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UND STEP Course on Catholic Social Thought Week 2 Discussion Questions

As previously explained, I've enrolled in the University of Notre Dame's Satellite Theological Education Program (STEP) to pursue their Certificate in Doctrine. I've already taken three of the six required courses. I'm currently taking my fourth STEP course Catholic Social Teaching.

Week 2 is "The Principles of Catholic Social Teaching." Here are my answers to the discussion questions.

When you read the phrase social justice, what comes to mind?

I would begin by comparing "social justice" to the Thomist conception of distributive justice, in that it relates to the just distribution of goods within a society. I use "goods" here not just in the sense of material objects and wealth, but more generally to include social goods such as political rights. Although that conception of social justice is at least partially correct, I do not think it is the entire story. Instead, social justice also speaks to the fact that we, as humans, do not exist as atomistic individuals but rather as members of many different "societies," such as churches, workplaces, clubs, organizations, and so on. Social justice therefore also speaks to how we relate to those institutions and, perhaps even more importantly, how the state relates to those institutions. A just state respects, protects, and nourishes these societies which serve as intermediating agencies between Leviathan and man.

Which one or two of the seven themes of Catholic Social Teaching would you be most interested to learn more about?

The USCCB has identified seven themes of CST:

• Life and Dignity of the Human Person.
• Call to Family, Community, and Participation.
• Rights and Responsibilities. 
• Option for the Poor and Vulnerable. 
• The Dignity of Work and the Rights of Workers. 
• Solidarity. 
• Care for God's Creation.

I'm particularly interested in CST and the economy, because that has been a key part of my vocational interest in corporate governance. I'm always interested in learning more about it, as a result.

Looking beyond my professional interests, however, I'm particularly interested in Human Dignity and Solidarity. I was an Army brat and have always been interested in military history. Given the unsettled state of the world, Catholic teaching on war and peace is something I'd like to study in some depth. In addition, in thinking about the hot political debates over immigration, learning more about the Church's position on solidarity seems an obvious candidate. The Church teaches that:

We are one human family whatever our national, racial, ethnic, economic, and ideological differences. We are our brothers and sisters keepers, wherever they may be. Loving our neighbor has global dimensions in a shrinking world.

But does that translate into a policy of open borders with no restrictions on immigration?

The lecture includes a quote from St. Basil the Great, which reads in part, The bread, which you do not use, is the bread of the hungry. Do you agree?

Answering that question requires us to consider the full quote. St Basil went on to say: "The garment hanging in your wardrobe is the garment of the one who is naked. The shoes that you do not wear are the shoes of the one who is barefoot. The money you keep locked away is the money of the poor." Does this mean that we should only own one pair of shoes and one set of clothing? Does it mean we should not save for the future?

One is reminded in this regard of Jesus' advice to the rich young man in Matthew 19:

Jesus said to him, “If you wish to be perfect,* go, sell what you have and give to [the] poor, and you will have treasure in heaven. Then come, follow me.” When the young man heard this statement, he went away sad, for he had many possessions.

If we take that as a universal command, we should all emulate Saint Antony of the Egyptian Desert who sold everything he owned and went to live in the desert.

That we need not all head to the nearest desert is confirmed, I think, by Pope Paul VI's 1974 Lenten message:

We wish therefore to stress today a “break” which is demanded by the spirit of Lent, a break from a too exclusive attachment to our worldly goods, whether they are abundant as in the case of the rich man Zacchaeus (cf. Lk 19:8), or meager as in the case of the poor widow praised by Jesus (cf. Mk 12:43). In the vivid language of the time, Saint Basil preached to the wealthy in these terms: “The bread which you do not use is the bread of the hungry; the garment hanging in your wardrobe is the garment of him who is naked; the shoes that you do not wear are the shoes of the one who is barefoot; the money that you keep locked away is the money of the poor: the acts of charity that you do not perform are so many injustices that you commit” (Homily VI in Lc, XII, 18, PG XXXI, col. 275).

Words like these make us reflect at a time when hatred and conflict are caused by the injustice of those who hoard when others have nothing, by those who put their own tomorrow before their neighbour’s today, and by those who through ignorance or selfishness refuse to give up what they do not need for the sake of those who lack the bare necessities of life (cf. Mater et Magistra).

And how can we not recall at this point the renewal and reconciliation demanded and assured by the fullness of our single Eucharistic meal. If we are to share together in the Body of the Lord, we must sincerely desire that no one should lack what is necessary, even though this should involve us in some personal sacrifice.

If I read that correctly, it's not having two pairs of shoes that is the problem, it's hoarding. It's having more than we could possibly ever need, while doing nothing for others.

I think what Jesus and St. Basil are really getting at is priorities. One cannot serve two masters. Do we love God or possessions? "For where your treasure is, there also will your heart be." (Like 12:34) “Take care to guard against all greed, for though one may be rich, one’s life does not consist of possessions.” (Luke 12:15)

The lesson, I think, is not that we must all become monks who take a vow of poverty. But that we must give and give sacrificially. As the Pope said, it "should involve us in some personal sacrifice." If our tithes and offerings don't pinch at least a little, maybe we need to do more. (Memo to self: Am I pinched?)

In the class chat, our facilitator asked which of the 7 themes of CST do we find difficult.

My answer is the one related to work. Work is seen in CST as a means by which we collaborate in God’s on-going act of creation.  The Creator hid untold riches and possibilities within His creation, which it is Man’s vocation to discover and develop through work. 

As an adult convert to Catholicism, I struggle with this.

Growing up, I was taught that Man may (and should) imitate God’s creative work, but Man does not share in God’s work as Creator. In the Genesis account, Creation was completed on the sixth day.  “That is exactly why God could call it good and rest” on the seventh day.  Instead of being part of an on-going process of Creation, work was a direct result of the Fall: When exiled from Eden, Man was condemned to “painful toil.”  Work thus was not intended to be intrinsically fulfilling, but simply a necessary means of survival.

How would you explain the differences between social justice and charitable works to someone in your parish who hadn’t heard about the distinction before?

Charitable works are about meeting the immediate needs of specific individuals. Giving a hungry homeless person a $10 Subway gift card, for example. 

Social justice is about working towards systemic changes that benefit many. 

The Church teaches that both are an essential part of the Christian faith. I have heard some object that Jesus never talks about achieving political justice but rather about works of mercy. Even if that were true and even if we practiced sola scriptura, however, scripture still teaches us to strive for social justice. In particular, the works of the minor prophets--especially, but not exclusively Amos--are profoundly concerned with social justice. 

Amos preaches that the Lord will condemn--and send temporal punishment--upon those "Who oppress the destitute and abuse the needy ...." (Amos 4:1) That his concern is with social justice rather than charitable works is further suggest by the passage in which he condemns those who "tax the destitute and exact from them levies of grain." Clearly, he's talking about an unjust government. And again in Chapter 6:

4 Those who lie on beds of ivory, and lounge upon their couches; Eating lambs taken from the flock, and calves from the stall; 5 Who improvise to the music of the harp, composing on musical instruments like David, 6 Who drink wine from bowls, and anoint themselves with the best oils, but are not made ill by the collapse of Joseph; 7 Therefore, now they shall be the first to go into exile, and the carousing of those who lounged shall cease.

Social justice perhaps is about creating a society in which nobody lies on a bed of ivory when some have no bed.

The continuing resurgence of liberal shareholders as the dominant players in the shareholder proposal game

ISS reports:

I continue to oppose the use of the shareholder proposal rule to advance a political agenda. The problem is the idiotic Lovenheim rule. which states that shareholder proposals having "ethical or social" significance must be included in the company's proxy statement so long as they have some slight nexus to the company's business. Lovenheim v. Iroquois Brands, Ltd., 618 F. Supp. 554, 559 (D.D.C. 1985).

Here is a plausible alternative to the Lovenheim approach: Courts should ask whether a reasonable shareholder of this issuer would regard the proposal as having material economic importance for the value of his shares. This standard is based on the well-established securities law principle of materiality. It is intended to exclude proposals made primarily for the purpose of promoting general social and political causes, while requiring inclusion of proposals a reasonable investor would believe are relevant to the value of his investment. Such a test seems desirable so as to ensure that an adopted proposal redounds to the benefit of all shareholders, not just those who share the political and social views of the proponent. Absent such a standard, the shareholder proposal rule becomes nothing less than a species of private eminent domain by which the federal government allows a small minority to appropriate someone else’s property—the company is a legal person, after all, and it is the company’s proxy statement at issue—for use as a soap-box to disseminate their views. Because the shareholders hold the residual claim, and all corporate expenditures thus come out of their pocket, it is not entirely clear why other shareholders should have to subsidize speech by a small minority.

 

Appraisal arbitrage takes another big hit

Ann Lipton:

... in Dell and DFC Glob. Corp. v. Muirfield Value P’rs, L.P., 172 A.3d 346 (Del. 2017), the Delaware Supreme Court threw some cold water on the practice of appraisal arbitrage.  The two decisions suggest that in an appraisal action, courts should not try to conduct their own valuation of a company except in unusual circumstances; instead, where the deal was negotiated appropriately, the deal price itself represents the best evidence of fair value.

That alone would be enough to discourage would-be appraisers, absent evidence of significant dysfunction in the process by which the deal price was reached, but the decisions went further: both contained extensive endorsements of the efficient markets hypothesis and the accuracy of market pricing.  ...

In Verition Partners Master Fund, Ltd., et al. v. Aruba Networks, Inc., C.A. No. 11448-VCL, memo. op. (Del. Ch. Feb. 15, 2018), VC Laster concluded that after Dell, he had no choice but to accept the market price as the best evidence of the target's fair value - even in the face of evidence that the acquirer made an employment offer to the target's CEO while negotiations were continuing (in violation of a prior agreement with the target, and without the Board's knowledge), and in the face of evidence that the target's financial advisors were trying to curry favor with the acquirer.  As a result, he awarded the dissenters the pre-deal market price of $17.13 per share, a figure significantly below the merger price of $24.67 per share.

In news that will surprise no one, law students and law professors are more liberal than the population and it matters

Chilton, Adam S. and Masur, Jonathan S. and Rozema, Kyle, Political Discrimination in the Law Review Selection Process (February 12, 2018). University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 832. Available at SSRN: https://ssrn.com/abstract_id=3119903

The career trajectories of law professors and the dissemination of knowledge depend on the publication decisions of law review editors. However, these publication decisions are shrouded in mystery, and little is known about the factors that affect them. In this article, we investigate one potentially important factor: political ideology. To do so, we match data on the political ideology of student editors from 15 top law reviews over a twenty-year period to data on the political ideology of the authors of accepted articles. We find that editors accept articles in part because of shared political ideology with authors. That is, conservative editors are more likely to accept articles written by conservative authors, and liberal editors are more likely to accept articles written by liberal authors. We then investigate potential explanations for this ideological discrimination. One possibility is that student editors simply have a preference for publishing articles that promote their political ideology. Another possibility is that student editors are objectively better at assessing the contribution of articles written by authors with shared ideology. We find evidence that the ideological discrimination is driven by student editors' superior ability to ascertain the quality of articles that match their own ideology.

If the law school universe matched up to demographics of the country as a whole, this ideological bias might not matter. But the law school universe tilts hard left. Which suggests conservative scholars are at a significant disadvantage.

 

California censorship takes another hit

From WLF Legal Pulse:

Occasionally, but not nearly often enough, courts reintroduce California’s censors to the First Amendment, as the U.S. Court of Appeals for the Ninth Circuit did last year in striking down San Francisco’s warning-label mandate for “sugary” drinks. On February 20, a Northern District of California judge handed the state its latest speech-regulation defeat, striking down a law designed to limit information that entertainment database company IMDb.com could publish (IMDb.com Inc. v. Becerra).

Go read whole thing.

Perpetual Dual Class Stock versus the SEC’s Dubious Raised Eyebrow Power

My new WLF Legal Pulse column is now up.

Would Perlman v. Feldmann support liability for a controlling shareholder who forces a buyer to switch from a merger to a purchase of the controller's stock at a premium

A friend and fellow corporate law professor sent along this email:

Little pushback on your conclusion on p. 128 of your concise M&A hornbook (3d ed.) that swapping a proposed merger for a private control-premium sale would constitute a corporate opportunity problem the minority shareholders could successfully sue over.  My take is that a corporate opportunity has to be an opportunity that benefits the corporation’s bottom line, or at least is reasonably projected to do so.  I don’t think the corporation’s bottom line is altered by switching from a merger to a private sale, so I don’t see a corporate opportunity.  Are we in contestable grey area here, or is there strong precedent in your favor? 

Precedent? Yes. Strong? That's in the eye of the beholder. On to what I found:

In Perlman v. Feldmann itself, a proposal to merge Newport with  Follansbee Steel Corporation had cratered shortly before the Wilport negotiations began. At least one commentator has observed that “It may also be that the action of Feldmann in converting the initial merger proposal into an offer to purchase his control block may have played a significant role in the decision.” Kaplan, Fiduciary Responsibility in the Management of the Corporation, 31 Bus. Law. 883, 908 (1976). But the district court had found that:

Nor in my view did plaintiffs succeed in proving harm to Newport resulting from a failure of a merger with Follansbee on possible terms advantageous to Newport. Certainly the geographical separation between the Newport and Follansbee mills was a factor seriously unfavorable to a merger. Anyhow, there is nothing to show that Feldmann's sale prevented a merger: if, indeed, a merger were possible on favorable terms before August 31, 1950— a fact in my judgment not proved— so far as appears it was equally possible after that date.

Perlman v. Feldmann, 129 F. Supp. 162, 186 (D. Conn. 1952), rev'd, 219 F.2d 173 (2d Cir. 1955)

Nevertheless a compendium of articles by distinguished practitioners and scholars argued that:

the case can be categorized as a diversion of a corporate transaction case because Feldmann rejected a proposed merger between Newport and another steel corporation at the same time he accepted Wilport's offer to purchase his controlling shares.

Clifford J. Alexander et al., Problems of Fiduciaries Under the Securities Laws, 20 Real Prop. Prob. & Tr. J. 503, 612 (1985). See also Victor Brudney & Robert Charles Clark, A New Look at Corporate Opportunities, 94 Harv. L. Rev. 997, 1062 (1981) (discussing "the findings of diverted corporate opportunities by officers who sold their shares and deprived their corporations of the opportunity to purchase them, or to make sales of assets or stock that would benefit all shareholders pro rata. Perlman v. Feldmann, 219 F.2d 173 (2d Cir.), cert. denied, 349 U.S. 952 (1955); Jones v. H.F. Ahmanson & Co., 1 Cal. 3d 93, 460 P.2d 464, 81 Cal. Rptr. 592 (1969); International Bankers Life Ins. Co. v. Holloway, 368 S.W.2d 567 (Tex. 1963).").

A New York case suggests, albeit by negative implication that diverting a merger proposal into a stock sale could be a usurpation of corporate opportunity:

The allegations of the complaint also do not tend to establish a cause of action on the theory that the acts of the defendant amounted to the unlawful deprivation or diversion of a corporate opportunity. (Cf. 104 U. of Pa.L.Rev., supra, at 797; Stanton v. Schenck, 140 Misc. 621, 251 N.Y.S. 221; Perlman v. Feldmann, 2 Cir., 219 F.2d 173, 50 A.L.R.2d 1134, cert. den. 349 U.S. 952, 75 S.Ct. 880, 99 L.Ed. 1277.) The opportunity to bargain for and to effect the merger with Adson upon favorable terms, if a valuable corporate asset, was not lost or in any way curtailed by the acts of the defendant. His acts had the effect of facilitating the merger rather than operating to deprive plaintiff of the opportunity thereof.

Platt Corp. v. Platt, 20 A.D.2d 874, 875, 249 N.Y.S.2d 84, 86 (1964)

On to a California precedent:

In November of 1962 a Mr. Douglas McDonald, president of Lincoln Savings & Loan Association of Los Angeles, and his assistant, David Prince, called on Mr. Halbert at the Association's business office in Tulare. Mr. McDonald asked Mr. Halbert if the Association was for sale. Halbert stated, “No, the Association is not for sale. However my wife and I would entertain selling our stock,” and stated a price of two and one-half times book value. There was no evidence produced that the board of directors or stockholders had been consulted as to whether the company was for sale. ...

Every sale of a block of control stock should not per se be subject to attack, but where the amount received by the majority-director seller is so disproportionate to the price available to the minority stockholders, then such fiduciary-seller must show that no advantage was taken if the sale is questioned. This is especially true in the instant case where Halbert in his triple fiduciary capacity was completely indifferent to his obligations to the minority stockholders. He did not advise the directors or stockholders that he had been approached by persons who desired to acquire the Association. After obtaining an agreement for the price he desired for his own stock and while still an officer-director, he failed to make any effort to obtain for the minority substantially  the same price that he received and, in fact, worked actively for the buyers in assisting them to acquire all the stock at a low figure by voicing his recommendation to the minority holders that they sell at below book value. Halbert's other actions in permitting the buyers access to the books, records and reports of the Association, and his agreement to refrain from the payment of dividends only serve to fortify the conclusion that he worked to obtain an advantage for himself and effectively placed the buyers of his stock in a position to dictate terms to the detriment of the minority holders. Further, in advising the minority stockholders to sell their stock for $300 or they might get nothing, he was using his office, experience and reputation gained in the conduct of their affairs to prevent the minority an opportunity to obtain a higher price for their stock.

Brown v. Halbert, 271 Cal. App. 2d 252, 268–69, 76 Cal. Rptr. 781, 791–92 (Ct. App. 1969). There is a lot more going on here than a mere effort to divert the purchaser from acquiring the whole company t acquiring the controlling shareholder's block, of course, which admittedly weakens it as a precedent. Still, the case does treat diversion of a merger proposal as a taking of a corporate opportunity.

What was the Second Circuit doing to Securities Regulation in the Sixties?

Adam Pritchard and Robert Thompson have an interesting new paper addressing the titular question:

This articles analyzes the Supreme Court’s leading securities cases from 1962 to 1972—Capital Gains, J.I. Case v. Borak, Mills v. Electric Auto-Lite Co., Bankers Life, and Affiliated Ute—relying not just on the published opinions, but also the justices’ internal letters, memos, and conference notes. The Sixties Court did not simply apply the text as enacted by Congress, but instead invoked the securities laws’ purposes as a guide to interpretation. The Court became a partner of Congress in shaping the securities laws, rather than a mere agent. The interpretive space opened by the Court’s invocation of purpose allowed a dramatic expansion in the law of securities fraud. Encouraged by the high court’s dynamic statutory interpretation doctrine, the Second Circuit—the “Mother Court” for securities law—developed new causes of action that transformed both public and private enforcement of the securities laws. The insider trading prohibition found a new home in the flexible confines of Rule 10b-5. Implied private rights of action encouraged class actions to flourish. The growth of fiduciary duty in the 1960s created a blueprint for “federal corporation law.” The Supreme Court’s “counter-revolutionary” turn in the 1970s cut back on purposivism and the doctrinal innovations of the Sixties, but the approaches to insider trading and private rights of action survived, remaining pillars of securities regulation today.

There is much about the paper that is persuasive. As to insider trading, however, my view is that the Second Circuit just made the law up out of whole cloth without regard to either text or Congressional purpose:

The Texas Gulf Sulphur decision was the seminal moment in the creation of the modern federal insider trading prohibition. In the half century since it was decided, however, courts and commentators have overlooked the glaring flaw in the court’s analysis.

In the key part of the opinion, in which the court laid out the equal access standard, the court grossly misrepresented the precedents on which it relied. The court cited two state law opinions that were wholly irrelevant to the problem at hand. It cited two law review articles, but those articles simply do not say what the court claimed they said. Finally, the court made a bald, unsupported statement of Congressional intent that is demonstrably false.

Bainbridge, Stephen M., Equal Access to Information: The Fraud at the Heart of Texas Gulf Sulphur (August 7, 2017). UCLA School of Law, Law-Econ Research Paper No. 17-14. Available at SSRN: https://ssrn.com/abstract=3014977

UND STEP Course on Catholic Social Thought Week 1 Discussion Questions

As previously explained, I've enrolled in the University of Notre Dame's Satellite Theological Education Program (STEP) to pursue their Certificate in Doctrine. I've already taken three of the six required courses. I'm currently taking my fourth STEP course Catholic Social Teaching:

This pastoral theology course serves as an introduction to Catholic Social Teaching and to practical methods for participating in social ministry in the Church today. Through participation in the course, students will be able to identify basic principles of Catholic Social Teaching drawn from Scripture and magisterial documents, apply these principles to activity for justice in their parish and local communities, and differentiate between social justice and charitable works.

This course is not one of the six I need to compete my Certificate. As regular readers know, however, I am deeply interested in CST:

I've taught a seminar on Catholic Social Thought and the Law at UCLA School of Law. I'm planning on teaching the seminar again next year (2018-19) and am looking forward to this course giving me more knowledge to share.

My article, Catholic Social Thought and the Corporation, was published in vol. 1, no.2 of the Journal of Catholic Social Thought.

My article, UCLA law professor takes Bishop McElroy to task over unions, which was published by the California Catholic Daily, discusses Catholic Social Teaching with respect to labor unions.

Week 1 is "Introduction to Social Ministry and Catholic Social Teaching." Here are my answers to the discussion questions.

The lecture discusses Jesus's expansive notion of "neighbor." Who within the "neighborhood" of our one human family is easy to love? Who is difficult to love?

In Mere Christianity, CS Lewis said something very profound about our obligation "to love thy neighbor as thyself":

When I look into my own mind, I find that I do not love myself by thinking myself a dear old chap or having affectionate feelings. I do not think that I love myself because I am particularly good, but just because I am myself and quite apart from my character. I might detest something which I have done. Nevertheless, I do not cease to love myself. In other words, that definite distinction that Christians make between hating sin and loving the sinner is one that you have been making in your own case since you were born. You dislike what you have done, but you don’t cease to love yourself. You may even think that you ought to be hanged. You may even think that you ought to go to the police and own up and be hanged. Love is not an affectionate feeling, but a steady wish for the loved person’s ultimate good as far as it can be obtained.

Are you tempted to avoid suffering when you encounter it in your daily life or in the news? If so, how do you respond to that temptation?

The question of human suffering is one of the profound mysteries with which any religion or philosophy must grapple. For an accessible introduction to the problem, I highly recommend CS Lewis'  The Problem of Pain. For a profound Catholic treatment of the issue, see Pope John Paul II's Apostolic Letter Salvific Doloris (On the Christian Meaning of Human Suffering).

Only a sadist or masochist would embrace suffering (the former that of others; the latter that of self). As Christians, however, we are called upon not to shrink from suffering even though we should not embrace it.

How should we understand our own suffering?

It is possible that God is using suffering to correct us when we depart from his path and as a form of temporal punishment for our sins. "Do not disdain the discipline of the Lord . . . for whom the Lord loves, he disciplines; he scourges every son he receives" (Heb. 12:5). Yet, this is far from a complete explanation of suffering. As JP II points out,  the story of Job "challenges the truth of the principle that identifies suffering with punishment for sin." "God himself ... recognizes that Job is not guilty. His suffering is the suffering of someone who is innocent ...." Accordingly, it is not true that all suffering is a consequence of a fault and has the nature of a punishment. (Emphasis in original.)

Secondly, suffering can be a way of strengthening our relationship with God. When we suffer, we are to endure, confident that God will not test us beyond our abilities, but rather will use suffering to strengthen our will and faith if we allow him to use it in our lives. 

Finally, as JP II wrote, that "each man, in his suffering, can also become a sharer in the redemptive suffering of Christ." As Bishop Rhodes explained, this means that "With faith, we offer our sufferings up to God and He uses them in a mysterious and powerful way for the redemption of the world through the power of love, the love that is the very inner life of God."

As for the suffering of others, is there any clearer example of the proper Christian response than the Parable of the Good Samaritan? Again, JP II wrote:

We are not allowed to "pass by on the other side" indifferently; we must "stop" beside him. Everyone who stops beside the suffering of another person, whatever form it may take, is a Good Samaritan. ... [T]he Good Samaritan of Christ's parable does not stop at sympathy and compassion alone. They become for him an incentive to actions aimed at bringing help to the injured man. In a word, then, a Good Samaritan is one who brings help in suffering, whatever its nature may be. Help which is, as far as possible, effective. He puts his whole heart into it, nor does he spare material means.

What’s one Scripture passage from the Old or New Testament about God’s special love for the poor and marginalized that inspires and/or challenges you?

I am particularly struck by the juxtaposition in Matthew of the Parable of the Talents and the Parable of the Judgment of the Nations (a.k.a. Parable of the Sheep and the Goats).

The basic theological lesson Jesus presumably intended those who heard the former is the obligation of his followers to earnestly labor in service of the Kingdom of God. His followers were not to hide their light under the proverbial bushel, but rather to use their talents (if you will pardon a weak pun) to the fullest extent of their abilities to fulfill the Great Commission. The latter drives home the message by starkly illustrating the fate of those who fail to care for those for whom Jesus had especial regard. As Paul Johnson observed in Jesus: A Biography from a Believer:

Jesus immediately passes [from the Parable of the Talents] to the judgment where the unworldly are divided from the worldly: “And he shall set the sheep on his right hand, but the goats on the left” (Mt 25:33). He tells the sheep: “Come, ye blessed of my Father, inherit the kingdom prepared for you” (25:34). Jesus goes on to explain that those in this world who feed the hungry and the thirsty, and who take in homeless strangers, and who clothe the naked, and who visit the sick and the imprisoned shall be rewarded, and he makes the striking point that whoever befriends “the least of these my brethren, ye have done it unto me” (25:40).

The lesson is unmistakeable. 

The Economist on boardroom diversity quotas

From last week's issue:

In 2008 Norway obliged listed companies to reserve at least 40% of their director seats for women on pain of dissolution. In the following five years more than a dozen countries set similar quotas at 30% to 40%. In Belgium, France and Italy, too, firms that fail to comply can be fined, dissolved or banned from paying existing directors. Germany, Spain and the Netherlands prefer soft-law quotas, with no sanctions. Britain opted for guidelines.

In the USA, BlackRock is threatening to withhold votes for insufficiently diverse boards, as I've previously noted in this space. Back to The Economist for an explanation of why these trends aren't so great:

While quotas have not been the calamity that many had feared, they have also so far failed to achieve what governments had promised they would. When quotas are put on the table, proponents often produce “snapshot” studies showing that companies with more women on their boards have better returns and are less likely to be beset by fraud or shareholder battles. But causation is hard to prove. Perhaps better-managed companies have more scope to promote diversity. Equally, when studies are conducted before and after quotas are imposed, the results in terms of companies’ performance are inconclusive. Some studies find positive effects; others the opposite or no effect at all.

Neither is there evidence that having more women on boards is changing decision-making. In the experience of Lawton Fitt, a veteran female board member in America and Britain, women do not necessarily express particular views or fill a predictable role in the boardroom. A study in France in 2015 based on interviews with 24 board members concluded that the country’s new quota system led to changes in the process of boards’ decision-making. But there was no change in the substance of decisions, such as whether to approve lay-offs. It also found that the process did not change because the new members were women. It was because they were likely to be outsiders.

Perhaps the most puzzling shortcoming of the quotas is that they have had no discernible beneficial effect on women at lower levels of the corporate hierarchy.

It's business, not personal

Regular readers know that I have frequently disagreed with newly confirmed SEC Commissioner Robert Jackson and that those disagreements prompted me to oppose his nomination. Yet, I hope those readers also know that it's just business, not personal. Jackson is an incredibly smart guy who, in person, can be quite charming.

Case in point: In his inaugural speech as an SEC Commissioner on the subject of perpetual dual class stock, Jackson cites yours truly several times:

For most of the modern history of American equity markets, the New York Stock Exchange did not list companies with dual-class voting. That’s because the Exchange’s commitment to corporate democracy and accountability dates back to before the Great Depression.[4] But in the midst of the takeover battles of the 1980s, corporate insiders “who saw their firms as being vulnerable to takeovers began lobbying [the exchanges] to liberalize their rules on shareholder voting rights.”[5]

[4] In 1926, the NYSE’s famous decision to list nonvoting shares in Dodge Motor Company resulted in a public outcry. In response, the Exchange announced that it would consider voting control when making listing decisions, and in 1940 the NYSE announced a flat policy against nonvoting common stock. Prior to these events, restrictions on shareholder voting rights were more common. See Stephen Bainbridge, ProfessorBainbridge.com, Understanding Dual Class Stock Part I: An Historical Perspective (September 9, 2017). Then again, prior to these events, the Securities and Exchange Commission did not exist.

[5] Stephen M. Bainbridge, Comments to the Securities and Exchange Commission on No. 4-537: The Scope of the SEC’s Authority Over Shareholder Voting Rights (May 7, 2007).

Sadly, however, I find myself in substantial disagreement with Jackson's conclusion. How typical, right? So look for a WLF Legal Pulse blog post in the next few days. And remember, it's just business, not personal.

Outsourcing the Board

Shareholder activists pester airlines on behalf of those of us who are, shall we say, horizontally challenged

Bloomberg:

American Airlines Group Inc., Delta Air Lines Inc., and United Continental Holdings Inc. are being asked by a group that advocates on behalf of flyers to report on potential business risks from cabin seats that are getting smaller while passengers get bigger.

The nonprofit Flyers Rights, which invests in the airlines through its education fund, has filed shareholder proposals requesting a report from each one that includes an analysis of how its profit margin and stock price could be affected by these trends. The group says the airlines face a risk of discrimination, as well as a potential regulatory risk.

The proposal states, in part:

RESOLVED: The shareholders of American Airlines Group, Inc. (the "Company'*) request that the Board of Directors prepare a report on the regulatory risk and discriminatory effects of smaller cabin seat sizes on overweight, obese, and tall passengers. This report will also analyze the impact of smaller cabin seat sizes on the Company's profit margin and stock price.

SUPPORTING STATEMENT: Average seat width in economy class has dramatically decreased in the past two decades, from 18.5 inches in the early 2000s to 17 inches today. Seat pitch (leg room) in economy class has similarly declined, "from an average of 35 inches in the early 2000s to 31 inches today —and in an increasing number of cases [...] 28 inches,"  On an American Boeing 737 MAX, the seat width in the main cabin ranges from 16.6 inches to 17.8 inches and seat pitch is 30 inches.

According to the CDC, over 70% of American adults aged 20 and over are overweight or obese. About 4% of adults are also now over 74 inches (6'2") tall.

Reducing seat size in the face of these trends risks losing loyal customers at best —and discriminates at worst.

American Airlines and United have both filed no action requests seeking to exclude the proposals. American's letter states that it is relying on the exemption under Rule 14a-8(i)(7) that allows exclusion of proposals that deal "with a matter relating to the company’s ordinary business operations.” The letter relies on the SEC's Exchange Act Release No. 34-40018 (May 21, 1998) (“1998 Release”):

The Commission stated in the 1998 Release that the policy underlying the ordinary business exclusion is based on two considerations:

• first, whether a proposal relates to “tasks that are so fundamental to management’s ability to run a company on a day-to-day basis that they could not, as a practical matter, be subject to direct shareholder oversight;” and

• second, whether a “proposal 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.”

...

The Staff has consistently agreed that proposals relating to a company’s sale and marketing of its products or services, or seeking to dictate management’s day-to-day decisions regarding the selection of products or services offered, implicate a company’s ordinary business operations and may be excluded pursuant to Rule 14a-8(i)(7).

As someone who is somewhat horizontally challenged the constant shrinking of airline seats is a matter of considerable concern. So I hate to admit it, but I think American Airlines is clearly correct. In my paper, Revitalizing SEC Rule 14a-8's Ordinary Business Exemption: Preventing Shareholder Micromanagement by Proposal, 85 Fordham Law Review 705 (2016), I argue that courts should use a two part test to identify ordinary matters:

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.

It's hard to see how seat size is not a matter of ordinary business under this test.

[A]mong the elements to be taken into account for purposes of determining what constitutes an “extraordinary” action, which would normally be outside the apparent authority of senior executives, are the economic magnitude of the action in relation to corporate assets and earnings, the extent of risk involved, the time span of the action’s effect, and the cost of reversing the action. Examples of the kinds of actions that would normally be “extraordinary” include the creation or retirement of long-term or other significant debt, the reacquisition of significant amounts of equity, significant capital investments, business combinations including those effected for cash, the disposition of significant businesses, entry into important new lines of business, significant acquisitions of stock in other corporations, and actions that would foreseeably expose the corporation to significant litigation or significant new regulatory problems. A useful generalization is that decisions that would make a significant change in the structure of the business enterprise, or the structure of control over the enterprise, are extraordinary corporate actions, and therefore are normally outside the apparent authority of senior executives.

Changes in seat size would not make "a significant change in the structure of the business enterprise" nor would it change "the structure of control over the enterprise." Likewise, it does not specify a process by which boards make decisions but rather specifies a specific outcome.

Ed Rock on MOM Approval

Ed Rock is always worth reading, but this article is particularly interesting:

Majority of Minority (MOM) approval is a common mechanism used in many jurisdictions to control conflicts of interest in related party transactions. Recently, in M & F Worldwide, the Delaware Supreme Court held that MOM approval in a controlling shareholder freezeout shifted the standard of review from Entire Fairness to Business Judgement Rule. In this article, I investigate how MOM approval functions in the presence of active shareholders (both hedge funds and actively managed mutual funds).

After reviewing the potential benefits and problems with MOM approval, I review the use of MOM provisions in controlling shareholder freezeouts in the U.S. between 2010 and 2017. I combine this with three case studies involving MOM approval: the Dell MBO; the Oracle/NetSuite merger; and the unsuccessful effort by the Dolan family to take Cablevision private in 2007. I then briefly consider a quite different sort of MOM approval: the EU Takeover Directive’s requirement that conditions mandatory freezeouts on achieving a very high level of ownership (90-95%), typically through a tender offer.

The principal lessons of this investigation are ambiguous. First, I do not find significant evidence that the use of MOM conditions in Delaware has attracted the sort strategic behavior by hedge funds or actively managed mutual funds that transactional lawyers have worried about. Except for the 2007 Cablevision deal (an unhappy experience for both investors and the controlling shareholder), I have not found any cases in which shareholders have successfully used MOM provisions to block transactions. Second, as far as I can tell, the MOM condition also does not seem to do much good. I have not found any cases in which shareholders have successfully threatened to block a deal as a way of increasing the consideration paid by the controlling shareholder. Contrary to the hopes of optimists, the MOM condition does not seem to have empowered even large active shareholders to negotiate with controlling shareholders over price. Although it is possible that the MOM condition serves as a shareholder referendum on the performance of the special committee, there is little evidence that it has done so. Third, EU directive’s mandatory version of MOM (the 90-95% threshold for freezeouts) does seem to attract strategic investors who block transactions until they are bought out at a higher price.

The lack of observable effects of MOM approval raise a question whether an independent special committee combined with MOM approval provides sufficiently robust protections of non-controlling shareholders to relieve Delaware courts of their traditional role in scrutinizing conflicted controlling shareholder transactions for Entire Fairness.

Rock, Edward B., MOM Approval in a World of Active Shareholders (February 2018). NYU Law and Economics Research Paper No. 18-02. Available at SSRN: https://ssrn.com/abstract=3122681

"Fed Economists Say Bitcoin Can't Compete in World of Trust"

This is sort of interesting:

Bitcoin and other cryptocurrencies solve the problem of making payments in an environment where trust is broken -- but it's unclear whether that's a dilemma that needs to be solved, Federal Reserve of New York economists wrote in a blog post.

Here's the post they referenced.