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For Americans, 1864 is famous mainly for being the penultimate year of our Civil War. But that's not all that happened that year.
As long term readers know, I am something of a military history buff. Indeed, I would have loved to be a military historian were it not for the fact that the pay stinks and most universities won't touch you with a 10 foot pole.
All of which is to explain how I came to read 1864: The Forgotten War That Shaped Modern Europe
Briefly, Schleswig and Holstein are two states at the bottom of the neck that connects Denmark to Germany. They were strategically important in the mid-1800s because control of them would give a rapidly expanding Prussia access to the Baltic via Kiel and to the North Sea via the planned Kiel Canal. An 1852 London Protocol (the British were fantastic busybodies in the 19th Century, sticking their noses into everything) had assigned them to Denmark, but in a constitutionally awkward manner. In 1863, Denmark amended its constitution to clarify their status, but Prussia and Austria claimed that the amendments violated the 1852 Protocol. The two German states seized upon the amendments as a casus belli and declared war.
The main battle was fought at Dybbøl, which Wikipedia describes as "a small town with a population of 2,495 in the southeastern corner of South Jutland, Denmark." It reportedly "has had an enormous impact on this country’s self-perception and foreign politics ever since. It is a complex part of its history, which has always been associated with tensions and strong opinions."
Buk-Swienty takes a somewhat unique narrative approach, starting with the preliminaries to the Battle of Dybbøl, backtracking to cover the start of the war and the events leading up to it, before coming back to tell the story of the battle and its aftermath.
In addition to vivid descriptions of the battle, Buk-Swienty does an excellent job of concisely explaining the political constraints under which both Denmark and Prussia were operating and the incentives that led them to choose war.
Buk-Swienty writes well and the book reads quickly and enjoyably.
Criticisms? First, I think he oversells the idea that this war shaped modern Europe. Having said that, however, he does make a convincing case that this was the first modern European war. The role of railroads and battlefield medicine, in particular, are fully developed.
Second, he almost completely ignores Austria. We get no sense of what the Austrian government was thinking, what Austria's war aims were, how its army fought, and so on. In particular, he fails to lay the groundwork for understanding how the unsatisfactory (from the German perspective) result of the war lead to the Austro-Prussian war two years later. That issue, however, is well treated in Geoffrey Wawro's fine book The Austro-Prussian War: Austria's War with Prussia and Italy in 1866
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 4 is "Political Responsibility: Faithful Citizenship."
This week's lecture is by Michael Jordan Laskey and makes a number of claims I find problematic, especially in this passage:
We don’t get to bail. God requires our cooperation to take care of the planet and his children living here.
In the United States, one common reason Christians give for avoiding politics is fear of violating “the separation of church and state” – a phrase that doesn’t even appear in the United States Constitution, by the way. While our country’s founders didn’t want the government to sponsor or impinge on any particular religious tradition, the U.S. bishops argue in their CST document Forming Consciences for Faithful Citizenship that people of faith have the “moral obligation” to use their free speech rights to bring their values and voices to the public square.
That passage is implicated by our main assignment for this week, which is to discuss (in just 150-200 words) "Imagine you have a Catholic friend who’s reluctant to get involved in politics in any way. In your own words, gently and persuasively describe why tuning out is not an option."
First, the lesson implies that there are uniquely Catholic positions on highly contested issues that all Catholics ought to espouse. Laskey's commentary, for example, at least implicitly assumes that Catholic political action would support amnesty for illegal immigrants and government spending on various social programs. On the other hand, he also offers what I would regard as a very liberal (in at least two senses of the word) reading of the Church's teaching on when it is licit to vote for a pro-abortion candidate. (Tellingly, perhaps, he chooses to call them "pro-choice" candidates.) In my view, the Church gives us a lot of leeway on issues like immigration and spending and much less so on issues of life.
Second, Laskey ignores the compelling questions about whether continued Catholic participation in the liberal social order is either desirable or even possible. Analyzing that question in this short a space is impossible, but suffice it to say that anybody thinking about the role of faith in the modern American public square needs to read Rod Dreher's book The Benedict Option: A Strategy for Christians in a Post-Christian Nation
Having said that, of course, I'm not much of one for monasteries or arks. So when the instructor asked the question "When you hear the words religion and politics
together, what thoughts, feelings, or images come to your mind?," what came to mind was something Archbishop Charles Chaput wrote some years ago:
Politics is where the competing moral visions of a society meet and struggle. And since the overwhelming majority of American citizens are religious believers, it’s completely appropriate for people and communities of faith to bring their faith into the public square.
Real pluralism always involves a struggle of ideas. Democracy depends on people of conviction fighting for what they believe in the public square – non-violently, respectfully and ethically, but also vigorously and without embarrassment. People who try to separate their private convictions about human dignity and the common good from their involvement in public issues are not acting with integrity, or with loyalty to their own principles. In fact, they’re stealing from their country.
To be healthy, the political process demands that people conform their actions to their beliefs. For Catholics to be silent in an election year -- or any year -- about critical public issues because of some misguided sense of good manners, would actually be a form of theft from our national conversation.
Hence, when the instructor asked "Are you ever tempted to totally disengage from politics and current events?," I again look to Archbishop Chaput:
For religious believers not to advance their convictions about public morality in public debate is not an example of tolerance. It’s a lack of courage.
If we believe that a particular issue is gravely wrong and damaging to society, then we have a duty, not just a religious duty but also a democratic duty, to hold accountable the candidates who want to allow it. Failing to do that is an abuse of responsibility on our part, because that’s where we exercise our power as citizens most directly – in the voting booth.
From The Economist:
FOR years, discussions of America’s public markets have usually featured a lament for their dwindling appeal. According to Jay Ritter of the University of Florida, the number of publicly listed companies peaked in 1997 at 8,491 (see chart). By 2017 it had slumped to 4,496. True, many of the companies that went public in the internet’s early days should never have done so. But the decline worries anyone who sees public markets as the best way for ordinary investors to benefit from the successes of corporate America.
The mood right now is more buoyant. ... “There are plenty of signs that IPO activity is about to surge,” says Kathleen Smith of Renaissance Capital, a research firm.
The question is whether one quarter a revival makes. ...
Underlying these concerns is an older one—that the vast and varied costs of first bringing shares to market, and then remaining public, are just too high. These costs include bankers’ and lawyers’ fees, the risk of class-action litigation, the need to reveal commercially sensitive information that could benefit rivals, and the prospect of fights with corporate raiders who want juicier returns for shareholders and social activists who want executives to pay heed to their values. Added to all these are public reporting and tax requirements that private companies can often avoid.
Mr Ritter attributes much of the decline in the number of companies that are listed to the difficulty of being a small public company.
Hello? Haven't I been saying that for years? See, e.g., Corporate Governance and U.S. Capital Market Competitiveness (October 22, 2010). UCLA School of Law, Law-Econ Research Paper No. 10-13. Available at SSRN: https://ssrn.com/abstract=1696303
This essay was prepared for a forthcoming book on the impact of law on the U.S. economy. (The American Illness: Essays on the Rule of Law
) It focuses on the impact the corporate governance regulation has had on the global competitive position of U.S. capital markets.
During the first half of the last decade, evidence accumulated that the U.S. capital markets were becoming less competitive relative to their major competitors. The evidence reviewed herein confirms that it was not corporate governance as such that was the problem, but rather corporate governance regulation. In particular, attention focused on such issues as the massive growth in corporate and securities litigation risk and the increasing complexity and cost of the U.S. regulatory scheme.
Tentative efforts towards deregulation largely fell by the wayside in the wake of the financial crisis of 2007-2008. Instead, massive new regulations came into being, especially in the Dodd Frank Act. The competitive position of U.S. capital markets, however, continues to decline.
This essay argues that litigation and regulatory reform remain essential if U.S. capital markets are to retain their leadership position. Unfortunately, the article concludes that federal corporate governance regulation follows a ratchet effect, in which the regulatory scheme becomes more complex with each financial crisis. If so, significant reform may be difficult to achieve.
In a new opinion, Vice Chancellor Slights takes up an interesting case. The facts are complicated, but basically boil down to this: On a seven person board, the plaintiff credibly alleged that all but one of the directors either lacked lacked independence and/or were interested in transactions involving the nominal corporate defendant and an asset management firm. Accordingly, the court found that demand should be excused as futile.
Curiously, however, plaintiff did not claim that a majority of the board was interested in the challenged transactions. Instead, plaintiff alleged that only three of the directors were interested in the transaction. The defendants therefore argued that the transaction had been properly approved by a majority of the disinterested directors and that section 144(a)(1) therefore had been satisfied. Accordingly, defendants argued, the business judgment rule is the correct standard of review not the entire fairness standard.
VC Slights' detailed analysis is bookended as follows:
Our case law interpreting Section 144(a)(1) is murky at best. ... I am satisfied that compliance with Section 144(a)(1) does not necessarily invoke business judgment review of an interested transaction.
Where a majority of the board is either interested or lacks independence, VC Slights argued, Delaware common law invokes entire fairness as the standard of review even if the letter of section 144(a)(1) has been satisfied.
This strikes me as somewhat of an overstatement. In my treatise Corporate Law (Concepts and Insights)
Conflicted interest transactions today are governed by so-called interested director statutes, of which DGCL § 144 is typical. Section 144(a) states that an conflicted interest transaction shall not be “void or voidable solely” because of the director’s conflict or “solely because the director or officer is present at or participates in the meeting of the board or committee which authorizes the contract or transaction, or solely because any such director’s or officer’s votes are counted for such purpose,” provided at least one of three conditions are satisfied. Subsection (a)(1) shields transactions approved by “a majority of the disinterested directors” provided there has been full disclosure of the material facts relating both to the transaction and to the director’s conflict of interest. Subsection (a)(2) shields transactions “specifically approved in good faith by vote of the shareholders,” again following full disclosure. Subsection (a)(3) shields a transaction that is “fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee or the shareholders.”[1] The three subsections are in the disjunctive, so satisfying any one will invoke the statute’s protection for the challenged transaction.
Under DGCL § 144(b), an interested director may be counted towards the quorum necessary for board action.[2] Subsection (a) rejects common law cases like Globe Woolen that invalidate a conflicted interest transaction solely because the interested director voted on the transaction. Subsection (a) also rejects common law cases invalidating transactions in which a majority of the board is interested. So long as the transaction is approved by a majority of disinterested directors, even if they be less than a quorum, the transaction is not void or voidable solely on any of those grounds.
Because the statute does not fully validate related party transactions, but only shields them from per se invalidation, a critical question is whether valid action under the statute precludes judicial review of a properly approved transaction. Unfortunately, there is surprisingly little case law on the effect of approval by the disinterested directors. The leading Delaware case remains Puma v. Marriott,[3] in which a disgruntled Marriott Corporation shareholder challenged the corporation’s purchase of six other companies from the Marriott family. At the time of the transaction, the Marriott family collectively owned 44% of Marriott Corporation’s stock. Four of the nine directors were Marriott family members. The acquisition was unanimously approved by the five disinterested directors. Without reference to § 144, the court held that on those facts the business judgment rule was the applicable standard of review.
Some commentators contend the same rule applies to transactions reviewed under § 144(a)(1).[4] Dicta in at least one Delaware supreme court decision seemingly supports this view.[5] It also is supported by a few decisions from other jurisdictions interpreting comparable statutes.[6]
Contrary to the VC, I don't regard the state of Delaware law as "murky." Rather, I would describe it as "sparse but reasonably well settled." As I have written elsewhere:
... even in cases implicating loyalty claims, Delaware corporate law places great emphasis on deference to director decisions. Under DGCL section 144(a), approval by a majority of fully informed and disinterested directors effectively immunizes a related-party transaction from meaningful judicial review. Per Puma v. Marriott, approval by disinterested directors invokes the business judgment rule as the standard of review for conflicted-interest transactions. Likewise, in Marciano v. Nakash, the Delaware Supreme Court held that “approval by fully-informed disinterested directors under section 144(a)(1) . . . permits invocation of the business judgment rule and limits judicial review to issues of gift or waste with the burden of proof upon the party attacking the transaction.”
Stephen M. Bainbridge et. al., The Convergence of Good Faith and Oversight, 55 UCLA L. Rev. 559, 602–03 (2008).
One can debate whether Marciano's statement is dicta (I've wobbled on that issue myself), but it's still the leading Delaware Supreme Court decision on point (pace Benihana).
There is, however, a more interesting wrinkle. Delaware courts have not always read section 144 literally. Back to my Corporate Law treatise:
In Fliegler v. Lawrence, defendant John C. Lawrence was president of Agau Mines, Inc., a gold and silver mining corporation. Lawrence had individually acquired some antimony properties, which he offered to Agau. In consultation with Lawrence, the Agau board declined on grounds that the corporation’s legal and financial position did not allow it to undertake the venture. Lawrence then formed the United States Antimony Co. (USAC), to which the properties were transferred. USAC granted Agau an option to acquire USAC in exchange for Agau stock, which Agau eventually exercised. The decision to exercise the option was approved by the shareholders. Dissenting Agau shareholders then sued.
Defendants relied on DGCL § 144(a)(2) in arguing that shareholder approval relieved defendants of the common law obligation to prove the transaction’s fairness. The court agreed that shareholder ratification of a conflicted interest transaction shifted the burden of proof from the defendants to the objecting shareholders. On the facts of this case, however, the burden would not shift. A majority of the shares voted in favor of the transaction had been cast by the interested defendants in their capacities as Agau shareholders. In the court’s view, those votes should not count. Instead, only the votes cast by disinterested shareholders count and only the vote of a majority of such disinterested shareholders has the desired burden-shifting effect.
The court’s reading of § 144 is inconsistent with a plain-meaning approach to statutory construction. Section 144(a)(1) requires approval by “a majority of the disinterested directors,” but § 144(a)(2) requires only approval by a “vote of the shareholders.” The statute’s drafters thus inserted a requirement of disinterest in (a)(1) but not in (a)(2). Accordingly, on the face of the statute, shareholder approval ought to be effective even if the shareholders are not disinterested.
Although the court was not faithful to the statutory language, its interpretation does appeal to common sense. Cases arising under these statutes confront courts with issues of ethics and morality, principles of fiduciary obligation, and situations in which the facts are all important. Consequently, the courts tend to treat the precise language of these provisions somewhat cavalierly.
Accordingly, the VC could have said something like this: Although section 144(a)(1) on its face only requires that the directors be disinterested, a requirement that such directors also be independent of those who have an interest in the transaction is implied. Cf. Davidowitz v. Edelman, 153 Misc. 2d 853, 857, 583 N.Y.S.2d 340, 343 (Sup. Ct. 1992), aff'd, 203 A.D.2d 234, 612 N.Y.S.2d 882 (1994) ("The close business and personal relations demonstrated among the committee members, the board and Edelman preclude this court from finding that the committee possessed the required disinterested independence" of a special litigation committee seeking termination of derivative litigation.); Egleston ex rel. Chesapeake Energy Corp. v. McClendon, 2014 OK CIV APP 11, ¶ 16, 318 P.3d 210, 217 ("For a director to be “independent,” he or she must be both disinterested and free from ‘the influence of other interested persons.’ Rales, 634 A.2d at 936;").
As a federal court has observed, citing Delaware precedents, "For a director to be “independent,” he or she must be both disinterested and free from “the influence of other interested persons.” Sachs v. Sprague, 401 F. Supp. 2d 159, 164 (D. Mass. 2005). Why should the converse not be equally true? In other words, for a director to be disinterested s/he must be "free from “the influence of other interested persons"?
Continue reading "Cumming v. Edens: VC Slights on DGCL 144(a)(1) and the Business Judgment Rule" »
) It focuses on the impact the corporate governance regulation has had on the global competitive position of U.S. capital markets.