ProfessorBainbridge.com

Michigan to close its Confucius Institute; UCLA's remains open

Inside Higher Ed via The UCLA Faculty Association:

The University of Michigan will close its Confucius Institute next year when the current agreement governing the institute expires. ...

he Confucius Institutes -- Chinese-government funded centers of language and cultural education housed on about 100 U.S. university campuses -- have come under increased scrutiny over the last few years as a number of political figures have called for their closure. Chief among the critics is U.S. senator Marco Rubio, Republican of Florida, who has characterized the institutes as part of a broader effort by the Chinese government to influence American academia and stifle critical analysis of China's history and politics.

Criticism has also come from within academe. The American Association of University Professors has recommended that universities should renegotiate their agreements to ensure academic control of the institutes and academic freedom for all instructors or otherwise cease their involvement. The National Association of Scholars published a report last year recommending closure of the institutes and finding that in hosting them "universities have made improper concessions that jeopardize academic freedom and institutional autonomy."

This has been a longstanding concern here at UCLA (see my 2015 blog post) but the administration seems uninterested in the problem.

Do CEOs breach their fiduciary duty when they express political opinions? (a.k.a. Do social justice warrior CEOs get business judgment rule protection when they spout off?)

Josh Fershee has a very sound analysis, followed by a back and forth with Stefan Padfield.

Professor Bainbridge's Favorite Cookbooks of 2018

Professor Bainbridge's Favorite Books for 2018

Group Company Liability

My former SJD student Martin Petrin is an outstanding young scholar. His latest article on group liability is typically insightful and helpful:

According to a universal bedrock principle of corporate law, corporations have separate legal personality and limited liability. These principles apply equally to corporate groups. Accordingly, a parent company is normally not liable for legal infractions and unpaid debts of its subsidiaries. In relation to torts and other misconduct committed by corporations, however, the bedrock principles of corporate law are increasingly subject to criticism, in particular where such claims cannot be brought by tort victims due to undercapitalization of subsidiaries, among other problems.

While the doctrine of veil piercing may allow for relief in certain scenarios, this practice has fallen out of favour with many courts and the legal requirements for doing so have become increasingly strict. Thus, courts have developed new approaches to holding parent companies liable such as holding the parent directly liable.

In view of these significant shifts, this article examines the law and policy considerations governing parent company and—more broadly—group liability. It argues that reform is necessary, which may be found in a model that involves combinations of voting equity ownership-based enterprise liability concepts with modified vicarious liability for corporations.

Petrin, Martin and Choudhury, Barnali, Group Company Liability (October 1, 2018). Eur Bus Org Law Rev (2018), Vol. 20, pp. 1–26; Faculty of Laws University College London Law Research Paper No. 1/2018. Available at SSRN: https://ssrn.com/abstract=3284380

Professor Bainbridge's Top Recommendations in Kitchen Gadgets

Regular readers know that cooking is my main hobby. Here are four items I use all the time and recommend very highly for the cook in your life:

“The New Authoritarianism: Trump, Populism, and the Tyranny of Experts”

This looks like a must read:

One of the inscrutable ironies of the last two years is that a New York real-estate mogul and reality TV star has forced so many academics and intellectuals to rethink and redefine some basic terms. Among them: authoritarianism, liberalism and conservatism. In “The New Authoritarianism: Trump, Populism, and the Tyranny of Experts” (Polity, 115 pages, $12.95) Salvatore Babones, an American-born professor of sociology and social policy at the University of Sydney, doesn’t defend Mr. Trump or his administration. But he does suggest the Trump phenomenon may galvanize a revival of democratic self-rule. Mr. Babones, whose ideological affiliations remain a mystery to me, does not fear, as many American liberals do, that Mr. Trump is an “authoritarian” president. He believes, rather, that the president’s populism is a protest against a different kind of authoritarianism: the rule of unelected “experts.” American liberals speak unctuously about “democracy” and “democratic values,” but they have consistently substituted expert opinion for democratic decision-making. Whatever else this president does or doesn’t do, Mr. Babones thinks, his presidency has challenged that tendency at every point, and our politics will be more democratic and better off as a consequence.

The Road to Hell is Paved with Good Intentions (How California Progressive Do-gooders ruined the State)

From William McGurn's WSJ column today:

... the crisis of good intentions is manifested most dramatically in the green movement, particularly in California. In a recent article for the Orange County Register, Chapman University’s Joel Kotkin and Marshall Toplansky write that “California is creating a feudalized society characterized by the ultra-rich, a diminishing middle class and a large, rising segment of the population that is in or near poverty.” California now has the highest overall poverty rate in the nation, they write, and suffers from a level of inequality “closer to that of Central American banana republics.”

Much of this is the fault of California’s green agenda, which chokes off economic growth and has been imposed more as a theological imperative than the result of any sober, cost-benefit analysis. As Mr. Kotkin frequently points out, the upward mobility of any family that isn’t part of Hollywood or Silicon Valley or doesn’t already own their own home is being killed by the state’s climate regime.

Though California hasn’t reached French levels of rebellion, its own protests are taking interesting forms. Earlier this year a coalition of more than 200 prominent civil-rights leaders filed suit against the California Air Resources Board. They argue California’s greenhouse gas policies are disproportionately raising housing, transportation and electricity costs for Latinos and African-Americans. The suit contests California’s claims that it has a “clean and green” economy is a “fiction.”

The climate regime, the suit notes, is imperious. Though Los Angeles and the Bay Area already rank among the worst in the nation for traffic congestion, the suit contends California’s climate leaders “have decided to intentionally increase traffic congestion” in the hope of getting more people to opt for public transport. In other words, California’s greens are willing to inconvenience the poor to get them to do what their feudal lords want them to do.

Tweet of the Day

New York Attorney General Overreaches in Climate-Change Complaint Against Exxon https://t.co/yKzPOUqEHO

— Professor Bainbridge (@ProfBainbridge) December 10, 2018

From the "You had one job. Just one." file

Never dictate the headline over the phone. (h/t @NeilMcMahon) pic.twitter.com/0kPUGxQ2sd

— Mark Harris (@MarkHarrisNYC) December 10, 2018

Not a hoax! From the Jamestown (NY) Post-Journal. pic.twitter.com/ETozVTfuQw

— Mark Harris (@MarkHarrisNYC) December 10, 2018

KPB on "Do Ineffective Internal Controls Expand A Shareholder's Right Of Inspection?"

Keith Paul Bishop reports:

Section 1601 of the California Corporations Code establishes a shareholder's right to inspect the "accounting books and records and minutes of proceedings of the shareholders and the board and committees of the board".  A shareholder's inspection, however, must be for a "purpose reasonably related" to the shareholder's interest as a shareholder. Id.  This is commonly referred to as a "proper purpose" requirement.

When a corporation provides its audited financial statements to its shareholders, can a shareholder have a proper purpose in seeking inspection of the underlying financial records?  Professor Harold Marsh Jr. theorized that in such cases, a shareholder would have to show that "there was some substantial reason to believe that the reports submitted to the shareholders were erroneous".  Marsh's California Corporation Law §15.09[B].  

In  Farnum v. Iris Biotechnologies, 2018 Cal. App. Unpub. LEXIS 8069, the California Court of Appeal took note of a corporation's disclosure in its Form 10-K that management had concluded that the corporation's internal controls over financial reporting were not effective.  Thus, the Court concluded that the company had recognized that its "audited financial statement" [sic] was "incomplete".  This is an odd statement in light of the fact that the company's Form 10-K included the requisite financial statements and an auditor's opinion.  Nonetheless, the case is an example of ineffective internal controls over financial reporting providing a basis for expanded shareholder inspection.  The opinion, however, is not precedential because the court did not certify it for publication or order it to be published.

More legal hurdles for outsourcing the board

Regular readers will recall that Todd henderson and my book Outsourcing the Board: How Board Service Providers Can Improve Corporate Governance asks "why does the law require governance to be delivered through individual board members? While tracing the development of boards from quasi-political bodies through the current 'monitoring' role, we find the reasons for this requirement to be wanting. Instead, we propose that corporations be permitted to hire other business associations - known as 'Board Service Providers' or BSPs - to provide governance services. Just as corporations hire law firms, accounting firms, and consulting firms, so too should they be permitted to hire governance firms, a small change that will dramatically increase board accountability and enable governance to be delivered more efficiently.

As we recognize, there are a number of existing legal barriers that would have to be overcome. Keith Paul Bishop just flagged a few more. (A link to our book would have been nice.)