ProfessorBainbridge.com

Banning Shareholder Suits: Corporate Charter Arbitration Clauses

Suppose a corporate board proposes, and shareholders approve by majority vote,  a charter amendment providing that all intra-corporate disputes, such as shareholder securities fraud or fiduciary duty suits, be submitted exclusively to binding arbitration.  Would that be valid under state corporation law?  Would federal arbitration law require that it be validated, without regard to whether it would be invalid under state corporation law?

via www.concurringopinions.com

Podcast interview re Corporate Governance After the Financial Crisis

Collected Miscellany: 

For this week’s edition of Coffee and Markets, Pejman Yousefzadeh and I were joined by Stephen Bainbridge.  We discussed his book, Corporate Governance After the Financial Crisis, the general shortcomings of policy approaches to financial crises, and the shortcomings of Sarbanes-Oxley, and Dodd-Frank in particular.

Listen here.

My thanks to the hosts for this wonderful opportunity.

Opinion: An end to the regulatory state? - Jonathan Macey - POLITICO.com

Once in a while, it appears that Congress might actually pass a constructive law and the president may sign it. But our politicians seldom fail to disappoint.

The current possibility is the JOBS, or Jump-Start Our Business Start-Ups, Act. This bill is designed to significantly decrease the massive regulatory burdens associated with raising capital from investors.

The JOBS Act could lead to the private sector creating millions of additional jobs over the next decade. It features some truly exciting reforms that could ease small businesses’ regulatory woes by making it easier for companies to raise capital in the public equity markets, and easier for successful companies, which want to compensate employees with stock options, to stay private.

Read more: http://www.politico.com/news/stories/0312/74337.html#ixzz1prACayk9 Read more: http://www.politico.com/news/stories/0312/74337.html#ixzz1prA1cBW5

via www.politico.com

Macey goes on to explain that a large part of the problem is that liberals have woken up to the ways the JOBS Act challenges the fundamental precepts of their beloved regulatory state.

What is Crowdfunding? First in a series

If you've been following the debate in the Senate over the JOBS Act, you know that "crowdfunding" has become a huge issue and potential obstacle to passage:

Crowdfunding will likely become the new law of the land, but not as soon as its advocates had hoped.

The JOBS Act passed the House easily on March 8 by a 390-23 vote, and its supporters hoped it would sail through the Senate. But today the Act has been delayed in the Senate by new arguments and amendments. ...

Strong editorial opposition to the House version of JOBS has come from the likes ofBloomberg and The New York Times, where editorials predict that the Act will usher in a new era of scams and bilking as regulations for capital-raising in small companies are scaled back; the comparison is often made to the formation of the SEC after the 1929 stock market crash, which was caused, in part, by an under-regulated securities market that accelerated out of control and became doomed to pop, taking consumer nest-eggs with it.

I'll be blogging on crowdfunding over the next few days. Let's start today with a brief description of what crowdfunding is. 

Football Thoughts

Let's take a break from corporate law et al., to focus on the hot stove league news. It's been a pretty amazing week for football fans.

1. Peyton Manning as a Bronco. Curious that he opted against the 49ers. With Manning, the Broncos are a lock to win 10-12 games and make the playoffs. With the 49ers, however, I'd have pegged Manning to win his second Super Bowl. The 49ers have a better defense and running game.
2. Tom Tebow traded to the NY Jets. WTF? How on earth are Tim Tebow and Coach Rex "Potty Mouth/Foot Licker" Ryan going to co-exist? And why? To be a Wildcat freak or to really compete for the starting job?
3. Can you imagine Tebowmania in New York? The first time Mark Sanchez makes a bad play (which will be sometime in the first drive of the first preseason game), the crowd will be howling for Tebow.
4. How long will it take the NY Post to start Timsanity headlines?
5. Stunned that Roger Goodell suspended Sean Payton for the entire 2012 season. I guess Roger decided that a fish rots from the head and that he had to send a message that the head coach is ultimately responsible for maintaining institutional control.
6. Reports say Payton will lose $8 million in pay. Hope he had a big rainy day fund put aside.
7. Surprised that Saints GM Mickey Loomis was not suspended immediately. GM does most of his work now, with draft and free agency. Suspending him for games during the season will have much less impact. Given that Loomis reportedly disobeyed a direct order to end the program, he has always appeared more culpable than Payton.
8. If New England had to lose a first round pick for Spygate, shouldn't the Saints have lost their 2013 first round pick?
9. I'd really hate to be a Saints fan right now.
10. After years of being a disgruntled Redskins fan, I publicly switched allegiances to the Packers last year. As usual, my timing sucked. It looks like the Redskins are finally getting their act together. RGIII is going to be a star. They've given him some great new weapons. The defense was already solid. Now if they can strengthen the O-line and running game, they'll be a solid playoff contender. 

For LSAT, Sharp Drop in Popularity for Second Year

The organization behind the Law School Admission Test reported that the number of tests it administered this year dropped by more than 16 percent, the largest decline in more than a decade.

via www.nytimes.com

It's about time law school applications started reflecting the new economic reality that the legal profession simply isn't growing as fast as it used to.

What are Bucket Shops?

Last week, New York Times columnist Gail Collins wrote this Op-Ed piece criticizing the Jumpstart Our Business Startups (aka JOBS) Act (H.R. 3606).  ... In criticizing the JOBS Act, Ms. Collins remarked “You could also call it the Just Open Bucket Shops Act.” But what exactly is a “bucket shop” and why would it be bad to open one?

via CALCORPORATELAW.COM

Follow the link to get the answer.

The Efficacy of Shareholder Voting: Evidence from Equity Compensation Plans

This study examines the effects of shareholder support for equity compensation plans on subsequent chief executive officer (CEO) compensation. Using cross-sectional regression, instrumental variable, and regression discontinuity research designs, we find little evidence that either lower shareholder voting support for, or outright rejection of, proposed equity compensation plans leads to decreases in the level or composition of future CEO incentive-compensation. We also find that in cases where the equity compensation plan is rejected by shareholders, firms are more likely to propose, and shareholders are more likely to approve, a plan the following year. Our results suggest that shareholder votes have little substantive impact on firms’ incentive-compensation policies. Thus, recent regulatory efforts aimed at strengthening shareholder voting rights, particularly in the context of executive compensation, may have limited effect on firms’ compensation policies.

via papers.ssrn.com

Yet, we keep insisting on ever more shareholder empowerment.

Celebrity Socialists

Aging ex-supermodel Elle MacPherson is reported to have a net worth of $45 million. In addition to having been paid millions by capitalists, MacPherson herself is a capitalist with businesses in fashion and beauty.

Despite living a life of luxury thanks to the freedoms provided by living and working in democratic capitalist societies, MacPherson recently told Howard Stern that "she's pulling for Barack Obama to be reelected."

"I’m living in London and I’m socialist," she told her host. "What do you expect?"

It's easy to be a socialist when you're a multi-millionaire living in liberal democracies with capitalist economies. When your life is completely cosseted by entourages, private jets, limos, and all the rest of the perks of being at the top of the 1%, it's easy to mock the system.

What MacPherson desperately needs is for the proto-angel from It's a Wonderful Life to take her on a tour of what MacPherson's life would have been like if she had been born in, say, East Germany or the Soviet Union in, say, 1955. Maybe they'd have time for a quick visit to the Gulag Archipelago. Or the angel could show her what her life would have been like if she had lived in Cambodia in the late 1970s.

Socialism failed. Miserably. Communism collapsed because it was unable to compete with democratic capitalism. Marxist-Leninist countries produced misery, inequality, poverty, and environmental degradation. Chinese communism has morphed into a fascist-like form of state capitalism. European social democracy is struggling to survive an era of austerity.

About the only people who haven't figured out that saying "I'm a socialist" is the same as saying "I'm a massive idiot" are Western academics and zillionaire celebrities. But I guess that's why MacPherson is known as "the Body" and not "the Brain."

BTW, I have a feeling some Super-PAC is going to be running this clip a lot between now and November. "I live in London" cues up the birther issue. "I'm socialist" cues up the "Obama's a socialist" meme. They're both stupid arguments, but they might play in Peoria.

Should Equity-Based Crowd Funding Be Legal?

Small businesses complain that they're starved for capital these days. And there's a debate raging about a possible solution under consideration by Congress: equity-based crowd funding.

via online.wsj.com

Good debate over the basic business issues. Not so much on the law.

Eighth Edition of Klein, Ramseyer & Bainbridge Cases and Materials on Business Associations Published

Foundation Press announcement:

With the prior edition of this concise, up-to-date casebook having been adopted at over 100 law schools, the eighth edition preserves the authors' tradition of providing a comprehensive overview of agency, partnership, and corporation law. It also continues to emphasize six basic editorial principles: Be lean but not mean, cases edited ruthlessly to produce a readable and concise result. Facts matter, so they are included in all their potential ambiguity. Bring a planner¹s perspective to the table through extensive use of transactionally-oriented problems. It’s a casebook not a treatise. No long, stultifying textual passages. Provide the cases and let the individual teacher use them as he or she sees fit. Try to find cases that are fun to teach. Great facts or a clever analysis are always given first priority in case selection. Provide a teachers’ manual that goes into great depth, with analysis of every case and, whenever applicable, offering the disparate views of each author. An exhaustive teachers’ manual extensively discusses every case and provides answers to every question in the text. One feature that many adopters find especially helpful is that all three editors give their own approach to the cases, showing the different ways in which the same case can be taught. Annually updated PowerPoint slides cover almost all sections of the book and feature an extensive use of data, graphics, and photos.

List of changes from prior addition available here.

Suing Chevron in Ecuador

In an environmental suit brought by lawyers for some residents of the Amazon, an Ecuadorian court last year issued an $18.2 billion judgment against Chevron. Readers who follow the case only casually may have the impression that this is a classic case of David vs. Goliath, and that Ecuadorian courts gave Goliath his come-uppance

via opiniojuris.org

He goes on to show that the judgment is a sham and involved serious abuses of process.

THAT SEEMS RATHER UNJUDICIOUS

THAT SEEMS RATHER UNJUDICIOUS: 29 Wisconsin Judges Sign Walker Recall Petition. That’s 12 percent, and it’s not just abstract advocacy. “Dane County Judge David Flanagan has been under fire for not disclosing his support of the recall before he issued a temporary restraining order against a Walker-backed voter ID law.” It’s like these people don’t believe in civil society or something.

via pjmedia.com

I guess the legal realists were right. Law really is just the continuation of politics by other means. ... At least in Wisconsin.

Frank Partnoy on Greg Smith: There are clients and there are clients

You may be on spring break or not subscribe to that pink paper from across the pond, and so have missed Frank Partnoy's op-ed today in the Financial Times about Greg Smith.  

I can see principled arguments for going either direction. For 1) distinguishing the fiduciary relationship where duties are owed from the every-man-for-himself counterparty relationship, where bare honesty is all that's required. Or for 2) saying counterparties deserve fiduciary protection as well, meriting the punctilios of an honor the most sensitive, no way no how is "accurate disclosure" the sum total of the duty owed. Partnoy's incisive point is well taken, it seems to me: we need to be clear about whom we're speaking when we talk about clients.

via www.theconglomerate.org

I am reminded of something Justice Franfurter once said: "[T]o say that a man is a fiduciary only begins analysis; it gives direction to further inquiry. To whom is he a fiduciary? What obligations does he owe as a fiduciary? In what respect has he failed to discharge these obligations? And what are the consequences of his deviation from duty?"

U.S. Supreme Court Asked To Determine Constitutionality Of General Solicitation Ban

Federal and state securities laws are premised on the belief that the government can constitutionally prohibit or limit speech in connection with the offer or sale of securities.  At least one issuer has aggressively challenged this premise and has now taken its case to the U.S. Supreme Court.

via CALCORPORATELAW.COM

We may finally learn whether there are limits on the SEC's ability to compel and punish speech.