Another semester teaching business associations law is just around the corner. In fact, our fall semester begins next week.  This post is dedicated to those who, like me, are prepping for and teaching that course this semester.

I was invited to participate in a discussion group entitled “Pressure on and Backlash against Corporations as Political Actors” at the 2022 Southeastern Association of Law Schools (SEALS) annual conference last week.  The description for the session is as follows:

When businesses wade into political issues like abortion, the environment, gun control, LGBTQ rights, Black Lives Matter, and international affairs, they potentially face consumer backlash and even governmental retribution. Remaining silent can also be risky, potentially upsetting other consumers and employees. And silence/inaction is not always an option: either a business remains in Russia after its invasion into Ukraine or closes its operations there, sometimes at considerable expense. This discussion group will analyze these issues from corporate, tax, policy, electoral, and constitutional law perspectives. Should businesses like Nike, McDonalds, Disney, and Ben & Jerry’s take political stances, stay out of politics altogether, focus on profits or something broader, and what are the practical and legal ramifications of these views? More broadly, what is the proper role of the corporation in society?

As you might guess from the program description, the discussion generated broadly (and, in cases, deeply) divergent viewpoints and engaging conversation.  I offer here a rough summary (constructed from my talking points) of my personal “opener” from the session for everyone to poke at.  Enjoy!

+++++

SEALS 2022
Pressure on and Backlash against Corporations as Political Actors

My thesis is that corporations come at political engagement as a natural implication of corporate theory, policy, doctrine, and practice. My work intersects with and addresses this claim in a number of ways.

Corporate boards have complex tasks. Corporate directors’ and officers’ fiduciary duties are, in most contexts in most states, owed to the corporation. So, understanding what the corporation is—as a matter of theory, policy, legal doctrine, and law practice—is critical. And folks have different views on that . . . .

My perspective?  Corporations are aggregations of constituencies managed by a board of directors acting alone or through corporate officers to manage and serve those various constituencies. The constituencies include shareholders, debt holders, and other security holders. They include employees. They include suppliers, customers/clients, state, local, and national governments. My perspective is, perhaps, closest to the team production theory articulations in which the board is the mediating hierarch.

My views are rooted in the notion that corporate law exists to facilitate individuals in conducting business—business that is critical to our lives. They also are rooted in corporate doctrine, which hands overall management responsibility to the board of directors—corporations are managed by or under the direction of the board under all state statutes. Finally, my views are framed by 15 years of work on teams of lawyers that advised corporate boards—where we did not blindly advise directors that shareholders always come first in every board decision (noting a primary shareholder allegiance in certain contexts, including certain M&A transactions–especially those involving Delaware public corporations).

Corporate theory views the corporation in many different ways. And there are differences in state law—Delaware corporate law in the public company context is different from, e.g., Tennessee corporate law in the public and private company contexts.  Talking in generalities in these regards is not helpful to a complete understanding.

It also bears mentioning that corporations are alternatives to government in providing for us and regulating our affairs in certain social and economic settings. Notably, corporations and other business associations are primary providers of health and welfare benefits, which are supplied by governments in other countries. 

Thus, as servants to a variety of corporate constituencies and as statutory entities bearing systemic social and economic responsibility (for, e.g., employee health and welfare), corporations are natural political actors. But imv, they are not actors with a particular political viewpoint.  Any political viewpoint expressed by a corporation optimally results from the board’s careful consideration of the corporation’s obligations to its various constituencies.

Delaware recently amended its General Corporation Law to permit corporations to adopt charter provisions that would exculpate top officers, as well as directors, from damages liability associated with care violations.

The catch is, unlike with directors, officer liability can only be eliminated for direct shareholder claims – not claims brought by the corporation, including derivative claims.  In other words, the amendments aren’t there to prevent officer liability; they’re there to prevent officer liability as dictated by shareholders.  When directors decide officers should be liable – or shareholders can show directors are incapable of deciding – then officer liability may follow.

So this is a little different than the theory behind director exculpation.  Director exculpation is a protection against the threat of frivolous lawsuits, to some extent, but it also functions so directors can substantively do their jobs without fear that they will be subject to ruinous liability for well meaning mistakes.  That fear, it was posited, would deter people from wanting to be directors in the first place.

Officers, though, they aren’t exactly being protected from ruinous liability over their mistakes – the corporation/directors can still sue them for those.  Which means there’s a lot less concern that officers won’t take the job if they can be held liable.

What are these amendments doing, then?

The protections being offered are only for direct claims.  And, most of the time, direct claims only arise in one context: sale of the company.

Sure, shareholders can sometimes sue directly even for going concerns – oh look, here’s an example from Snap – but those claims are relatively rare, and even rarer still when officers would be potentially liable, and rarer still when monetary damages rather than an injunction would be on the table.  So, most of the time, and in general, the proposed amendments serve one purpose: to exculpate officers for negligence in connection with the sale of the company.

And it goes further.  Because if shareholders vote in favor of the deal, that by itself waives any fiduciary claims – except when disclosures are inadequate.

So this amendment is intended to address one specific scenario: one where officers are arguably negligent in the context of a sale of the company, and where disclosures were inadequate, in a manner that may have been relevant to voting shareholders. 

And these claims will apparently be blocked both when they are frivolous, and when they are meritorious. 

Of course, in order to get this protection, corporations will have to amend their charters.  Relatively easy to do pre-IPO, but requiring the assent of public shareholders post-IPO.  Leading to the question: Will they?

Why would shareholders care about this situation specifically?  As above, it’s hard to imagine they’re worried about qualified officers refusing to serve, as was the case for the original 102(b)(7) protections.  The sale of the company is an unusual event, and one where officers often have golden parachutes that offset any risk – so fear of this precise situation is unlikely to deter many officers from accepting the job in the first place.

Another possible concern is straight up litigation costs – litigation itself is expensive, sucks up the time of top management, and if we’re worried about frivolous suits or even nonfrivolous ones that won’t result in significant penalties, that might be a reason for shareholders to say the game is not worth the candle.  That, too, was likely some of the motivation for 102(b)(7) as originally drafted.

But in a sale scenario, those costs are all borne ultimately by the acquiring company.  In a cash sale, they won’t be borne by shareholders at all; in a stock sale, they’ll be borne somewhat, but even those expenses are attenuated.  And sure, you can imagine maybe the buyer will pay less if the prospect of lawsuits is out there, or insurance costs will be higher – but those possibilities are so speculative that I genuinely wonder whether shareholders would benefit from exculpation, rather than prefer to have the option of bringing nonfrivolous claims for negligently-conducted mergers (where that negligence was concealed from them in advance), knowing that litigation costs will be paid by the acquirer.

That’s particularly true when you consider that a sale of company is a final period scenario – one where corporate officers know they will no longer be subject to shareholder discipline, and therefore are most at risk of abandoning their responsibilities.

Plus, keep in mind that sometimes, cases make it past pleading on narrow theories, but discovery provides grounds for more robust ones.  Suppose keeping the negligence window open allows shareholders to sue over mergers that have a whiff of unfairness, which functionally allows further probing for more problems, which could reveal more serious defects that permit greater damages to selling shareholders?  That, too, might be valuable for shareholders of the selling company.

All of which is to say, it’s not obvious to me that the same cost-benefit analysis that applies to Original Flavor 102(b)(7) would apply to the revised version.  The specific scenarios where protections for officers are proposed are also scenarios that offer the greatest threat to shareholders, and where shareholders bear the least risk of frivolous litigation costs.  And so it’s not obvious that shareholders of publicly traded companies would be wise to approve charter amendments that exculpate officers.

What about publicly traded companies with dual-class stock?  Technically, they don’t need the assent of public shareholders to amend their charters, so they could just adopt officer-exculpation of their own accord, but (1) the public shareholders might then sue, on the grounds that this was an interested transaction intended to protect current insider/officers, and (2) dual-class companies may not be terribly worried about sale scenarios in the first place, and so have less interest in adopting these provisions.

Which leaves the IPO question: can companies simply go public with these provisions in their charters?

I mean, they can, surely, but the real question is will they pay a monetary price for doing so.  If you think IPO markets are efficient, you’d assume that if public shareholders have no use for this change mid-stream, they’d extract some kind of price for it in IPO markets, which might dissuade the adoption altogether.  I, personally, am less sanguine about the efficiency of IPO markets, however.  That said, so many companies now go public with dual-class stock, they once again may not feel they need these protections.

All of which is to say: I’m really curious to see if public companies manage to amend their charters to exculpate officers, if IPO companies adopt officer exculpation, and if there’s an obvious divergence between the two.  And, if we do see different companies adopting these things, I look forward to a financial analysis of whether they seem to affect pricing in a subsequent sale to an acquirer (who would be expected to bear the costs of shareholder litigation).

Back in March, I posted about a paper, “Censorship and Market Failure in the Marketplace of Ideas,” that Professor Jeremy Kidd and I presented at a research roundtable on Capitalism and the Rule of Law hosted by the Law & Economics Center at George Mason University Antonin Scalia Law School. A complete version of that paper is now available here. Here is the abstract:

Use of the familiar metaphor of the exchange of ideas as a “marketplace” has historically presumed that free and uninhibited competition among ideas will reliably arrive at truth. But even the most fervent economic free-market advocates recognize the possibility of market failure. Market failure is a market characteristic (e.g., monopoly power) that precludes the maximization of consumer welfare.

The last few years have witnessed increased calls for censorship of speech and research pertaining to a variety of subjects (e.g., climate change; COVID-19 sources and treatments; and viewpoints concerning race, gender, and sexual orientation) across a variety of fora. The consistent refrain in favor of this censorship is that the spread of false or misleading information is preventing access to or distorting the truth and thereby inhibiting social progress: undermining democracy, fomenting bigotry, costing lives, and even threating the existence of the planet.

Though on their face these calls for censorship appear anti-liberal and contrary to the marketplace model, they can be made consistent with both if they are understood as a response to a market failure in the marketplace of ideas. While recent calls for censorship have not been justified expressly as a response to market failure, reframing the debate in these terms may prevent parties on both sides of the issue from engaging at cross purposes by locating the debate within an otherwise familiar model.

The Article proceeds as follows: Part I offers examples of recent calls for (and efforts at) censorship in the market of ideas concerning a variety of subjects and forums. Part II articulates a model of the marketplace of ideas that jibes with contemporary economic concepts, defines its components (e.g., sellers, buyers, intermediaries, etc.), considers the possibility of associated market failures, and highlights some common fallacies in the application of the concept of market failure more broadly. Part III explores the principal philosophical justifications for the utility of freedom of expression, focusing on the arguments articulated in John Stuart Mill’s classic, On Liberty. Part IV argues that, in light of these arguments (and taking into account contemporary critiques), the threat of false and misleading expression does not reflect market failure in the marketplace of ideas as modeled here. To the contrary, Part V argues that the ease with which recent public and private efforts at censorship have succeeded may itself reflect a market failure warranting correction—if not through legislation or the courts, then by social sanction and the court of public opinion.

DUQUESNE UNIVERSITY SCHOOL OF LAW in Pittsburgh, PA, is seeking to hire several full-time tenured/tenure-track faculty positions to begin in the 2023-2024 academic year. We welcome applications from candidates across all areas of law, although subject areas of particular interest include: Property, Contracts, Torts, and Business Associations. Other areas of interest include: Professional Responsibility, Emerging Technologies, Intellectual Property, Health Law, and related elective course. Candidates must be available to teach in-person, although the public health situation may require occasional remote and/or hyflex teaching.

Required qualifications are a Juris Doctor from an ABA-accredited law school and superior academic credentials. Successful lateral candidates should ideally have demonstrated a commitment to excellence in teaching, scholarship, and service throughout their careers. Successful entry-level candidates should ideally demonstrate a strong potential for excellence in teaching, scholarship, and service. Prior teaching experience and/or clerking experience preferred but not required. Practice experience may provide evidence of potential for teaching excellence. Alternatively, the successful candidate may possess any equivalent combination of experience and training, which provides the knowledge, skills, and abilities to perform the essential job functions. This includes, but is not limited to the following: Commitment to the University’s values of diversity, equity and inclusion, and recognition of the importance of treating each individual with dignity and respect consistent with the University’s mission. Demonstrated experience with, and understanding of, the broad diversity of the University community (students, faculty, staff and others). Ability to establish and maintain effective working relationships with the University Community. Ability and willingness to contribute actively to the mission of the University and to respect the Spiritan Catholic identity of Duquesne University. The mission is implemented through a commitment to academic excellence, a spirit of service, moral and spiritual values, sensitivity to world concerns, and an ecumenical campus community, welcoming of all faiths and backgrounds.

As a condition of employment, Duquesne University requires all new employees -full-time and part-time, including adjunct faculty-to get a COVID-19 vaccine and provide proof of their vaccination upon commencement of employment. New employees requesting a religious or documented medical exemption from the vaccine must complete and submit a Duquesne University exemption request form for review and approval. To receive the appropriate exemption request form, contact hrservices@duq.edu. Employees with approved exemptions will be required to be tested on a regular basis.

APPLICATION INSTRUCTIONS:  Application review will begin immediately and will continue until the position is filled. Duquesne University uses Interfolio to collect all faculty job applications electronically. Applicants should submit a letter of intent, a curriculum vitae, and contact information for three professional references via Interfolio. The letter of intent should include comments on ability to teach in flexible environments, including online, hybrid, and in-person classroom settings. Applicants are encouraged to describe in their letter of intent how their scholarship contributes to building and supporting a diverse and inclusive community.  Applicants with questions about the position may contact the chair of the Faculty Recruitment Committee, Professor Bruce Ledewitz, at 412-396-5011 or ledewitz@duq.edu.

Duquesne University is committed to attracting, retaining, and developing a diverse faculty that reflects contemporary society, serves our academic mission and enriches our campus community. As a charter member of the Ohio, Western PA and West Virginia Higher Education Recruitment Consortium (HERC), we encourage applicants from members of underrepresented groups, and support dual-career couples.Founded in 1878 by its sponsoring religious community, the Congregation of the Holy Spirit, Duquesne University is Catholic in mission and ecumenical in spirit. Its Mission Statement commits the University to “serving God by serving students through commitment to excellence in liberal and professional education, through a profound concern for moral and spiritual values, through the maintenance of an ecumenical atmosphere open to diversity, and through service to the Church, the community, the nation and the world.” Applicants for this position should describe how they might support and contribute to the mission.  Duquesne University is Catholic in mission and ecumenical in spirit. Motivated by its Catholic and Spiritan identity, Duquesne values equality of opportunity both as an educational institution and as an employer.

https://www.duq.edu/work-at-du/careers/faculty-hiring/school-of-law/full-time-tenured/tenure-track-faculty-

FINRA has returned to the SEC with a new proposed rule change to address problems with its expungement system.  Although the proposal continues to use arbitration to facilitate stockbroker expungements, the new proposal makes some significant changes over prior proposals.

A bit of history may help put this in context.  Two years ago, FINRA released a proposal to reform its expungement process. I wrote two comment letters in response to that proposal, prompting FINRA to amend the proposal twice.   The twice-revised proposal was ultimately withdrawn so FINRA could study the issue before returning with another proposal.  That new proposal is now here.  I put together this chart to track some of my recommendations to see what has been adopted and what has not.

Changes to FINRA Expungement Proposal Over Time

Edwards’ Request

Initial Rulemaking

2022 Rulemaking

Abandon Arbitration-facilitated expungement

Denied

Denied

Allow Non-Party Investor Advocate  Participation

Denied

Accepted

Require Expanded Duties of Candor

 

Denied

Denied

Improve Customer Notice

Accepted

Accepted

Provide Non-Party Customers With Full Pleadings

Accepted

Accepted

Specify Attorney Fees For Successful Opposition

Denied

Denied

Allow Non-Party Customers to Access Docket Online

Accepted

Accepted

Allow Non-Party Customers to Participate in Scheduling Decisions

Accepted

Accepted

Provide Notice After Filing, Not Initial Hearing

Accepted

Accepted

Create a Time Period for Customer Notice

Accepted

Accepted

Separate Expungement Arbitrators from Ordinary Arbitrators

Denied

Denied

Specify Some Standard of Proof

Denied

Denied

Require Unanimous Expungement Awards

Denied

Accepted

The new proposal includes a major change to the process, a pathway for state regulators or their representatives to appear at the fact-finding stage.  FINRA explains the change as follows:

The current expungement process does not include a mechanism to facilitate state securities regulator involvement in expungement hearings in the DRS arbitration forum. The proposed rule change would provide a mechanism for an authorized representative to provide the state securities regulators’ position or positions on an expungement request in writing or by attending and participating in the expungement hearing in person or by video conference. This attendance and participation by an authorized representative of the state securities regulators would be limited to straight-in requests, where the panel may otherwise only hear evidence from the party requesting expungement.

This is undoubtedly a big step in the right direction.  Expungements effectively wipe a state securities regulator’s memory.  By deleting information from the CRD, it removes information from the regulator’s files.  State securities regulators should be able to appear at the key stage to advocate for their interests.  It’s difficult to target your oversight toward brokerages with the most customer complaints if the customer complaints keep getting expunged.

My immediate concern is that I do not see a good reason for limiting this simply to straight-in requests.  Most customer cases settle.  After that, customers and their counsel have little interest in providing the panel with information.  Functionally, the only evidentiary hearing in many matters will be the expungement hearing tacked on to a settled matter.  Even within the proposal, FINRA itself has recognized that expungement hearings in settled cases are in a similar posture to straight-in requests.   It explained that although most concerns have been focused on straight-in requests, “[s]ome of these concerns, however, also apply to expungement requests filed in customer arbitrations that settle, where the panel from the customer arbitration then holds a hearing to consider the expungement request.”  Given the similarity, it doesn’t seem appropriate to limit state regulators to only straight-in requests.

FINRA has a tough job here to balance competing interests.  It aims to provide a way for stockbrokers to challenge complaints on their record. It also has an obligation to ensure the integrity of the CRD database.  These changes will likely result in more informed decisions by arbitrators.  Of course, given the incentive structure favoring customer apathy and broker participation, the system will likely continue to grant far too many expungements.  But it’s a step in a better direction for now.

Dear BLPB readers:

“Fifth Conference on Law and Macroeconomics
October 20-21, 2022 (virtual)

The macroeconomic instability of the 2020s continues to fuel economic, social, and political
turmoil worldwide and to recast our understanding of law and macroeconomics. The ongoing crisis
has opened up new and vitally important research opportunities. As we press on towards pandemic
recovery and confront new challenges, the Fifth Conference on Law and Macroeconomics will
focus on the law’s role in shaping a sustainable and resilient macroeconomy and on the role of
macroeconomic policy in national, regional, and global governance.”

September 15, 2022 is the deadline for submitting papers for consideration.  The conference website and complete call for papers is here.

BelmontU

We are hiring for an open Assistant Professor of Business Systems and Analytics position.

We will consider lawyers/law professors with data governance/privacy law experience/research.

I am on the hiring committee; feel free to reach out to me with any questions.

Position posting here.

LOUISIANA STATE UNIVERSITY, PAUL M. HEBERT LAW CENTER seeks to hire tenure-track or tenured faculty in a variety of areas, including, but not limited to, faculty who have expertise in business law, civil & comparative law, civil procedure, constitutional law, contracts, criminal law and procedure, evidence, family law, professional responsibility, and property. Applicants should have a J.D. from an ABA-accredited law school (foreign equivalencies will also be considered), superior academic credentials, and a demonstrable commitment to the production of quality scholarship, as well as a commitment to outstanding teaching.

Louisiana State University is an R1 land, sea, and space-grant university with a footprint across the state of Louisiana. It is one of only eight universities in the nation with a law school, dental school, medical school, veterinary school, and an elite MBA program. The LSU Law Center, the flagship state law school of Louisiana, is part of LSU A&M’s campus, located in the state capital, Baton Rouge. See more about LSU, including links to the area, at https://lsu.edu/visit/index.php.

LSU is committed to providing equal opportunity for all qualified persons in admission to, participation in, or employment in the programs and activities which the University operates without regard to race, creed, color, marital status, sexual orientation, gender identity, gender expression, religion, sex, national origin, age, mental or physical disability, or veteran’s status. LSU is committed to diversity and is an equal opportunity/ equal access employer. LSU believes diversity, equity, and inclusion enrich the educational experience of our students, faculty, and staff, and are necessary to prepare all people to thrive personally and professionally in a global society. To learn more about how LSU is committed to diversity and inclusivity, please see LSU’s Diversity Statement and Roadmap.

Please note that applicants must apply through the LSU Career Opportunities website. Only those persons who apply online will be considered for employment. Please apply using the following link: (https://lsu.wd1.myworkdayjobs.com/LSU/job/0400-Hebert-Law-Center/Assistant-Professor-of-Law-Associate-Professor-of-Law-Professor-of-Law_R00069560). Applications should include a letter of interest, resume including a list of three references, research agenda, and, if available, teaching evaluations.  

Questions may be directed by email to Ms. Pamela Hancock, the LSU Law Center’s Coordinator of Administration, who assists the Faculty Appointments Committee (phancock@lsu.edu).

DePaul University College of Law invites applications from entry-level candidates for a tenure-track position expected to begin July 1, 2023. We have particular interest in the areas of Business Law, Contracts, Tax, Commercial Law, and Antitrust. 

DePaul Law is committed to improving society by educating purpose-driven lawyers who will serve their clients, the legal profession, and the broader community in ways that enhance access to justice and promote equitable policies and processes. We enthusiastically encourage applicants who would enrich the diversity of our community to apply. To learn more about us, please visit https://law.depaul.edu/Pages/default.aspx. 

Required Qualifications:

All candidates must hold a J.D. or equivalent degree, possess excellent academic credentials, and demonstrate potential to be an outstanding scholar and teacher.

Special Instructions to Applicants:

Interested candidates should apply online. Required materials include a cover letter, curriculum vitae, list of references, research statement, diverse learning environment statement, and writing sample. Please direct any questions about the position to mhelvest@depaul.edu.

I’m currently working on a piece on anti-ESG legislation for our upcoming BLPB Symposium. According to The Heartland Institute (here), as of April 5, 2022, twenty-eight states have initiated some form of “anti-ESG action.” So, recent news of Florida Governor Ron DeSantis pushing for further action in this area caught my eye. Here is an excerpt from relevant coverage by WFSU (go read the full piece here):

DeSantis plans to have the State Board of Administration, which oversees investments, direct pension-fund managers against “using political factors when investing the state’s money.” So-called ESG policies have drawn criticism from Republicans across the country…. Renner, who will become House speaker after the November elections, called the corporate practices a national-security issue and a pocketbook issue. “What we have is these large corporations and banks that are pursuing a woke agenda that is artificially driving up our costs in energy,” Renner said. “There’s a reason why we haven’t built new refineries. There’s a reason why we’re not drilling for oil even though we have more reserves in this country than any other place in the world, it’s because the banks and this woke agenda is choking off their ability to get financing to do that.” DeSantis said ESG is a being used by “upper echelons of our society” to impose a “woke ideology on the economy.” “We don’t want to see the economy further politicized, and we want to push back against the politicization that’s already happened,” DeSantis said. “Our investment of funds should be for the best interest of our beneficiaries here in the state of Florida, it should not be a vehicle to impose an ideological agenda.”