creates the impression, also, that he thinks the Ford Motor Company has made too much money, has had too large profits, and that, although large profits might be still earned, a sharing of them with the public, by reducing the price of the output of the company, ought to be undertaken. We have no doubt that certain sentiments, philanthropic and altruistic, creditable to Mr. Ford, had large influence in determining the policy to be pursued by the Ford Motor Company-the policy which has been herein referred to.

Contrast this with Chancellor Chandler’s explanation of craiglist:

Nevertheless, craigslist’s unique business strategy continues to be successful, even if it does run counter to the strategies used by the titans of online commerce. Thus far, no competing site has been able to dislodge craigslist from its perch atop the pile of most-used online classifieds sites in the United States. craigslist’s lead position is made more enigmatic by the fact that it maintains its dominant market position with small-scale physical and human capital. Perhaps the most mysterious thing about craigslist’s continued success is the fact that craigslist does not expend any great effort seeking to maximize its profits or to monitor its competition or its market share.[fn6]

In further contrast to Henry Ford’s statements, in footnote 6 Chancellor Chandler provides a quote from craigslist’s CEO “testifying that craigslist’s community service mission ‘is the basis upon which our business success rests. Without that mission, I don’t think this company has the business success it has. It’s an also-ran. I think it’s a footnote.’”

Nonetheless, Chancellor Chandler, as Professor Smith points out, appears to see these cases in a similar light:

The corporate form in which craigslist operates, however, is not an appropriate vehicle for purely philanthropic ends, at least not when there are other stockholders interested in realizing a return on their investment. Jim and Craig opted to form craigslist, Inc. as a for-profit Delaware corporation and voluntarily accepted millions of dollars from eBay as part of a transaction whereby eBay became a stockholder. 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.

Without getting into the appropriateness of the other moves taken by the majority owners of craigslist, I am inclined to think that craiglist’s explanation of their business model should sufficiently distinguish the mission – and business purpose – from that put forth by Henry Ford. That is, I have always been of the mind that Henry Ford could appropriately have defended his actions (or at least had a much stronger case) if he had never talked about doing anything other than building Ford into the strongest possible company for the longest possible term.

I see the problem for Henry Ford to say, in essence, that his shareholders should be happy with what they get and that workers and others are more his important to him than the shareholders. However, it would have been quite another thing for Ford to say, “I, along with my board, run this company the way I always have: with an eye toward long-term growth and stability. That means we reinvest many of our profits and take a cautious approach to dividends because the health of the company comes first. It is our belief that is in the best interest of Ford and of Ford’s shareholders.”

For Ford, there seemed to be something of a change in the business model (and how the business was operated with regard to dividends) once the Dodge Brothers started thinking about competing. All of a sudden, Ford became concerned about community first. For craigslist, at least with regard to the concept of serving the community, the company changed nothing. And, in fact, it seems apparent that craiglist’s view of community is one reason, if not the reason, it still has its “perch atop the pile.”

Thus, while it is true craigslist never needed to accept eBay’s money, eBay also knew exactly how craigslist was operated when they invested. If they wanted to ensure they could change that, it seems to me they should have made sure they bought a majority share.  

Back in 2007, North Dakota passed the North Dakota Publicly Traded Corporations Act (ND Act), which became Chapter 10-35 (Publicly Traded Corporations) of the North Dakota Century Code.  The ND Act provided a shareholder friendly alternative to the state’s Business Corporations Act, Chapter 10-19.1 for companies that were so inclined.  (Find the referenced North Dakota laws here.)

Before the state could pass the law, the state constitution needed be amended, and voters approved the necessary changes in 2006 (for more on the history of the ND Act, see pdf here). A North Dakota-based publicly traded corporation is not subject to the ND Act unless it opts-in, essentially by reincorporating in the state. None of the state’s public corporations existing before the ND Act was passed have done so.  

One of the main provisions of the ND Act gave proxy access for purposes of nominating candidates for election to the board of directors for a “qualified shareholder” of the publicly held corporation subject to the law. N.D. Cent. Code 10-35-08.  A qualified shareholder is a person or group of persons holding 5% of the company’s shares authorized to vote for directors, and each person or member of the group must have held the shares for at least two years. N.D. Cent. Code 10-35-02(8).

As has been well documented, now comes the SEC amendments to Rule 14a-11, which allows such access for persons or groups of persons holding 3% of such shares who have owned those shares for three years. The SEC revisions allow the use of state or foreign law for nominations in addition to those permitted under Rule 14a-11, under 14a-19. Thus, as I read it, companies subject to the ND Act will now have to permit proxy access to two sets of qualified shareholders:  (1) the SEC-mandated 3%/three-year ownership shareholders and (2) the ND Act-mandated 5%/two-year ownership shareholders. 

Is this a big deal? As to ND Act companies, probably not. The only company subject to the ND Act is a public company already controlled by Carl Icahn. Thus, this issue is largely moot.  However, there is an indirect North Dakota connection that could loom larger. 

At least fifteen companies — including Staples, Exxon Mobil, and Whole Foods — have considered and defeated shareholder proposals to reincorporate under the ND Act.  Of those companies defeating the proposal, reports indicate that at least seven companies garnered at least 3% of the vote in support of the change.  This probably indicates that there is already a group of shareholders with 3% of the ownership ready to nominate directors.  And because of the ND Act, they should be relatively easy to find.  

In an interview on NBC’s Today Show this morning, BP CEO Tony Hayward stated that BP has “never in any sense sought to downplay this” disaster. This is hardly accurate, in my opinion. On May 18, Hayward said, “Everything we can see at the moment suggests that the overall environmental impact will be very, very modest.”

Although I doubt it, at the time, he may have even been right. However, this is the essence of “downplaying” the disaster. It sure would have sounded better if he had said something like, “While we expect that the overall environmental impact will be very, very modest, we recognize it could be worse. That is why we’re putting all available resources behind getting this thing under control.”

At least now he is calling it an “environmental catastrophe” and I had been thinking that Hayward finally appears to understand the gravity of the situation. After watching the rest of the Today Show interview, I’m not so sure.

Hawyard went on to say that BP’s response to the ongoing Gulf of Mexico oil spill was to “launch[] the largest response effort . . . this country has ever seen to a natural disaster.”

The thing is, this isn’t a natural disaster. This is not a natural oil fountain that has run amok. The volcano in Iceland: that’s a natural disaster. Hurricane Katrina (at least the storm) was a natural disaster. This is almost completely a man-made problem. Now perhaps Hayward’s comment was a slip of the tongue in a stressful situation. That happens, and I can appreciate that is tough to avoid. My concern is that it was planned, in part to start lending credence to the silly notion that this is Obama’s Katrina and deflect blame (and perhaps liability). And no, it’s not.

The fact that Katrina hammered New Orleans and the rest of the coast was not President G.W. Bush’s fault. That was not in his control. The response and the organizations charged with responding were. That’s why it was his fault. Furthermore, hurricanes happened regularly. FEMA and other agencies (normally) know how to deal with these situations. And other than following Katrina, they usually have.

The oil spill, on the other hand, was BP’s fault (and their contractors). And I agree, it was the government’s fault, too. Minerals Management Service (MMS) absolutely should not get a pass on this. But recall who was in control of MMS for the vast majority of this decade. (Clue: Not Obama.) And note, unlike the response to a hurricane, the people with the technology, information, and ability to respond to this disaster are not at FEMA, MMS, or the Army Corps of Engineers. The only people who can fix this, who need to fix this, are the ones responsible in the first place: the people at BP.

Just imagine what would have happened six months ago if the President had suggested a new agency that would be trained and funded to clean up disasters like this, granted the authority to take over an oil well at the first sign of trouble, and this agency would be funded by a large tax on oil companies. You can be sure that the response would have been that the government shouldn’t be in this business because the oil companies are better trained, better prepared, and better able to respond to such problems. I guarantee it.

Yes, perhaps the federal government could have been swifter than it has been, especially with regard to protecting the coast. However, in this situation, President Obama’s primary mistake was likely listening to BP when they said they could, and would, handle the problem. I find it curious that many of the same people who often argue that government should stay out of the way of big businesses now want to lay blame at the feet of a president who did just that.

Now that the federal government and the President, personally, have taken over primary responsibility for BP’s mess, President Obama will be responsible for how fast and how well the clean-up occurs on his watch. If that goes poorly, then perhaps his response to this mess will fairly be called his Katrina. But let’s be clear: as of right now, this is Tony Hayward’s (and BP’s) Katrina.

–Josh Fershee