Bloomberg Securities Regulation and Law Report advises that:
House Financial Services Chairman Jeb Hensarling (R-Texas) wants to require anyone seeking to put a proposal on the corporate ballot to hold a minimum of 1 percent of a company's outstanding stock for three years. Currently, shareholders with as little as $2,000 in shares for a year or more can do so.
The shareholder proposal rule (SEC Exchange Act Rule 14a-8), of course, has been abused by so-called gadflies for years who put forward proposals that often have little to do with the company's business and sometimes are even inimical to the company's interests. It also has been a sometime tool of activist hedge and pension funds for legitimate corporate governance changes, but left-leaning state and local pension funds and union pension funds have often used it to achieve political or social ends not shared by other investors. The Manhattan Institute's Jim Copland's written testimony to the House in 2016 gives an excellent explanation of how the rule gets abused and ways it could be reformed.
I certainly favor significantly increasing the ownership threshold, but I also believe that the rule needs substantive changes to prevent activists from meddling in matters that are appropriately the responsibility of the board and management rather than shareholders. I have proposed tightening the ordinary business exclusion to do so:
Who decides what products a company should sell, what prices it should charge, and so on? Is it the board of directors, the top management team, or the shareholders? In large corporations, of course, the answer is the top management team operating under the supervision of the board. As for the shareholders, they traditionally have had no role in these sort of operational decisions. In recent years, however, shareholders have increasingly used SEC Exchange Act Rule 14a-8 (the so-called shareholder proposal rule), to not just manage but even micromanage corporate decisions.
The rule permits a qualifying shareholder of a public corporation registered with the SEC to force the company to include a resolution and supporting statement in the company’s proxy materials for its annual meeting. In theory, Rule 14a-8 contains limits on shareholder micro-management. The rule permits management to exclude proposals on a number of both technical and substantive bases, of which the exclusion in Rule 14a-8(i)(7) of proposals relating to ordinary business operations is the most pertinent for present purposes. Rule 14a-8(i)(7) is intended to permit exclusion of a proposal that “seeks to ‘micro-manage’ the company by probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment.”
Unfortunately, court decisions have largely eviscerated the ordinary business operations exclusion. Corporate decisions involving “matters which have significant policy, economic or other implications inherent in them” may not be excluded as ordinary business matters, for example, which creates a gap through which countless proposals have made it onto corporate proxy statements.
This article proposes an alternative standard that is grounded in relevant state corporate law principles, while also being easier to administer than the existing judicial tests. Under it, courts first look to the state law definition of ordinary business matters. The court then determines whether the matter is one of substance rather than procedure. Only proposals passing muster under both standards should be deemed proper.
Bainbridge, Stephen M., Revitalizing SEC Rule 14a-8's Ordinary Business Exemption: Preventing Shareholder Micromanagement by Proposal (March 29, 2016). UCLA School of Law, Law-Econ Research Paper No. 16-06. Available at SSRN: https://ssrn.com/abstract=2750153
It seems unlikely that the requisite reforms could get through the Senate, where Democratic obstructionism and spineless Republicans seem likely to derail Dodd-Frank reform. Fortunately, however, the SEC has full power to rewrite the rule--it is after all an SEC rule, not a statute--and should do so.
I saw this interesting news story:
A new study published in The Monthly Notices of the Royal Astronomical Society suggests that most habitable planets are wet. Like, extremely wet. Using computer models, astronomer Fergus Simpson from the Institute of Cosmos Science at the University of Barcelona found that habitable exoplanets, at least simulated ones, tend to be overrun by water, in most cases accounting for 90 percent or more of the total surface area.
Being a science fiction fan of a certain age, the story immediately called to mind James Blish's classic short story Surface Tension, which you can find in The Science Fiction Hall of Fame, Vol. 1: 1929-1964, in which space scientists stranded on a water world genetically engineered their miniaturized descendants (more or less) to live underwater. It's a great story. Go read it.
Probably not. Keith Paul Bishop explains:
The Nevada Supreme Court has not expressly held that the laws for piercing the corporate veil under the alter-ego doctrine apply to LLCs, but it has applied those rules in the LLC context, “assum[ing] without deciding that” the corporate analysis applies.
Pharmaplast S.A.E. v. Zeus Medical Holdings, LLC, et al. Case No. 2:15-cv-002432-JAD-PAL. (D. Nevada, March 14, 2017) (footnote omitted citing Webb v. Shull, 270 P.3d 1266, 1271 n.3 (Nev. 2012) and JSA, LLC v. Golden Gaming, Inc., 2013 Nev. Unpub. LEXIS 1449 (Nev. 2013)). Judge Dorsey could have, but did not mention, that the Ninth Circuit Court of Appeals has similarly assumed, but not decided, that members of a Nevada LLC at risk of alter ego liability. Volvo Constr. Equip. Rents, Inc. v. NRL Rentals, LLC, 614 Fed. Appx. 876, 878 n. 1 (9th Cir. Nev. 2015). Nonetheless, the legislative history to Nevada’s LLC law supports the proposition that members may be liable under the alter ego doctrine as noted in Bishop and Zucker on Nevada Corporations and Limited Liability Companies § 16.4[A].
Of course, I have argued against extending veil piercing and alter ego to the LLC setting, most recently in Todd Henderson's and my book Limited Liability: A Legal and Economic Analysis.
Last noted in September 2015. This bottle seems much more mature than my memory of that earlier bottle. Deep ruby. The bouquet suggests currants, prunes, leather, pencil shavings, and earth. The palate echoes those notes in a somewhat jammy way. The tannins have melted away and this is probably at its peak. Grade: 90
The legal profession tips left (very), but it turns out that the legal academy is even further left than the professional ranks from which it is drawn, as Jonathan Adler comments:
A new paper by Adam Bonica (Stanford University), Adam S. Chilton (University of Chicago), Kyle Rozema (Northwestern University) and Maya Sen (Harvard University), “The Legal Academy’s Ideological Uniformity,” provides some answers. Their bottom line: The legal academy is significantly more liberal than the legal profession, which is notable because the legal profession itself is more liberal than the public at large. ...
I’ve certainly argued that the ideological uniformity of legal academia affects teaching and scholarship (most recently here). The authors of this study suggest that it could also affect the political relevance and influence of law professors. They write:
… the ideological tilt of the legal academy has potentially broad implications. For instance, because law professors are overwhelmingly liberal, groups of law professors advocating for liberal positions can easily be marginalized. For example, after Jeff Sessions was nominated as Attorney General in 2016, over a thousand law professors signed a letter opposing his confirmation. This letter was criticized by some as simply representing the views of the left leaning legal academy . . . . To assess … these criticisms, we match the signatories of the letter to our sample of law professor ideology, and find that only 4% of the signatories that appear in our data are conservative. This raises the question of whether the reception to the letter would have been different had more conservative law professors signed the letter. Although we have no way to answer this question, the endeavor might have been given more credence had more conservative professors participated in the letter: observers might have been less likely to expect Republican-leaning law professors to oppose Sessions ideologically, thus making such criticisms more powerful and effective. We argue that this example illustrates that the legal academy’s ideological uniformity limits its political credibility.
One could extend this analysis to current controversies at state universities, such as proposed measures to curtail tenure or limit the activities of legal clinics and academic centers at state universities. Appeals to “academic freedom” are less convincing when the only ones in a position to benefit from such principles sit on one side of the aisle.
Writing in opposition to a proposed measure in North Carolina that would prohibit the University of North Carolina School of Law’s Center for Civil Rights from engaging in litigation, Gene Nichol suggested the center’s critics are “nakedly ideological” because they would have no problem with law school programs enlisting students in efforts to protect gun rights or religious liberty. He might be right, but how would we know? It’s not as if UNC’s law school has any such programs, or even a critical mass of right-leaning faculty members. I agree with much that Nichol has to say in his piece, but I also suspect his arguments would be more persuasive to a Republican-dominated state legislature if there were more ideological diversity on UNC’s law faculty and within the law school’s academic programming.
I was chatting recently with a young friend about whether it is possible to be spiritual without being religious. Put another way, is it possible to believe in Jesus without believing in His Church? I took the position that it is not. But I recognized that a growing cohort, especially among the young, take the contrary position.
Now, as it happens, I am currently reading Evangelical Exodus: Evangelical Seminarians and Their Paths to Rome, which is a collection of essays by young (mostly) Evangelicals who made/are making the same transition I made almost 20 years ago from being an Evangelical to being a Catholic.
One of the essays spoke to the precise problem my friend and I had been discussing:
The Catholic Church articulates the exact opposite—the remedy for individualism. The purpose of coming together is as follows: “It is in the Church, in communion with the baptized, that the Christian fulfills his vocation.” The Catechism provides the reasons for maintaining solidarity with the Church:
From the Church he receives  the Word of God containing the teachings of the “law of Christ” [Gal 6:2]. From the Church he receives  the grace of the sacraments that sustains him on the “way.” From the Church he learns  the example of holiness and recognizes its model and source in the all-holy Virgin Mary; he discerns it in the authentic witness of those who live it; he discovers it in the spiritual direction and long history of the saints who have gone before him and whom the liturgy celebrates in the rhythms of the sanctoral cycle [that is, the feast days, or propers, of the saints].
Beaumont, Douglas (2016-02-11). Evangelical Exodus: Evangelical Seminarians and Their Paths to Rome (Kindle Locations 913-920). Ignatius Press. Kindle Edition.
In other words, the Church provides a community within which one finds support from those making the same spiritual journey as oneself. It provides tools that encourage and empower one on that journey. Lastly, Jesus himself directed us to seek communal--rather than individual--worship: "where two or three are gathered together in my name, there am I in the midst of them.” Matthew 18:20.
So I agree with David Mills:
Being “spiritual” does not do us any good. As I recently wrote elsewhere, it works fairly well when you are healthy and have enough money to enjoy life, and just want from your spirituality the feeling that all is well with the universe, particularly your corner of it. But it doesn’t help you much when things go from good to bad.
The man wasting away from pancreatic cancer will get no help nor comfort from the “spiritual,” which will seem a lot less friendly and comforting when he feels pain morphine won’t suppress. He has no one to beg for help, no one to ask for comfort, no one to be with him, no one to meet when he crosses from this world to the next. He wants what religion promises.
Thilo Kuntz of the University of Bremen Faculty of Law has posted an extensive review of Todd Henderson & my book on limited liability. Kuntz concludes:
Bainbridge and Henderson’s book has a lot to offer for readers interested in limited liability and veil piercing. They provide a rich survey of the most important US-literature in the field and add to the discussion by bringing new and interesting arguments to the table. Taking into account how long this debate has been going on and the sheer mass of contributions, this is by no means a small feat. That the authors try to provide a comparative view is a welcome and enriching move as it pushes the academic debate to a broader forum, showing the importance and fruitfulness of comparative approaches. Bainbridge and Henderson make a strong case for abolishing veil piercing, offering a whole package of arguments in favor of reform. Their treatment of veil piercing concepts, and thus the work’s prime rib, is a rewarding read.
The review actually uses our book as a starting point for Kuntz's own views of limited liability, which come from a European civil law perspective and thus provides an interesting counterpoint to our common law focused approach.
Kuntz, Thilo, Asset Partitioning, Limited Liability and Veil Piercing - Review Essay on Bainbridge/Henderson, Limited Liability (March 14, 2017). European Business Organization Law Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2949685
The existence of ideological imbalance on law school faculties has been documented in numerous studies. Analyses of law school hiring, political contributions, and legal scholarshipall find left-right disparities. While most law schools have a few token right-leaning professors, these scholars are often relegated to “private law” subjects (e.g., business, contracts, intellectual property), and are less prevalent in “public law” subjects (e.g., constitutional law).
Indeed, most major law schools have fewer conservatives or libertarians on their faculty than can be found on the U.S. Supreme Court.
As a consequence, at many law schools, students rarely encounter the forceful articulation of right-of-center views. Thus it should be no surprise that many who study in American law schools fail to understand such views. Reading a book or some court opinions can only do so much.
Training lawyers requires teaching students how to understand and get inside the arguments of those with differing interests, outlooks, and orientations. It requires developing the ability to understand and articulate points of view that one does not believe. Doing this effectively requires exposure to differing points of view, and that’s difficult to achieve when faculties are ideological monocultures and echo chambers.
Go read the whole thing.
NYSE Listed Company Manual § 303A.02 provides a number of tests for determining whether directors of a company are independent. Most of them are fairly bright line rules, but there is a key provision that is often overlooked:
No director qualifies as "independent" unless the board of directors affirmatively determines that the director has no material relationship with the listed company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company).
Hence, even if the nominally independent director satisfies the specific requirements, the board should still treat a director as not independent if the board is unable to make an affirmative determination that there is no material relationship between the issuer and the director in question. In other words, if there is a substantial likelihood that the reasonable investor would regard the relationship as important, the board should not treat the director as independent.
All of which came to mind today when the BBC reported that:
[Tesla shareholders including] the California State Teachers Retirement System, Hermes Equity Ownership Services and CtW Investment Group, among others, ... called for action before the firm launched its Model 3 sedan later this year - its first vehicle aimed at the mass market.
"While meeting the technical definition of independence, five of the six current non-executive directors have professional or personal ties to Mr Musk that could put at risk their ability to exercise independent judgment," the letter said.
Here's what Tesla's 2016 proxy statement says about director independence:
The Board of Directors has determined that, with the exception of Elon Musk and Kimbal Musk, all of its current members are “independent directors” as that term is defined in the listing standards of NASDAQ.
Other than Elon Musk, no current director is or has ever been an employee of Tesla. In the course of determining the independence of each non-employee director, the Board of Directors considers the annual amount of Tesla’s sales to, or purchases from, any company where a non-employee director serves as an executive officer. In order to find that a director is independent, the Board of Directors must determine that any such sales or purchases were made in the ordinary course of business and the amount of such sales or purchases in each of the past three fiscal years was less than 5% of Tesla’s or the applicable company’s consolidated gross revenues for the applicable year. In addition, the Board of Directors considered all other relevant facts and circumstances, including the director’s commercial, accounting, legal, banking, consulting, charitable and familial relationships, including the transactions specified in “ Certain Relationships and Related Party Transactions — Related Party Transactions ” and the additional considerations below.
With respect to Mr. Buss, the following were among the relevant considerations:
Mr. Buss was the Chief Financial Officer of SolarCity from August 2014 until February 2016. Tesla and certain Tesla directors and officers have relationships with SolarCity as set forth in this section and in “ Certain Relationships and Related Party Transactions — Related Party Transactions — SolarCity Agreements” below.
The Board of Directors has concluded that given the absence of any continuing affiliation between Mr. Buss and SolarCity, there are no relationships that would impede the exercise of independent judgment by Mr. Buss.
With respect to Ms. Denholm, the following were among the relevant considerations:
Ms. Denholm was the Executive Vice President and Chief Financial Officer of Juniper from August 2007 until February 2016, as well as its Chief Operations Officer from July 2013 until February 2016. Tesla purchases networking equipment manufactured by Juniper in the ordinary course of business through resellers, but has not entered into a purchase contract directly with Juniper.
The Board of Directors has concluded that given that Ms. Denholm is no longer an executive officer of Juniper, and Juniper has no direct material business relationship with Tesla, there are no relationships that would impede the exercise of independent judgment by Ms. Denholm.
With respect to Mr. Ehrenpreis, the following were among the relevant considerations:
Mr. Ehrenpreis is a manager of DBL Partners Fund III (“DBL III”). Each of Mr. Ehrenpreis and DBL III is a minority investor in SpaceX. Tesla and certain Tesla directors have relationships with SpaceX as set forth in this section and in “ Certain Relationships and Related Party Transactions — Related Party Transactions — SpaceX Agreements” below.
Mr. Ehrenpreis is a co-owner of DBL Partners. Another co-owner of DBL Partners is a director of SolarCity and is a manager of DBL Investors, which is an investor in both SolarCity and SpaceX. Mr. Ehrenpreis has no direct or indirect investment control or pecuniary interest in DBL Investors. Tesla and certain Tesla directors and officers have relationships with SolarCity as set forth in this section and in “ Certain Relationships and Related Party Transactions — Related Party Transactions — SolarCity Agreements” below.
The Board of Directors has concluded that given that Mr. Ehrenpreis’ and DBL III’s interests in SpaceX are minority positions, and Mr. Ehrenpreis has no direct or indirect interest in DBL Investors, there are no relationships that would impede the exercise of independent judgment by Mr. Ehrenpreis.
With respect to Mr. Gracias, the following were among the relevant considerations:
Mr. Gracias is the Chief Executive Officer, director and majority owner of Valor Management Corp. (“VMC”). VMC funds are a minority investor in SpaceX, and Mr. Gracias is a director of SpaceX. Tesla and certain Tesla directors have relationships with SpaceX as set forth in this section and in “ Certain Relationships and Related Party Transactions — Related Party Transactions — SpaceX Agreements” below.
VMC funds are a minority investor in SolarCity, and Mr. Gracias is a director of SolarCity. Tesla and certain Tesla directors and officers have relationships with SolarCity as set forth in this section and in “ Certain Relationships and Related Party Transactions — Related Party Transactions — SolarCity Agreements” below.
The Elon Musk Revocable Trust dated July 22, 2003, of which Elon Musk is the trustee, is a limited partner of Valor Equity Partners, L.P. and Valor Equity Partners II, L.P., which are funds advised by VMC.
Kimbal Musk is a limited partner of Valor Equity Partners II, L.P. and Valor Equity Partners III-A, L.P., which are funds advised by VMC.
The Board of Directors has concluded that given that VMC funds’ interests in SpaceX and SolarCity are minority positions and investments in VMC funds by other Tesla directors comprise fractions of such funds, and Mr. Gracias’ professional experience serving on the boards of multiple companies, there are no relationships that would impede the exercise of independent judgment by Mr. Gracias.
With respect to Mr. Jurvetson, the following were among the relevant considerations:
Mr. Jurvetson is a managing director of Draper Fisher Jurvetson (“DFJ”). Through its funds, DFJ is a significant stockholder of SpaceX and Mr. Jurvetson is a director of SpaceX. Tesla and certain Tesla directors have relationships with SpaceX as set forth in this section and in “ Certain Relationships and Related Party Transactions — Related Party Transactions — SpaceX Agreements” below.
Through its funds, DFJ is a significant stockholder of SolarCity, and another managing director of DFJ is a director of SolarCity. Tesla and certain Tesla directors and officers have relationships with SolarCity as set forth in this section and in “ Certain Relationships and Related Party Transactions —Related Party Transactions — SolarCity Agreements” below.
The Elon Musk Revocable Trust dated July 22, 2003, of which Elon Musk is the trustee, is a limited partner of Draper Fisher Jurvetson Fund X, L.P., which is a fund managed by DFJ.
The Board of Directors has concluded that given Mr. Jurvetson’s professional experience serving on the boards of multiple companies, that Mr. Jurvetson’s other interests in SpaceX and SolarCity are not personal to him and primarily arise as a result of DFJ’s investments in them, and that investments in a DFJ fund by Elon Musk comprise a fraction of such fund, there are no relationships that would impede the exercise of independent judgment by Mr. Jurvetson.
It's hard to see how Tesla determined that a number of these folks lacked at least one material relationship with Musk outside of being a director and thus how they satisfied the NYSE rule.
The myriad SpaceX connections should have troubled the board, in light of the repeated conflict of interest issues that have arisen between Tesla, SpaceX, and Musk.
Two years ago, Northwestern University professor, noted feminist and cultural critic Laura Kipnis found herself targeted by student protesters when she wrote an essay in the Chronicle of Higher Education questioning the campus panic about sexual violence. The students went so far as to file a Title IX “hostile environment” complaint against Ms. Kipnis. Ultimately she was cleared of any wrongdoing, but it was a Kafkaesque ordeal at the hands of what she calls, in her new book, the school’s “midwestern Torquemadas.” Thankfully, the experience did not silence her but made her all the more determined to challenge prevailing politically correct mores about sexual politics and free speech.
In “Unwanted Advances: Sexual Paranoia Comes to Campus,” Ms. Kipnis tells the story of her own experience and the incidents that inspired her essay. It’s a disturbing tale of the abuses of Title IX, the federal law intended as a safeguard against sex discrimination. But the book is also a scathing indictment of the state of American feminism.
This story is a key cautionary tale in how revolutions eventually turn to eating their own.
William McGurn offers a compelling critique of the recent incident at Claremont McKenna in which respected conservative speaker Heather Mac Donald was effectively silenced by a radical student mob:
Ms. Mac Donald had been invited to talk about her book “The War on Cops” at Claremont McKenna College’s Marian Miner Cook Athenaeum. Among her arguments is that if you truly believe black lives matter, maybe you should recognize “there is no government agency more dedicated to the proposition” than the police who protect the law-abiding minority residents of high-crime neighborhoods.
You can imagine how well that goes over. At City Journal, Ms. Mac Donald offers a first-person account of that ugly evening. The day before, she says, event organizers told her they were considering changing the venue to a building with fewer glass windows to break. Such are the considerations these days on the modern American campus.
That evening Ms. Mac Donald ended up live-streaming her talk to a mostly empty auditorium as protesters outside banged on the windows and shouted. As a result, she could take only two questions before authorities deemed it prudent to hustle her out for her own security. ...
Today it’s common to lament the cheap and polarized politics in Washington. But no one asks whether this might have something to do with a generation of students indulged in the view that they should never have to hear an opinion different from their own. How much easier it is to bang on windows, block an entryway and drop your F-bombs than, say, engage the formidable Ms. Mac Donald in genuine argument.
This strikes close to home because an appalling similar incident happened just a few days before hand at UCLA. As Mac Donald explains:
My hosts, the UCLA College Republicans, had titled my presentation “Blue Lives Matter,” which campus activists viewed as an unspeakable provocation. After I finished speaking and welcomed questions, pandemonium broke out. Protesters stormed the front of the classroom, demanding control of the mike and chanting loudly: “America was never great” and “Black Lives Matter, They Matter Here,” among other insights. ...
At 8 PM, the organizers decided to end the event, and I was hustled out of the room with a police escort.
To my knowledge, the UCLA administration has not addressed the disruption of my presentation and interaction with students.
I complained to the Chancellor and the head of "UCLA Equity, Diversity and Inclusion" about the lack of any official statement, let alone any official action. <sarcasm>To my surprise, nothing happened.</sarcasm>
I remain outraged by the way my employer's supine administrators allow unruly mobs to intimidate and silence conservative voices on campus. Especially because if the show had been on the other foot, and a conservative mob had shut down a progressive speaker, there would have been crying sessions, CrossCheck Live discussions, official campus statements of support, creation of a hate speech database, and probably police intervention. But I'm not holding my breath that anything will ever be done to protect those of us who decline to fall into line with the hegemonic far left liberalism that pervades this campus these days.