ProfessorBainbridge.com

The Big Three Institutional Investors and Climate Change: Slackers or Activists?

Bloomberg:

Environmental and consumer groups, for example, accuse index managers of shirking their broader social responsibilities, such as by not divesting the shares of fossil fuel companies or by not blocking lavish CEO pay. BlackRock CEO Larry Fink was met by protesters at an October black-tie gala at the Museum of Modern Art, where he sits on the board. (The fund companies say the passive investment model means they can’t divest from companies listed on indexes.) Other detractors say companies may not be competing aggressively because their common owners—the funds that hold them all—don’t want or need them to. 

NY Times:

Laurence D. Fink, the founder and chief executive of BlackRock, announced Tuesday that his firm would make investment decisions with environmental sustainability as a core goal. ...

Mr. Fink’s annual letter to the chief executives of the world’s largest companies is closely watched, and in the 2020 edition he said BlackRock would begin to exit certain investments that “present a high sustainability-related risk,” such as those in coal producers. His intent is to encourage every company, not just energy firms, to rethink their carbon footprints.

If Fink means that BlackRock's index funds will divest from fossil fuel companies, that's going to make a huge change in how index fund work. Put bounty, it would eviscerate the very meaning of indexing.

Academics add value to corporate boards (so why aren't I on one?)

Recently posted to SSRN:

This paper investigates the value of academic independent directors’ (ADs’) services by exploring an unexpected policy shock that forces ADs to resign from Chinese listed firms. Empirical results show that around the announcement of this policy, the stock prices of firms with ADs drop by 2.2%, which can be translated to a 135M RMB loss. These results suggest a likely causal relation between AD presence and firm value. ADs with academic backgrounds related to the firms’ primary line of business, with connections to an industry association, and holding top positions in a prestigious university are more valuable to firms. For ADs with business backgrounds, their services are more valuable when sitting on some specific board subcommittees. Moreover, ADs are more hardworking as they miss fewer meetings. Consistent with the market reactions, firm fundamentals and the efficiency of independent director monitoring and advising deteriorate significantly after ADs actually resign.

Liu, Bibo and Wei, Wei and Zhou, Zhen, The Value of Academic Independent Directors (December 1, 2019). Available at SSRN: https://ssrn.com/abstract=3504140 or http://dx.doi.org/10.2139/ssrn.3504140

"SEC Proxy-Firm Rules Spur YouTube Call to Stop ‘Liberal Agenda’"

Bloomberg:

The YouTube video encourages “real Americans” to urge Securities and Exchange Commission Chairman Jay Clayton to clamp down on proxy advisory firms that, they say, are imposing a liberal agenda on corporate America.

“We’re seeing abortion, climate change, sanctuary cities, gun control,” Holly Turner, a frequent guest on Fox News, says on the video, sitting next to her conservative-activist husband, Chris Turner. “These are all issues now that these companies are being forced to deal with.”

The usual suspects are calling the Turners "sock puppets." Here's the video:

Why does the Government Keep Picking on The Little Sisters of the Poor

From The Becket Foundation:

The Supreme Court will once again weigh in on the case of the Little Sisters of the Poor in their legal battle against the HHS contraceptive mandate. The Supreme Court has twice protected the Catholic nuns, and an HHS rule issued in 2018 protects religious non-profits, but several states have dragged the Little Sisters of the Poor back to court. In Little Sisters of the Poor v. Commonwealth of Pennsylvania, the Little Sisters are defending their hard-won religious exemption from a lawsuit by the Pennsylvania Attorney General and a recent Third Circuit ruling against them threatening their ministry of serving the elderly poor.

The HHS contraceptive mandate required the Little Sisters to provide services such as the week-after pill in their health care plans or pay millions of dollars in fines. In 2016, the Supreme Court unanimously overturned lower court rulings against the Little Sisters, granting them an exemption from the mandate, and in 2018, HHS announced a new rule protecting religious non-profits, including the Little Sisters. Yet several states, including Pennsylvania and California, immediately sued the federal government to take that protection away, forcing the Little Sisters back to court. After a loss in the Third Circuit Court of Appeals, the Sisters now turn to the High Court to finally put an end to their long legal journey.

Commissioner Robert Jackson leaving the SEC to return to NYU Law

Bloomberg:

Robert Jackson Jr. said he will step down from the U.S. Securities and Exchange Commission next month to return to teaching, leaving Wall Street’s main regulator with an open Democratic seat as Republicans push to dial back rules before November’s elections.

Since joining the SEC in January 2018, Jackson has often led opposition to policies pushed by Chairman Jay Clayton, including last year’s landmark move to overhaul conduct standards for brokers and investment advisers. At the same time, he and Clayton -- both political independents -- worked together to approve enforcement actions in the face of objections from the commission’s two Republicans.

Christianity and Bankruptcy

My friend David Skeel (Penn Law) has posted Christianity and Bankruptcy, which is forthcoming in CHRISTIANITY AND MARKET REGULATION (Daniel Crane & Samuel Gregg eds., Cambridge University Press 2020). Available at SSRN: https://ssrn.com/abstract=3514841

Although the term “bankruptcy” is nowhere to be found in the Bible, debt and the consequences of default are a major theme both in the Hebrew Bible and in the New Testament. In Israel, as in the ancient Near East generally, a debtor who defaulted on his obligations was often sold into slavery or servitude. Biblical law moderated the harshness of this system by prohibiting Israelites from charging interest on loans to one another, thus diminishing the risk of default, and by requiring the release of slaves after seven years of service. Jesus alluded to the lending laws at least once, and he frequently used economic illustrations in his teaching, linking forgiveness of sins to debt relief in the Lord’s Prayer and in one of his parables.

In this essay, I very briefly describe the evolution of bankruptcy, focusing most extensively on a proposal by the early novelist Daniel DeFoe to reform English insolvency law. I then turn to the essay’s principal focus: the implications of Biblical teaching on debt and debt relief for modern bankruptcy law, especially American bankruptcy law. The past century has seen a significant expansion of personal bankruptcy law, the emergence of corporate bankruptcy, and most recently a debate over whether over-indebted countries should have access to bankruptcy relief. I consider whether each of these developments can be seen as reflecting Christian principles, and what a more fully Christian vision of bankruptcy law might look like.

Recommended reading. I love that he starts with Daniel DeFoe.

Joan Heminway identifies some common mistakes Business Associations students make

Good advice to BA students:

• Agency rules and management rules in business associations law are often confused. Agency rules express the authority of a person to act on behalf of the firm in transactions with third parties--those who enter into transactions with the firm. For example, by default under the RUPA, each partner in a RUPA partnership is an agent of the partnership that can bind the partnership to contracts with others. Management rules, by contrast address the governance and control authority of a particular firm constituent within the governance structure of the firm. Thus, agency rules relate to authority that is outward-facing (pertaining to transactional parties) and management rules relate to authority that is inward-facing (pertaining to internal constituents of the firm). For example, by default under the RUPA, each partner has an equal right to manage the partnership.
  
  
• Similarly, the concept of "limited liability" is commonly understood to refer to the limited liability of a firm owner for the firm's obligations. For example, under the RUPA, each partner is jointly and severally liable for the obligations of the partnership, whereas under corporate law, shareholders are not personally liable for the corporation's obligations to third parties. Exculpation, which eliminates the monetary liability of directors in the corporate context, relates to corporate governance claims--legal actions for breach of the fiduciary duty of care. This is internal governance litigation that does not relate to corporate obligations to third parties. So, while exculpation does limit (eliminate) a director's personal liability for a breach of the duty of care, it is not part of what people generally refer to as "limited liability" in a corporate context.
  
  
• Fiduciary duties are typically understood to instill or increase trust in relationships. Accordingly, they are commonly employed to provide a benefit in circumstances involving untrustworthy business associates. Yet a number of you seemed to think they were an undue burden to business venturers in circumstances where trust may be lacking (i.e., where fiduciary duties should be useful). You will need to make a solid argument to most folks to justify that the detriments outweigh the benefits.

Lyle Roberts makes the case against the proposed Insider Trading Prohibition Act

Last month the House of Representatives passed the Insider Trading Prohibition Act by a whopping bipartisan 410-13 vote. As Lyle Roberts explains in today's WSJ, it's a bad bill:

The House claims it is merely codifying and clarifying existing law, but ITPA actually turns it on its head. Because insider-trading law is based on antifraud statutes, courts have made clear that a defendant can’t be held liable unless he acted with intent to defraud or had a duty not to use the information for his own benefit. ITPA arguably does away with both of these sensible limitations. ...

If all of this were not enough, ITPA would not even become the exclusive basis for federal insider-trading actions. The Justice Department and the Securities and Exchange Commission would still be able to bring actions under the general antifraud provisions of the federal securities laws. In other words, the government could cherry-pick its preferred law based on the facts of the case. So much for clarity and consistency.

Professor Scott Pryor gives great comments only article on Christianity and Corporate Purpose

Here:

Bainbridge's argument is careful, winsome, and compelling. His is the best I've seen.

"Winsome"?

We got a LOT of email re my diversity, equity, and inclusion statement--herewith a small sampling

Names have been removed to protect the innocent.

From a lawyer:

One approach to the silencing is to do just that:  be silent.  The only other respectable approach is to speak out—respectfully and truthfully—about what is happening and about one’s sincerely held beliefs.  If more and more of us choose this approach, I’m convinced that eventually we can return to some semblance of balance in the “diversity” of views being expressed.

From another lawyer:

You obviously need an intensive rehabilitation course in enlightened invisible equity.

From a Chicagoan:

Hmmmm....

From an alum:

I would be happy to fund your merit raise.  No other conditions but a lunch or dinner next time I am in California might be enlightening.

From another alum:

Just a quick note to thank you for your article in today’s WSJ. 

From yet another alum:

I want to thank you for your refreshingly straightforward and fearless statement in response to the University's request for your political accountability.  I don't read blogs, but I do read the WSJ, and when I read your piece there this morning, I stood up and applauded.

From a CEO:

The data speaks for itself and institutions of higher learning should be the bastion of civil, respectful debate / analysis relating to all important issues of the day.  Our institutions should promote freedom and objectivity of thinking.

From a lawyer specializing in employment law issues:

I hope you get your raise.

(Me too!)

From a Catholic mom:

Just read your excellent piece in today’s WSJ.  ... Am forwarding to all my children, who have all had to withstand the liberal onslaught in their different university journeys (as practicing Catholics no less.).

From a fellow academic:

It was very heartening to read your OpEd note in the Wall Street Journal today.  As another "token" conservative at a university, I feel like I am a "sheep among the wolves", to quote someone far greater than me. 

From an Arizonan (Arizonian?):

The administration was looking for something so very different but you had the courage to put your personal financial interests at risk to state a wider view of what diversity should look like in an academic or corporate setting.

From another fellow academic:

As a faculty member at [redacted], I must admit that the only thing I didn’t like about your contribution is that it wasn’t on the first page of every major newspaper in the US.

Another fellow academic wrote:

As the faculty advisor to a number of conservative student organizations .... I wanted to thank you for the courageous 'diversity' statement you submitted (which I read in today's WSJ). It made me feel a bit less alone in the world. A pity you'll have to miss out on your richly deserved merit raise.

(Let's not be hasty!)

From a retired academic:

I just finished reading the excerpt from your blog that was published in the Wall Street Journal this morning.

Thank you for your articulate and well-researched contribution to what I hope becomes a growing realization and debate over the lack of intellectual and philosophical diversity in higher education.

I recently retired from [redacted]. During that period, I watched the political composition of the faculty, even in these technical areas, move from a reasonable, albeit left-leaning, spectrum to a near complete clustering to the left.

I was especially pleased to see the publication of your essay on the heels of a related piece by Prof. Abigail Thompson in the WSJ on 19 Dec 2019. My hopes are that courageous faculty will continue to bring this issue to the attention of those outside (and inside) academia.

And my personal favorite:

BTW, this may seem totally inappropriate, but please watch your health (weight). We need minds and voices like yours, so don’t go dying prematurely!

Conservative faculty job candidates should apply to the University of California and then sue when they’re rejected.

Brian Leiter and I agree on very little politically, but we share a surprising number of academic values. To wit, his argument that the University of California’s requirement that candidates for any personnel action submit a statement on their involvement in diversity, equity, and inclusion “is a lawsuit for unconstitutional viewpoint discrimination (and maybe also race discrimination) waiting to happen“:

I recommend that those applying for jobs in the University of California system say only this in the diversity statement:  "I decline to supply this statement which constitutes illegal viewpoint discrimination in violation of my constitutional rights."   There are already lawyers gearing up to bring legal challenges; I hope they act soon.   If you have been rejected from a University of California search, and suspect it was on grounds of insufficient ideological purity about "diversity," please get in touch with me.  I can connect you with one public interest legal organization looking for plaintiffs.

To which I would add just this: go get ‘em.

Conservatives need not apply: Impact of University of California’s diversity, equity, and inclusion statement requirement on hiring at Berkeley

University of Chicago scientist Jerry Coyne—who supports affirmative action—is reviewing internal University of California Berkeley data on hiring in life sciences to assess whether the University’s requirement that candidates for all personnel actions submit a statement detailing their involvement with diversity, equity, and inclusion. After putting it through the statistical wringer, he concludes:

We’ve recently been discussing the use of mandatory “diversity statements” for academic job candidates, and the University of California’s commitment to not just using them in all searches, but giving these statements precedence in the hiring process, so that if your statement doesn’t exceed a minimum numerical cutoff for promoting diversity, increasing it in your past, and promulgating it in the future should you be hired, your candidacy is terminated (see here and here). This practice of making candidates not only swear fealty to diversity, but also show a history of concerted efforts to increase it, has been controversial, deemed as a form of ideological/political conformity that don’t belong in a hiring process.

A document from the University of California tells us how the system worked in six searches in the life sciences, and I find it a bit disturbing—disturbing because the ideology and social engineering is clear, because candidates, however good in scholarship, were eliminated if their diversity statements fell below a specified cutoff, and disturbing because the only kind of diversity involved was racial and gender diversity. ...

Nobody should ever be automatically eliminated because their “diversity score” is below 11. If you do that, you will eliminate all those who are good scholars but don’t have a track record in promoting racial and gender diversity, even though they may have been involved in other valued social activities that don’t affect diversity (I’ve mentioned writing about your field for the public and giving talks to high school students to educate and interest them in your field).

But that seems to be what’s happening.