The paperback edition of my Research Handbook on Insider Trading can now be pre-ordered from Amazon.
Of course, you can also order my Insider Trading Law and Policy treatise.
« September 2014 | Main | November 2014 »
The paperback edition of my Research Handbook on Insider Trading can now be pre-ordered from Amazon.
Of course, you can also order my Insider Trading Law and Policy treatise.
Posted at 11:58 AM in Books, Dept of Self-Promotion, Insider Trading | Permalink | Comments (0)
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I really like Bill Carney's new article, Larry Ribstein's Federalism Scholarship and the Unfinished Agenda, available at SSRN: http://ssrn.com/abstract=2497707:
Larry Ribstein and his co-authors broke new ground in examining jurisdictional competition and private choice of law. Going beyond corporate law bounds, they examined jurisdictional competition for other forms of entities, and found competition driving efficient uniformity. The more challenging area they addressed was private choice of law in contracts. While much of their work is enlightening, there is much left to be done in examining the mechanisms of efficiency in private agreements. Law are complex bundles of rights and obligations, often heterogeneous, in a market without explicit prices. While the mechanisms of adoption of business laws are well documented, difficult questions of bounded rationality remain in the area of private choice of law.
Posted at 12:38 PM in Corporate Law | Permalink | Comments (0)
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The latest edition of The Economist is once again beating the drums for shareholder activism. (As I've said before, I love them despite their ineducability on this issue):
Martin Lipton, a lawyer who has long helped protect incumbent management, not least by inventing the “poison pill”, a potent defence against takeovers, argues that activists encourage firms to do things that boost their share price in the short run but harm their long-term performance. This critique has plenty of adherents, in academia, business and government.
Yet empirical proof that activists exacerbate short-termism is strangely elusive. Indeed, such evidence as there is suggests the opposite. “The Long-Term Effects of Hedge-Fund Activism”, a recent paper by Lucian Bebchuk of Harvard Law School and others, examined the roughly 2,000 interventions at companies by activist funds from 1994 to 2007. Over the five years following an intervention both the share price and the operating performance of the target company improved, on average. The operating performance got stronger towards the end of the five-year period, not weaker.
This is the sort of evidence that has convinced Mary Jo White, the chairman of America’s Securities and Exchange Commission, to argue in a recent speech that activist shareholders should no longer be automatically viewed negatively. These days, she said, “There is widespread acceptance of many of the policy changes that so-called ‘activists’ are seeking to effect.”
But consider the possibility that not all shareholder interventions are created equally, as I argued in Preserving Director Primacy by Managing Shareholder Interventions (August 27, 2013), available at SSRN: http://ssrn.com/abstract=2298415:
This is a draft chapter for a forthcoming research handbook on shareholder power and activism. This chapter provides an analysis of shareholder activism based on the so-called director primacy model of corporate governance, which argues for a board-centric, rather than a shareholder-centric, understanding of corporate governance.
Even though the primacy of the board of director primacy is deeply embedded in state corporate law, shareholder activism nevertheless has become an increasingly important feature of corporate governance in the United States. The financial crisis of 2008 and the ascendancy of the Democratic Party in Washington created an environment in which activists were able to considerably advance their agenda via the political process. At the same time, changes in managerial compensation, shareholder concentration, and board composition, outlook, and ideology, have also empowered activist shareholders.
There are strong normative arguments for disempowering shareholders and, accordingly, for rolling back the gains shareholder activists have made. Whether that will prove possible in the long run or not, however, in the near term attention must be paid to the problem of managing shareholder interventions.
This problem arises because not all shareholder interventions are created equally. Some are legitimately designed to improve corporate efficiency and performance, especially by holding poorly performing boards of directors and top management teams to account. But others are motivated by an activist’s belief that he or she has better ideas about how to run the company than the incumbents, which may be true sometimes but often seems dubious. Worse yet, some interventions are intended to advance an activist’s agenda that is not shared by other investors.
This chapter proposes managing shareholder interventions through changes to the federal proxy rules designed to make it more difficult for activists to effect operational changes, while encouraging shareholder efforts to hold directors and managers accountable.
In any case, I was deeply amused by the headline of The Economist article: "Anything you can do, Icahn do better."
As the kids say, OMG! (they do still say that, don't they?)
I have had numerous occasions over the years to document my utter disdain for Carl Icahn and his track record:
Dec 30, 2013 ... Perrenial corporate raider Carl Icahn reportedly is trying to bully Wachtell Lipton for representing his targets: Wachtell thinks it knows exactly ...
www.professorbainbridge.com/.../is-carl-icahn-trying-to-deny-his-targets- legal-counsel-of-their-choice.html
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Sep 19, 2013 ... Carl Icahn's asinine screed in favor of shareholder activism from today's WSJ included this knee slapper: Is it fair that CEOs make 700 times ...
www.professorbainbridge.com/.../carl-icahns-crocodile-tears-re-ceo- compensation.html
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Sep 19, 2013 ... Carl Icahn got rich out of ruining companies by extorting greenmail from spineless targets and running companies like TWA into the ground.
www.professorbainbridge.com/.../carl-icahns-tired-shareholder-democracy- fable.html
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Dec 10, 2013 ... David Benoit reports that Carl Icahn has had a good run this year: Carl Icahn, long seen as the archenemy of chief executives, is finding the ...
www.professorbainbridge.com/.../what-has-carl-icahn-ever-made-other-than- money-.html
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Sep 19, 2013 ... In the asinine screed by Carl Icahn in today's WSJ, in which he makes a dubious case for shareholder activism, Carl nearly breaks his arm ...
www.professorbainbridge.com/.../carl-icahns-dubious-praise-for-his-own- hedge-funds-performance.html
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Mar 25, 2013 ... When I first heard that Carl Icahn was considering bidding for Dell, I was quite surprised. Icahn's not a private equity guy who buys and ...
www.professorbainbridge.com/.../delaware-courts-should-allow-dells-board- to-fend-off-carl-icahns-financial-play.html
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Jan 8, 2014 ... Carney writes: You may have heard that Ralph Nader has called on Carl Icahnto help him resist the plan by Liberty Media to acquire the rest of ...
www.professorbainbridge.com/.../john-carney-on-whats-really-going-on- with-the-ralph-nader-carl-icahn-axis.html
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Posted at 10:50 AM in Shareholder Activism | Permalink | Comments (0)
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Over at Marginal Revolution, Alex Tabarrok writes that:
A new and interesting entry into this field comes from LinkedIn which uses data on its 300 million members to define desirable employers and then rank universities based on getting their graduates jobs with those employers. The methodology is somewhat opaque and a bit sketchy but the idea is to define desirable employers by industry based on the revealed preference of employees in LinkedIn. In particular, firm A is raised relative to firm B if more people move from B to A than from A to B and similarly if firm A retains its employees longer than firm B. The percentage of a college’s recent graduates who obtain employment from the desirable employers is then used to rank the universities. No cost factors are included.
There's no obvious reason they could not apply a similar methodology to ranking law schools and the results might be very interesting.
Posted at 10:27 AM in Law School | Permalink | Comments (0)
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Joe Patrice has a slightly breathless post about the interesting argument being made by an outfit called PublicResource.org that the copyright on the 10th edition of the Blue Book has lapsed and that PublicResource.org therefore can put a copy of the 10th edition on the web where it will be available to all for free. Patrice therefore asks: Is The Bluebook About To Be Killed Off?
I doubt it. After all, as Christine Hurt observes:
I would hazard a hypothesis that law graduates turn to the modern edition for the hard questions, the esoteric sources, which the Tenth Edition doesn't cover. Another reason I pick up the Nineteenth Edition is to check the appendices -- what's the form of the statutes in [insert state here]? The Tenth Edition doesn't have those appendices, listing every reporter and statutory publication in every jurisdiction ever. That is why the Tenth Edition is only 124 pages long. I also pick up the modern edition to see if I need to abbreviate words in my case name, etc. according to T.6.
The kerfuffle does raise an interesting question, however; namely, when does the copyright on the first edition to provide internet citation forms expire?
Posted at 10:20 AM in Law School | Permalink | Comments (0)
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Updating my earlier post on Robert F Kennedy Jr.'s absurd proposal to impose the corporate death penalty on companies that disagree with his extreme climate views, Keith Paul Bishop examines the relevant California principles and concludes:
I agree with the professor, none of these authorizes the killing of a corporation merely because it has put its profit motive above the “general welfare”.
Meanwhile, Andrew Stuttaford argues that:
Kennedy also argues that “corporations which deliberately, purposefully, maliciously and systematically sponsor climate lies should be given the death penalty. This can be accomplished through an existing legal proceeding known as “charter revocation.” State Attorneys General can invoke this remedy whenever corporations put their profit-making before the “public welfare.”
As a precedent, Kennedy cites this:
In 1998, New York State’s Republican Attorney General, Dennis Vacco successfully invoked the “corporate death penalty” to revoke the charters of two non-profit tax-exempt tobacco industry front groups, The Tobacco Institute and the Council for Tobacco Research (CTR)… Attorney General Vacco seized their assets and distributed them to public institutions.
Hmmm, whatever you think about the rights and wrongs of that particular decision, it’s worth noting that it was directed against groups with charitable status, a status that rests on a presumption of some sort of public good. What Kennedy is contemplating is action against ‘regular’ corporations (such as ExxonMobil and Koch Industries) that support a political and scientific agenda with which he disagrees, corporations that, incidentally, he believes to be “enemies of mankind”. That hysterical and demagogic description tells you everything that you need to know. Kennedy’s is the language of a tyrant-in-the-making, prowling around America’s constitutional protections and looking for a way in.
We should, I suppose, thank Kennedy for highlighting the fact that State attorneys-general have this power, and we should take steps to ensure—by law—that it cannot be abused by those who cannot stomach the awkwardness of free speech.
Stuttaford concludes by bashing Kennedy's hyperbolic attacks on vaccine scientists.
Posted at 02:35 PM | Permalink | Comments (0)
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Steven Hayward at Powerline does a nice job of summarizing the teapot tempest:
Robert F. “Little Bobby” Kennedy Jr is trying to backtrack from his latest foam-flecked calls for jailing climate skeptics. He’s taken the pages of EcoWatch.com (what—was Salon.com out of pixels that day?) to affect a denialist pose (heh) of his own previous very clear words:
Hysterics at the right wing think tanks and their acolytes at The Washington Times, talk radio and the blogosphere, are foaming in apoplexy because I supposedly suggested that “all climate deniers should be jailed.” . . . Of course I never said that. I support the First Amendment which makes room for any citizen to, even knowingly, spew far more vile lies without legal consequence.
Nice try. But Little Bobby essentially doubles down on stupid right away:
I do, however, believe that corporations which deliberately, purposefully, maliciously and systematically sponsor climate lies should be given the death penalty. This can be accomplished through an existing legal proceeding known as “charter revocation.” State Attorneys General can invoke this remedy whenever corporations put their profit-making before the “public welfare.”
Not content with delivering lethal injections to corporations, he thinks the idea should extend to non-profit advocacy organizations, too:
An attorney general with particularly potent glands could revoke the charters not just oil industry surrogates like AEI and CEI. . .
What was that about the First Amendment again, Little Bobby? Also, I wonder how Little Bobby would react if a state attorney general turned the same doctrine on his anti-vaccine advocacy, which has immediate real world consequences for children whose stupid parents follow his advice.
Turns out Little Bobby is skilled at backtracking, because he has to do it so much. Just Google “RFK Jr backtracking,” and sit back and enjoy the results....
Let's focus on Kennedy's proposal to kill corporations via "charter revocation." First, in almost all states, there is no procedure called "charter revocation."
In Model Business Corporation Act states, there are three ways in which a charter may be nullified. First, voluntary dissolution approved by the shareholders and the board of directors, which is obviously not relevant here.
Second, there is a process of administrative dissolution, which may be carried out by the secretary of state--not Bobby's attorney general--but only for a very limited set of reasons none of which remotely relate to climate denial:
§ 14.20 Grounds for Administrative Dissolution. The secretary of state may commence a proceeding under section 14.21 to administratively dissolve a corporation if:
(1) the corporation does not pay within 60 days after they are due any franchise taxes or penalties imposed by this Act or other law;
(2) the corporation does not deliver its annual report to the secretary of state within 60 days after it is due;
(3) the corporation is without a registered agent or registered office in this state for 60 days or more;
(4) the corporation does not notify the secretary of state within 60 days that its registered agent or registered office has been changed, that its registered agent has resigned, or that its registered office has been discontinued; or
(5) the corporation’s period of duration stated in its articles of incorporation expires.
Do you see anything in there about forced dissolution of corporations that "put their profit-making before the 'public welfare.'" Nope? Me neither.
Finally, there is a process by which the state attorney general can request judicial dissolution of a corporation, but only on very limited grounds:
§ 14.30 Grounds for Judicial Dissolution
(a) The [name or describe court or courts] may dissolve a corporation:
(1) in a proceeding by the attorney general if it is established that:
(i) the corporation obtained its articles of incorporation through fraud; or
(ii) the corporation has continued to exceed or abuse the authority conferred upon it by law ....
The first prong is obviously irrelevant. So for Kennedy's proposal to execute corporations to have any legal validity, you have to believe that climate denial constitutes "exceed[ing] or abus[ing] the authority conferred upon it by law."
Kennedy apparently believes that exercising free speech rights constitutes such an abuse, but despite his "support" for the First Amendment (for which I suppose we should all be grateful), presumably his education omitted much of the law of free speech under the First Amendment. If corporations have free speech rights (as they do), after all, speaking on issues of public policy must be covered and protected by the First Amendment.
Kennedy also apparently believes that "profit-making before the 'public welfare,'" whatever the heck that welfare may be (apparently he gets to define what constitutes such welfare), constitutes "exceed[ing] or abus[ing] the authority conferred upon it by law." Wrong again.
What is the authority conferred upon a corporation by law? Very simply, to make money within the bounds of law:
A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction of profits, or to the nondistribution of profits among stockholders in order to devote them to other purposes. ...
As we have pointed out, [...] it is not within the lawful powers of a board of directors to shape and conduct the affairs of a corporation for the merely incidental benefit of shareholders and for the primary purpose of benefiting others, and no one will contend that, if the avowed purpose of the defendant directors was to sacrifice the interests of shareholders, it would not be the duty of the courts to interfere.
In other words, Kennedy has it exactly backwards. It would be an effort by "directors was to sacrifice the interests of shareholders" that truly would constitute "exceed[ing] or abus[ing] the authority conferred upon it by law ...."
Look, I'm not a climate denialist. Climate change is happening, albeit to debatable extents, and human activity is relevant. But stupid arguments against climate denialists don't help. And, once again, Bobby has been very, very stupid.
Update: Kennedy opines in his article that:
New York, for example, prescribes corporate death whenever a company fails to “serve the common good” and “to cause no harm.”
I have searched the relevant New York statute and case databases on Westlaw for those phrases, as well as the secondary literature, and came up with nothing relevant. So I call BS. I think he made it up or got it from somebody who made it up.
Posted at 02:37 PM in Business, Corporate Social Responsibility, Politics | Permalink | Comments (0)
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Marcia Narine is conducting an interesting experiment:
I have assigned my BA students to write their own shareholder proposals so that they can better understand the mechanics and the substance behind Rule 14-a8. As samples, I provided a link to over 500 proposals for the 2014 proxy season. We also went through the Apple Proxy Statement as a way to review corporate governance, the roles of the committees, and some other concepts we had discussed. As I reviewed the proposals this morning, I noticed that the student proposals varied widely with most relating to human rights, genetically modified food, environmental protection, online privacy, and other social factors. A few related to cumulative voting, split of the chair and CEO, poison pills, political spending, pay ratio, equity plans, and other executive compensation factors.
I would have hoped that business law students would have focused more on governance, but I'm not surprised.
Posted at 12:46 PM in Law School, Securities Regulation | Permalink | Comments (0)
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If I were still a member of the ABA Committee on Corporate Laws I'd have to fly to meetings at least 4 times per year, which would mean four more TSA gropings and Ebola exposures. So I'm glad I'm not. But if I were, I'd be jumping up and down to get the Committee to follow Oklahoma (of all places) lead on fee-shifting bylaws. Kevin Lacroix has the details:
One of the most interesting recent developments has been the onset of innovative litigation reform efforts in the form of bylaw revisions. Among the most intriguing of these efforts involves fee shifting bylaws, whereby an unsuccessful claimant in intracorporate litigation must pay the other party’s costs. As discussed here, earlier this year, the Delaware Supreme Court upheld the validity of a fee shifting bylaw, a judicial decision that immediately triggered a legislative initiative to limit the effect of the decision to non-stock companies. As discussed here, the Delaware legislative initiative has now been tabled until early next year.
But while the Delaware legislative initiative is on hold, at least one legislature has gone forward to provide for the awarding of fees against unsuccessful derivative lawsuit claimants. ...
... the “loser pays’ model that the Oklahoma legislation adopts is extraordinary — It represents a significant departure from what is general known as the American Rule, under which each party typically bears its own cost. And unlike the fee-shifting bylaws being debated in Delaware –which would in any event require each company to decide whether it was going to adopt the bylaw (and might therefore be subject to shareholder scrutiny) — the Oklahoma legislation applies to any derivative action in the state, even if the company involved is not an Oklahoma corporation.
If more states follow Oklahoma's lead, Delaware's need to remain at the forefront of corporate law may be enough to overcome the self-interested lobbying by lawyers (both defense and plaintiff) who hate loser pays. One can only hope.
Posted at 11:40 AM in Corporate Law | Permalink | Comments (1)
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Via Edward McNally we learn of Grunstein v. Silva, C.A. 3932-VCN (September 5, 2014), which poses some great questions:
This case presents a number of perplexing factual questions. Why would sophisticated businessmen proceed jointly to acquire a billion dollar company without a written agreement defining their relationship? Why did the participants attempt to document certain aspects of their relationship and not others? How much weight should be accorded to the fact that they attempted to document their rights and obligations based upon their collaboration but ultimately never completed this task? Why did the lawyer transfer legal control of the transaction to the investor if they did not have a partnership agreement? And why did the financier spend months underwriting 275 facilities if he did not have an oral (or written) agreement with the investor to do the HUD financing?
The legal take home is the treatment of how to prove an oral partnership:
As with any contract, an “intention or desire to form a general partnership cannot bring the legal relationship into being . . . [where] [t]he parties were never able to reach a final accord on the essential elements” of a binding contract. The test for determining whether all material terms have been agreed upon is: “[w]hether a reasonable negotiator in the position of one asserting the existence of a contract would have concluded, in that setting, that the agreement reached constituted agreement on all of the terms that the parties themselves regarded as essential and thus that the agreement concluded the negotiations . . . .” Consistent with this objective test, the parties’ “overt manifestations of assent, rather than their subjective desires, control” when assessing whether they intended to be bound.
For better or worse, Delaware’s oral partnership law does not differentiate among the dollar amount involved, the number of terms, or the complexity of the agreement. Thus, an oral partnership agreement could be formed even if the partnership were worth billions of dollars and had dozens of material and complex terms. But as a practical matter, this type of oral agreement is unlikely for obvious reasons. Indeed, a reasonable negotiator could rationally assume that a complex partnership agreement involving an acquisition worth more than a billion dollars would necessarily have to be reduced to writing for all of the essential terms to be fully agreed upon. ...
Here, the evidence does not indicate that Silva or his counsel made an unequivocal statement that a written executed contract was a condition precedent to an agreement. They perhaps came close to making such a statement, but they never did. ...
Within the context of Delaware partnership law, there is substantial evidence showing that the parties had not agreed upon all the essential terms of the alleged partnership in August. If a partnership had been formed, why did the parties make several unsuccessful attempts to modify the original agreement? Why did Troutman propose inconsistent terms concerning control and funding of the initial deposit? Why did Fillmore’s counsel warn Grunstein that he was proceeding at his own risk? And why did Grunstein email Lerner to warn him that they were proceeding “on spec”? The Court’s inability to answer these questions satisfactorily prevents it from finding that a legally enforceable partnership agreement was formed in August. ...
From the perspective of a reasonable negotiator, [the] exchange of documents and proposals is indicative of a negotiation involving offers and counteroffers. ...
However, the events surrounding the Second Amendment present a slightly different picture in which the parties appear to have arrived at certain understandings. The record shows that the foursome had reached an agreement on the sharing of expenses. ...
Of course, an agreement to share expenses does not create a partnership. The $64 question is whether they agreed to share profits, although as is often the case the court also considers factors such as control, sharing of losses, and so on. Indeed, if anything, the court seems to underplay the extent to which sharing of profits creates a prima facie case of partnership, as where it opines that "Some of the critical elements of an enforceable partnership agreement include profits and losses, control, and ownership."
My bottom line? This seems like a case in which the parties would have been served to involve counsel and in which counsel should have advised them to consider a letter of intent to be followed by a written partnership agreement. Much trouble and expense might have been avoided had they done so.
Update: My friend, UCLAW colleague, and co-authir Bill Klein sent along these thoughts:
My guess is that this kind of disregard of the need for working out the terms of the deal is not all that rare, even for a project involving large sums of money. Two successful, up-from-nothing businessmen agree on a project. They are sure it will be a success; they are optimists by nature and their success confirms their thinking. They are excited about the project and want to move quickly. Lawyers, in their thinking, are pettifoggers who will only hold them up. By and large they hold lawyers in disdain, if not contempt. They proceed on the assumption that they can work out all the deal points. Then the project turns sour, their relationship turns sour, and the squabbling begins, along with the legal bills. Are they angry with themselves? Certainly not. They blame the legal system or the lawyers, or anyone else, and their dislike of lawyers intensifies. Maybe law schools should teach the psychology of clients.
Posted at 11:19 AM in Agency Partnership LLCs | Permalink | Comments (4)
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Steve Bradford nails it:
Weinberger says that the two elements of fairness [fair dealing and fair price] must be considered together, that “the test for fairness is not a bifurcated one between fair dealing and fair price.” Id. But, of course, damages will be measured against a fair price. If that’s the case, I ask my students, does fair dealing really make any difference as long as the price is fair?
A Delaware Court of Chancery opinion, In Re Nine Systems Corporation Shareholders Litigation, (Del. Ch. Sept. 4, 2014), recently dealt with that issue. Vice Chancellor Noble concluded that the procedure followed by the company was unfair, so the element of fair dealing was not met. He decided that the price was fair but, considering the two elements together, decided that the burden of proving fairness had not been met.
Because of his finding that the price was fair, the Vice Chancellor rejected the plaintiffs’ claim for damages. However, he concluded that the court could require the defendants to pay certain of the plaintiffs' attorneys' fees and costs.
I now have an answer for my students. Even if the price is fair, fair dealing can still make a difference. Of course, I’m not sure anyone other than the plaintiffs’ attorneys will be terribly happy with the result.
Posted at 11:00 AM in Corporate Law, Lawyers | Permalink | Comments (0)
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