Wait for David Mitchell to start at about 0:55
Anne Tucker opines:
Fellow BLPB blogers have shared on and off line their coverage scope and strategies for Business Associations/Corporations. In thinking about how to fit in big corporate constitutional questions into a syllabus that is already jam packed with topics, this 2013 article (Teaching Citizens United v. FEC in the Introductory Business Associations Course) by Michael Guttentag at Loyola Los Angeles, provides some great suggestions. Written in a post-Citizens United and pre-Hobby Lobby era, I think his insights are broadly applicable about how corporate constitutional rights illustrate the "costs that may arise from differences between manager interests and shareholder interests, the costs that may arise from following a shareholder primacy norm, and the distinctive nature of the role of the transactional lawyer." This short (8 pages) article is worth reading to identify some opportunities to discuss these important issues in a way that illustrates difficult concepts within your existing syllabus and hopefully keep students engaged throughout the semester.
I agree that you ought to read Mike's paper. But then again I think you ought to read everything Mike writes (as I do). Having said that, however, I affirmatively avoid teaching Citizens United or anything else remotely resembling constitutional law in my Business Associations course. Why?
1. The law school curriculum already over emphasizes constitutional law, elevating it as the highest and best form of law a lawyer can aspire to practice. It is the most extreme example of how all too many law schools privilege public law over private law (especially business law). So why perpetuate the problem in our own courses?
2. At many law schools, the line to teach constitutional law is huge and students fairly get the impression that the professor teaching [fill in the blank] really wants to be teaching constitutional law and that's why they're spending so much time on US Supreme Court cases. I have zero interest in teaching constitutional law and want to give students an example of at least one professor who finds business law (and Delaware Chancery Court cases) far more interesting than constitutional law. Getting students interested in business law as an intellectual exercise is hard enough without ourselves perpetuating the stereotype that business law is boring and con law is fun.
3. Mike suggests that:
One can ask: How would you feel if the managers of a corporation you owned shares in decided to oppose same-sex marriage, even if a majority of the firm's shareholders supported same-sex marriage?
Perish the thought. As a white male conservative Catholic teaching business law courses at a law school whose faculty and student body are overwhelming secular and liberal, spending class time on issues of race, gender, class, politics, religion, culture and so on would inevitably plunge me into a Kobayashi Maru scenario. Call me a wimp, but I get myself into enough trouble on those issues here on the blog without bringing them into the classroom.
4. I have enough trouble keeping up to date with Delaware corporate law without adding the need to steep myself in constitutional law. Granted, as was the case in Hobby Lobby, sometimes I touch on Supreme Court cases in my scholarship. As was also the case in Hobby Lobby, however, I ignored the constitutional issues to focus on what I saw as a potential corporate law twist to the case.
5. As Anne correctly notes, the basic Business Associations course is jam packed. As it stands, I cover most of Chapter 1, all of Chapters 2 to 5, and part of Chapter 6 of the Klein, Ramseyer, & Bainbridge casebook in the basic course. I don't have time to get to Chapters 7 or 8 at all (for which my dear friend Bill Klein periodically repreimands me, as he thinks Chapter - Debt - is essential). What core business law topics should I ditch? Granted, Mike advocates working Citizens United into the mix in three areas that i suspect most of us teach:
(1) the potential for differences between the interests of those who manage the firm and those who own the firm,(2) the costs and benefits of shareholder primacy, and (3) the role of a transactional lawyer in advising on business decisions that involve legal risks.
But I can teach those issues using plain vanilla business law courses. And prefer to do so for the reasons already set out above.
As always, your mileage may vary, but at the very least I would advise my fellow business law professors to think very carefully before following Anne and Mike's advice.
I have been reading with interest David Millon's new paper, Radical Shareholder Primacy (July 28, 2014), available at SSRN http://ssrn.com/abstract=2473189, which argues that:
Abstract: This article, written for a symposium on the history of corporate social responsibility, seeks to make sense of the surprising disagreement within the corporate law academy on the foundational legal question of corporate purpose: does the law require shareholder primacy or not? I argue here that disagreement on this question is due to the unappreciated ambiguity in the shareholder primacy idea. I identify two models, the 'radical' and the 'traditional.' Radical shareholder primacy originated at the University of Chicago in the later 1970s, first in the work of Daniel Fischel and then in his co-authored writings with Frank Easterbrook. The key point is the assertion that corporate management is the agent of the shareholders, charged with maximizing their wealth. There is no legal authority for this claim; Fischel drew it from the financial economists Michael Jensen and William Meckling, who used the agency idea in a non-legal sense. So those who say that this notion of shareholder primacy is not the law are correct. However, a different conception of shareholder primacy is based on the idea that shareholders hold a privileged position within the corporation's governance structure, enjoying a monopoly over voting rights and the right to bring derivative lawsuits and singled out for special mention in the traditional specification of fiduciary duties as being owed to 'the corporation and its shareholders.' In this sense, shareholders enjoy primacy over the corporation's other stakeholders, although there is no maximization mandate and corporate law is largely ineffective in allowing shareholders to insist that management privilege their interests. Nevertheless, this version of shareholder primacy is enshrined in the law, and, if the radical version's agency claim is laid to rest, there is no harm in acknowledging that fact.
I am prepared to associate myself more or less with David's traditional version of shareholder primacy, which he describes as follows:
This model also claims to privilege shareholders, but its commitment to them is significantly weaker than under the radical version. Under the traditional model, which emerged in the last years of the nineteenth century and was embodied in corporate law and widely accepted for much of the twentieth century, management enjoys broad discretion and is largely inunune from shareholder control." While it is assumed that a business corporation is organized in order to generate profit and, as a practical matter, a corporation that regularly loses money cannot survive long-term, there is no expectation that management must maximize current share price to the exclusion of competing objectives. These can include regard for the interests of non-shareholder constituencies under circumstances management deems to be appropriate, as well as long-term investments that reduce current earnings for the sake of future gains. Certainly there is no sense that an agency relalionship exists between management and shareholders.
I say more or less because I would offer a couple of qualifications. First, for reasons I've laid out in various places, but perhaps most comprehensively here, I think that management can and should have "regard for the interests of non-shareholder constituencies under circumstances management deems to be appropriate [only to the extent management reasonably believes doing so will redound to the benefit of shareholders in the long-term and that management should not do so at all in final period situations]."
Second, and this is mostly a semantic quibble, i understand the term shareholder primacy as making two distinct claims. One goes to the ends of corporate governance and claims that managers have a fiduciary duty to sustainably maximize shareholder returns over the long-term. The other goes to the means of corporate governance and claims that shareholders both do and should have ultimate control of the company. I accept the former but reject the latter. Instead, as I have argued ad nauseam, control of the corporation is vested in the board subject to very limited shareholder accountability mechanisms. Hence, I prefer the term director primacy.
I have been reading with interest Lyman Johnson's new paper, Law and the History of Corporate Responsibility: Corporate Governance (2014). 10 University of St. Thomas Law Journal 974 (2014); U of St. Thomas (Minnesota) Legal Studies Research Paper No. 14-21; Washington & Lee Legal Studies Paper. Available at SSRN: http://ssrn.com/abstract=2469979:
Abstract: This article is one part of a multi-article project on the role of law in the history of corporate responsibility in the United States. Key background material for the project is set forth in the introduction to an earlier article addressing corporate personhood. This paper deals with corporate governance while other articles address corporate purpose and corporate regulation.
Corporate responsibility concerns associated with corporate personhood, corporate purpose, and corporate regulation all ultimately relate to a far more basic issue: corporate governance. As the commercial demands of nineteenth century industrialization led to substantial displacement of the partnership form of business enterprise by large corporations with dispersed shareholders, control of these corporations - i.e., their governance - centered in the hands of senior managers, not investors themselves. This phenomenon of “separation of ownership from control” is quite different than in the typical partnership and was seminally described by Adolf Berle and Gardiner Means in their 1932 book, The Modern Corporation and Private Property. It has continued to occupy center stage in corporate law for the past eighty years.
From a legal history vantage point on corporate responsibility, the stupendous rise in commercial significance of the corporation in the nineteenth century corresponded to the precipitous decline of a regulatory approach to corporations under state corporate law, and instead, the twentieth century “outsourcing” of such regulation to an array of other legal regimes ostensibly designed to protect both investor and noninvestor groups. This meant that corporate law itself developed in such a way as to loosen, not tighten, most constraints on those who govern public corporations. The thesis of this article, developed in Parts I and II, is that corporate governance, both as a body of law and as a field of academic study, has historically had little to say on the important subject of corporate responsibility. Instead, the quest for greater responsibility in the United States largely has come from “external” legal regulation and from ongoing shifts in business and social norms. Recently, corporate law’s long and unsustainable neglect of corporate responsibility concerns has led to the emergence of a new type of business corporation, the “benefit corporation.” Benefit corporations expressly permit the directors to advance both investor and noninvestor interests, in aid of pursuing a larger public benefit. The implications of this development for governance of the regular business corporations are unknown. One potential adverse outcome is the “ghettoization” of corporate responsibility within benefit corporations, leading to even less serious attention to such concerns in the traditional business corporation.
I agree with Lyman that "corporate governance, both as a body of law and as a field of academic study, has historically had little to say on the important subject of corporate responsibility. Instead, the quest for greater responsibility in the United States largely has come from “external” legal regulation and from ongoing shifts in business and social norms."
But I disagree with Lyman's argument that this supposed neglect is unsustainable. Instead, I agree with Gordon Smith's eloquent exposition of the The Dystopian Potential of Corporate Law, available at SSRN: http://ssrn.com/abstract=976742, which argues that:
The community of corporate law scholars in the United States is fragmented. One group, heavily influenced by economic analysis of corporations, is exploring the merits of increasing shareholder power vis-a-vis directors. Another group, animated by concern for social justice, is challenging the traditional, shareholder-centric view of corporate law, arguing instead for a model of stakeholder governance. The current disagreement within corporate law is as fundamental as in any area of law, and the debate is more heated than at any time since the New Deal.
This paper is part of a debate on the audacious question, Can Corporate Law Save the World? In the first part of the debate, Professor Kent Greenfield builds on his book, THE FAILURE OF CORPORATE LAW: FUNDAMENTAL FLAWS AND PROGRESSIVE POSSIBILITIES, offering a provocative critique of the status quo and arguing that corporate law matters to issues like the environment, human rights, and the labor question.
In response, Professor Smith contends that corporate law does not matter in the way Professor Greenfield claims. Corporate law is the set of rules that defines the decision making structure of corporations, and reformers like Professor Greenfield have only two options for changing corporate decision making: changing the decision maker or changing the decision rule. More specifically, he focuses on board composition and shareholder primacy. Professor Smith argues that changes in corporate law cannot eradicate poverty or materially change existing distributions of wealth, except by impairing the creation of wealth. Changes in corporate law will not clean the environment. And changes in corporate law will not solve the labor question. Indeed, the only changes in corporate law that will have a substantial effect on such issues are changes that make the world worse, not better.
One consequence of the events in Ferguson, Mo. is that people are talking with each other across ideological lines who usually don’t, a symbol being the attention paid on both left and right to Sen. Rand Paul’s op-ed last week in Time. And one point worth discussing is how the problem of police militarization manifests itself similarly these days in local policing and in the enforcement of federal regulation.
At BuzzFeed, Evan McMorris-Santoro generously quotes me on the prospects for finding common ground on these issues. The feds’ Gibson Guitar raid — our coverage of that here — did much to raise the profile of regulatory SWAT tactics ....
Walter Olson reminds us that the problem of paramilitary cops goes beyond local SWAT teams and the like, to include the feds.
Corporate America is being held hostage by three people you have probably never heard of.
The three people — John Chevedden, William Steiner, James McRitchie and their families — specialize in bringing shareholder proposals at annual meetings, urging companies to change their compensation practices or improve their corporate governance.
These three are a force unto themselves. Together, they accounted for 70 percent of all proposals sponsored by individuals among Fortune 250 companies this year, according to a new study by the Manhattan Institute.
Go read the whole thing. Now.
Over on Facebook, a friend who clearly is in denial about the fact that law school starts next week (he's another law prof), asked: "whom would you rank (in order) as the top 10 QBs in NFL history? and please explain if you are so inclined."
Here's my answer:
1-Joe Montana: 4 for 4 in SB and 3 x MVP.
2-Tom Brady: 3 SBs, 21 game win streak, undefeated 16 game season, Giselle.
3-Jonny Unitas: 34 TDs in 1959!
4-Dan Marino: Amazing numbers despite no SBs, especially b/c he'd kill in today's game.
5-Peyton Manning: Got to respect the #s and MVPs, even if you think he is a big game choker.
6-Sonny Jurgensen. Best arm I ever saw in person. Won NFL passing title at age 40. Probably while drunk or hungover. He was Brett Favre before there was a Brett favre.
7-Brett Favre: Got to love the gunslinger.
8-Otto Graham: Dominated his era. Best career winning %. Still has record for YPA. Probably should be higher.
9-Terry Bradshaw: Got a lot of rings.
10-Sammy Baugh: First real modern QB. Made the forward pass a real weapon.
David Hyman has an answer and a reply to his critics. Constitutional Prognostication: Does Anybody Know Anything? (August 5, 2014). University of Illinois Law Review, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2392042:
Every client knows that his case is a winner, but practicing lawyers know better. Indeed, practicing lawyers are extremely reluctant to make predictions about how a case will come out — and when forced to do so, they will invariably reference the hazards and uncertainties of litigation, and hedge any predictions they make. When it came to the legal challenges against the Patient Protection and Affordable Care Act ("PPACA"), law professors who teach and write about constitutional law were far less circumspect. Indeed, they seemingly competed with one another to demonstrate how confident they were that that the federal courts would reject the legal challenges to PPACA in their entirety.
How did these confident predictions fare when the cases were actually tried? Not all that well – if by "not all that well" we mean "the complete repudiation of everything that law professors believed and espoused." The University of Illinois Law Review has now published five responses to my article, by Professors Blackman, Blumstein, Koppelman, Mazzone, and Ramseyer. In this short essay, I summarize each of the responses, and offer a short reply, organized around two P’s (Predictions and Practical Knowledge), and one M (Merits).
Harry T. Edwards, Another ““Postscript” to “The Growing Disjunction Between Legal Education and the Legal Profession”, 69 WASH. L. REV. 561, 562 (1994)
[T]he problem began in the late ‘60s when an increasing number of individuals who aspired to become history professors or economics professors or philosophy professors or political science professors or literature professors discovered that there were few, if any, opportunities in those fields. After spending several years doing graduate work, they finally faced reality and attended law school. Most of these individuals had no real interest in law or in becoming a lawyer, but many were excellent students. As a result, they were hired by law faculties ... in increasing numbers .... This led to an explosion of interdisciplinary work in law, as well as to an increasing rejection of the importance of doctrinal analysis even in mainstream courses.
Obviously it's not true of every law and Ph.D. faculty member, but it is true enough that the law school scam folks ought to be taking notice.
A friend reports over on Facebook that s/he had run a number of empirical tests of a certain claim and had found no evidence the claim was true. S/he bemoans that this null result - which I think is actually more interesting than a positive result, since it is counter the conventional wisdom - means that the piece has become much harder to place in a top journal. And s/he's right. The publication bias against null results is sufficiently well known as to have its own Wikipedia entry.
Call me old-fashioned. Call me a curmudgeon. Call me a stick in the mud. Call me a crank with an idée fixe. All too true. But I still don't see why leal academics shouldn't stick to what presumably we do better than any other social scientist; namely, going out and reading the damned cases and figuring out what the rule of law is. And then throw in some policy analysis and call it a day.
Joshua Fershee revisits the issue, concluding he likes the topic by topic approach. As he notes, however, I come down pretty hard on the entity by entity approach.
But thanks to Josh for the kind words:
I have great respect for Prof. Bainbridge, and his writing has influenced me greatly, but ...
Why must there always be a but? :-)