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Chicken Cacciatore with Farro and Foxen Winery Volpino 2015

Brine two each organic free-range air-chilled skin-on and bone-in chicken thighs and drumsticks for 90 minutes to 2 hours.

Brine

• 4 cups filtered water
• 3 tablespoons pickling salt
• 1 tablespoon sugar
• 1 teaspoon freshly ground black pepper
• 1 teaspoon garlic powder
• 1 teaspoon onion powder
• 1 teaspoon smoked paprika
• 2 teaspoons dried Italian herbs

I find it’s helpful to mix the brine using my stick blender, as it ensures that the salt and sugar dissolves. I put the chicken in a zip-lock gallon bag and pour the brine over. I then put the bag in a large dish, making sure all of the chicken pieces are submerged, and put it in the refrigerator.  

After brining the chicken pieces, remove them from the brine, rinse them very thoroughly, dry them with paper towels, and allow them to rest and come up to room temperature on a paper towel-lined plate. Dust the pieces with Wondra flour, coating throughly but shaking off any excess.

Sauce

• 1 tablespoon olive oil (I’m a big fan of the California Olive Ranch brand)
• ½ onion, diced fine
• ½ cup finely diced carrot
• 6 ounces cremini mushrooms, stemmed and chopped roughly (freeze and save the stems for future stock making)
• 3 ounces shiitake mushrooms, stemmed and chopped roughly (ditto)
• 3 cloves garlic
• 1 tablespoon tomato paste (I only buy tomato paste in tubes, which is much less wasteful than cans; I like the Cento brand)
• 1 14.5 ounce can of diced tomatoes, drained (as always, I strongly prefer the Muir Glen brand)
• pinch red pepper flakes (or two or three to your taste)
• 1 teaspoon dried Italian herbs
• ½ cup white wine (I buy packs of 187 ml bottles of Woodbridge Pinot Grigio to minimize waste)
• 1 cup chicken bone broth (I’ve become a big fan of using my Fagor multi-cooker to make homemade bone broths, but that’s another recipe, and Kettle & Fire brand broths are a very acceptable substitute)
• 1 tablespoon fresh basil chiffonade
• salt and pepper

I cooked the chicken and sauce in my Culina electric skillet. Set the skillet to 350° and, after allowing it to come to temperature, add the olive oil to the skillet. Brown the chicken pieces on all sides, achieving a deep brown but not allowing the skin to burn. Transfer the chicken pieces to a plate. Reduce the heat to 275° and add the onions and carrots. Add a pinch of salt. Sweat the veggies until they are translucent and just starting to brown at the edges, stirring often. Add the mushrooms and crank the heat back up to 350°. Add a pinch of salt and a couple of grinds of pepper.  Sauté the mushrooms for about 6 minutes, or until they have softened and are beginning to brown, add the garlic and tomato paste and sauté for another minute. Add the tomatoes, pepper flakes, herbs, and wine. Allow the wine to reduce by half. Add the broth. Reduce heat to a low simmer. Taste and add salt and pepper if needed. Return chicken pieces to the pan and nestle into the sauce, pour any accumulated juices from the chicken pieces’s resting plate into the sauce, cover the pan, and cook 25-30 minutes, stirring and flipping the chicken pieces occasionally. Adjust heat if necessary to maintain a simmer without either boiling the sauce or letting it just sit in the pan.  

Check chicken thighs with a meat thermometer to make sure they hit 175°. If so, transfer all pieces to service plates. Add basil to sauce. If sauce has gotten too dry, add some broth to loosen it to your taste. Taste and add salt or pepper if needed. Top chicken pieces with sauce.

I wanted something rustic and easy to serve with the chicken.  Alessi Farro Al Funghi was a great choice. It basically cooked itself while I kept an eye on the chicken. 

We drank a 2015 Foxen Vineyards Volpino, which is one of our favorite Cal-Ital wines. It’s a blend of predominately Sangiovese (>80%) and a dollop of Merlot, sourced from Central Coast vineyards in the Santa Ynez valley. On the nose and palate, it suggests rose petals, raspberries, strawberries, and plums, with undertones of earth and sage. Yum. Grade: A-

Battling over Boilerplate in M&A Agreements

In one corner we have Choi, Stephen J. and Gulati, Gaurang Mitu and Scott, Robert E., The Black Hole Problem in Commercial Boilerplate (November 25, 2016). Available at SSRN: https://ssrn.com/abstract=2835681

Rote use of a standard form contract term can erode its meaning, a phenomenon made worse when the process of encrustation introduces various formulations of the term. The foregoing process, when it occurs, weakens the communicative properties of boilerplate terms, leading some terms to lose much, if not all, meaning. In theory, if a clause is completely emptied of meaning through this process it can create a contractual “black hole.” The more frequent and thus potentially more pervasive problem arises when, as the term loses meaning, random variations in language appear and persist, resulting in what we term a “grey hole.” The question that follows is what interpretive strategy courts should use when parties exploit these variations, persuading a court to adopt an interpretation of the grey hole term that (a) surprises the market that previously had disregarded the term and (b) results in an interpretation that the market disavows. Traditional doctrine holds that even if the court errs, parties have an incentive to revise the standard language to exclude the aberrant interpretation. But what if the assumptions about the costs and motivations to revise this type of boilerplate are wrong? We seek to gain purchase on this question with a study of the pari passu clause, a standard provision in sovereign debt contracts that almost no one seems to understand. This clause gained fame in 2011 because of a series of court decisions in New York arguably misinterpreting a particular variation of the clause. Even though the courts’ interpretation put at risk a multi-trillion dollar debt market, meaningful revisions to the language of the boilerplate term did not begin to appear until late 2014. Market forces, in other words, worked very slowly to remedy a major systemic problem, leading to considerable costs. We ask, therefore, whether courts might not do more to avoid the problem at the front end rather than depend on market forces to correct court error at the back end.

In the other corner we have Anderson, Robert and Manns, Jeffrey David, Boiling Down Boilerplate in M&A Agreements: A Response to Choi, Gulati, & Scott (January 1, 2019). Available at SSRN: https://ssrn.com/abstract=3327687

“Boilerplate” consists of standardized terms whose meaning is intended to be consistent from one transaction to the next, and these provisions are ubiquitous in contracts and related transactional documents. In their recent Duke Law Journal article Stephen Choi, Mitu Gulati, and Robert Scott have highlighted the potentially corrosive effect of the legal drafting process on boilerplate provisions. They show how incremental edits to boilerplate pari passu clauses for sovereign debt agreements have led to textual “black holes,” which potentially undercut the standardization purpose, wording, and substantive meaning of these boilerplate provisions. In this Article we offer preliminary evidence of a similar textual “black hole” phenomenon taking place in the mergers and acquisitions context.

We show that the mergers and acquisition context epitomizes the problem of unreflective copying of precedent provisions combined with ad hoc edits to individual clauses, which erode the textual integrity and meaning of boilerplate provisions. Each agreement is based on a prior deal precedent, and drafters frequently incorporate sections of the prior deal without sufficient scrutiny about the degree to which idiosyncratic novelties have been introduced in the precedent document that may be inapplicable to the new deal. At the same time, high levels of “editorial churning” take place in the process of transforming each precedent into the current acquisition agreement. The result is a problem of “drafting drift.” Boilerplate provisions live on from deal to deal, yet gradually shed their textual integrity and potentially lose their clear meaning as ad hoc edits are copied from deal to deal and new ad hoc edits are added at each stage.

We show how it is possible to identify the paragraphs of acquisition agreements which serve as boilerplate and to document both the degree and type of textual “drift” of these provisions over multiple generations. We construct “family trees” for boilerplate provisions by tracing the ancestors of each provision backwards in a linear way to each prior precedent. Then we reverse the process to show how ancestor provisions have progeny extending out in multiple directions which become increasingly dissimilar to their original ancestor and to each other over a few generations of acquisition agreements.

Our study shows that incremental changes in boilerplate from one generation to the next foster rapid “speciation” of the terms. Small additions and deletions from boilerplate text lead to significant cumulative effects over multiple generations. We demonstrate that this textual “drift” takes place both within individual boilerplate lineages, but also even more broadly for boilerplate provisions that have a common ancestor precedent, yet evolve separately along different lineages of precedents. Like the Big Bang, the heterogeneity of boilerplate text appears to increase in all directions, which supports an “expanding universe” theory for boilerplate that undermines the textual integrity and the meaning of boilerplate terms. While we will expand on the quantitative and qualitative analysis of the evolution of boilerplate in a future work, the preliminary evidence presented in this paper reinforces the case for the textual “black hole” theory.

Jeff Skilling released after 12 years in jail

NY Times covers it here. Prior coverage from my blog:

Rethinking Jeff Skilling's conviction

After the financial crisis and the recent insider trading convictions of Raj Rajaratnam and Rajat Gupta, perhaps it is time to reconsider the plight of Jeffrey K. Skilling.... The problem is that the case against the Enron executive was...

Predicting Enron

Back in January, Gordon Smith said he "would not be surprised to see both Ken Lay and Jeff Skilling acquitted, but perhaps the government's case is stronger than I expect." Now Gordon says: "The government's case was pretty much what...

Lea Fastow's Withdrawn Plea

Regular readers will recall that we have been folllowing the misadventures of Andrew Fastow, former CFO at Enron, and his wife Lea. Andrew had agreed to coperate with the feds investigating Jeff Skilling and Ken Lay, provided his wife go...

SOX Whistleblower Provisions

Part of the Enron mythology is that former Enron VP Sherron Watkins blew the whistle on Ken Lay, Jeff Skilling, and their fellow miscreants. In fact, however, so-called “Enron whistle-blower” Sherron Watkins never really blew a whistle. ...

After the financial crisis and the recent insider trading convictions of Raj Rajaratnam and Rajat Gupta, perhaps it is time to reconsider the plight of Jeffrey K. Skilling.... The problem is that the case against the Enron executive was...

Back in January, Gordon Smith said he "would not be surprised to see both Ken Lay and Jeff Skilling acquitted, but perhaps the government's case is stronger than I expect." Now Gordon says: "The government's case was pretty much what...

Regular readers will recall that we have been folllowing the misadventures of Andrew Fastow, former CFO at Enron, and his wife Lea. Andrew had agreed to coperate with the feds investigating Jeff Skilling and Ken Lay, provided his wife go...

Part of the Enron mythology is that former Enron VP Sherron Watkins blew the whistle on Ken Lay, Jeff Skilling, and their fellow miscreants. In fact, however, so-called “Enron whistle-blower” Sherron Watkins never really blew a whistle. ...

Rethinking Jeff Skilling's conviction

After the financial crisis and the recent insider trading convictions of Raj Rajaratnam and Rajat Gupta, perhaps it is time to reconsider the plight of Jeffrey K. Skilling.... The problem is that the case against the Enron executive was...

Back in January, Gordon Smith said he "would not be surprised to see both Ken Lay and Jeff Skilling acquitted, but perhaps the government's case is stronger than I expect." Now Gordon says: "The government's case was pretty much what...

Regular readers will recall that we have been folllowing the misadventures of Andrew Fastow, former CFO at Enron, and his wife Lea. Andrew had agreed to coperate with the feds investigating Jeff Skilling and Ken Lay, provided his wife go...

Part of the Enron mythology is that former Enron VP Sherron Watkins blew the whistle on Ken Lay, Jeff Skilling, and their fellow miscreants. In fact, however, so-called “Enron whistle-blower” Sherron Watkins never really blew a whistle. ...

Apparently I have five years of utility remaining as a potential director

Keith Paul Bishop writes:

A recent study by four professors finds quite a few faults with older directors:

"Specifically, older independent directors are more likely to miss board meetings and less likely to be a member or chair of important board committees. Their presence on corporate boards is associated with higher CEO compensation, poorer financial disclosure, lower total payouts, worse acquisition decisions, and a lower sensitivity of CEO turnover to performance. On average, a greater representation of older independent directors on corporate boards is negatively related to firm performance."

Ronald W. Masulis, Cong Wang, Fei Xie & Shuran Zhang, Directors: Older and Wiser, or Too Old to Govern? (Dec. 2018, available here).  The authors do allow that these negative impacts are somewhat offset by advisory benefits but one can almost hear Regan counseling her father:

"O, sir, you are old! 
Nature in you stands on the very verge 
Of her confine. You should be rul'd, and led 
By some discretion that discerns your state 
Better than you yourself."

W. Shakespeare, King Lear Act II, sc. 4 (matters do not end well for Regan).

The authors classify anyone who is at least 65 to be "older". 

Diversity disclosures

Keith Paul Bishop has some thoughts.

Are companies going to comply with the California board of director gender quota law or will some resist?

Based on the two companies to have filed pertinent proxy statements to date, it looks like passive acquiescence is the order of the day. Admittedly, this is not a large sample.

University of Virginia School of Law Class of 1990 is a happy bunch

UVaLaw announces:

Graduates of the University of Virginia School of Law reported 91 percent career and life satisfaction in a new study published Tuesday in the Journal of Empirical Legal Studies.

UVA Law Professor John Monahan, the John S. Shannon Distinguished Professor of Law, has tracked the progress of members of the Law School’s Class of 1990 for almost 30 years.

H/t: Brian Leiter, who asks whether "there may be some self-selection going on."

 

US News rankings to include "scholarly impact"

Brian Leiter has the details. Predictably, this has led faculty members with last names starting with letters from the end of the alphabet to call for the Bluebook to eliminate et al.

Saying goodbye to entire fairness

My friend and UCLAW colleague Iman Anabtawi recently wrote an insightful article on Delaware's evolving jurisprudence on conflict of interest transactions, especially in the M&A context:

Merger and Acquisition (M&A) transactions create the potential for self-interested behavior by the boards of directors of acquired, or target, corporations because target boards may have self-interested reasons for preferring one acquirer over any other. The preferred acquirer may, for example, be more likely to retain the services of certain board members or to employ them in some other capacity after the completion of the transaction. In recognition of these potential conflicts of interest, the courts have recognized that target boards of directors may not always be incentivized to exercise their business judgment in M&A transactions in the best interests of shareholders and have therefore held them to the heightened standard of review of enhanced scrutiny. Enhanced scrutiny contemplates substantive judicial review of the reasonableness of the target board’s conduct in the sale of the company. Until recently, enhanced scrutiny review was not susceptible to being adjusted downward to business judgment-level review through procedural safeguards, such as the constitution of a special committee of the board or shareholder ratification. A special committee was not considered to be an effective means of cleansing an inherent conflict, and shareholder approval of the transaction was deemed to approve only the board’s decision to sell, as opposed to the board’s conduct of the sale process. The Delaware Supreme Court revisited the issue, holding that the shareholder ratification doctrine applies to a shareholder approval of an M&A transaction on the rationale that shareholders, particularly institutions, are at least as well-positioned as judges to evaluate the merits of a sale. As a result, approval of an M&A deal by target shareholders displaces enhanced scrutiny of the board of directors’ conduct in managing the sale in favor of the business judgment rule, effectively making the target board’s decision unreviewable. This Article argues that recent Delaware jurisprudence on shareholder ratification constitutes a fundamental shift in M&A jurisprudence, predicts that, while it will reduce deal litigation, it will have unnecessary detrimental effects on deal process, and proposes a procedural mechanism for mitigating those effects in the form of a bifurcated shareholder vote on each of the deal process and the sale transaction.

Anabtawi, Iman, The Twilight of Enhanced Scrutiny in Delaware M&A Jurisprudence. 43 Delaware Journal of Corporate Law (January 2019, Forthcoming); UCLA School of Law, Law-Econ Research Paper No. 18-11. Available at SSRN: https://ssrn.com/abstract=3248474

Amir Licht has just posted an article that deserves to be read in conjunction with Iman's piece:

This Essay entertains the idea that Delaware’s corporate law is set on a trajectory that would eventually lead to reforming its doctrine of entire fairness as we now know it by retiring the doctrine’s substantive fairness review prong and insisting on fully-informed consent as the only way for validating tainted transactions. A growing array of cases, in which the centerpiece is Kahn v. M&F Worldwide Corp. (MFW), creates a legal sphere within which traditional entire fairness analysis has no application. Within this sphere, things rise or fall depending solely on the existence or absence of an uncoerced fully-informed ratification, in line with fundamental principles of fiduciary law in Delaware and in other common law jurisdictions. The critical move, which may take time to materialize, will take place when the courts deal the traditional doctrine the coup de grâce and abolish substantive fairness review entirely, if one may say so. Treating this development as highly desirable in principle, this Essay discusses practical and normative issues that call for attention in order to ensure its successful functionality, including the use of technology to ensure the integrity of informed consent through shareholder voting and the rise of institutional cross ownership, which may call for special attention in MFW-relevant settings.

Licht, Amir N., Farewell to Fairness: Towards Retiring Delaware's Entire Fairness Review (February 8, 2019). European Corporate Governance Institute (ECGI) - Law Working Paper No. 439/2019. Available at SSRN: https://ssrn.com/abstract=3331097 or http://dx.doi.org/10.2139/ssrn.3331097

Rigatoni with beef bolognese sauce and a Foxen Vineyards Volpino (2015)

The sauce was something of an all day project. I started out grinding approximately 3 pounds of beef using the grinder attachment to my KitchenAid Stand Mixer. I had In the freezer 1 pound of chuck, a 12 ounce ribeye steak, a 12 ounce sirloin steak, and about 8 ounces of trimmings left over from butchering a tenderloin roast. I allowed them to partially defrost overnight. This morning I cut the meat into roughly 1-inch pieces and ran the whole batch (alternating cuts) through the coarse grinding plate. I then ran about half of the resulting ground meat through again, but this time using the medium grinding plate. I combined the two batches and then set aside 1 pound for future hamburger patties. 

When I was ready to start cooking, I asked Siri to crank up some Puccini on my HomePod and we were off to the races. (Yes, I copied that move from Alton Brown.)

Four rashers of thick-cut American bacon went into my Le Creuset 7-1/4 Quart Dutch Oven. (I usually use pancetta, but I was in a mood for a slightly smoky bolognese, so I went domestic.) When the bacon was done, I removed the rashers to a paper towel lined plate to drain. When they had cooled, I snipped three rashers into small pieces using kitchen shears (I ate the other one). Meanwhile, I poured off the bacon fat and reserved it.

I dusted the 2 pounds ground beef with a ½ teaspoon of baking soda, a couple of big pinches of salt, and about six grinds of black pepper from my brass pepper mill and lightly mixed it. The baking soda raises the pH of the meat’s surface, which promotes browning and slightly tenderizes it.

I browned the meat in the Dutch oven over medium heat in three batches, adding a ½ tablespoon of the reserved bacon fat before each batch. I transferred the meat to a paper towel lined platter to drain. 

I diced one medium yellow onion, three stalks of celery, and 1 large carrot. I added a big splash of olive oil to the Dutch oven, which was over medium heat, and then the veggies. I added a heavy pinch of salt (I apologize for having eyeballed a lot of the measurements), three grinds of pepper, and a ½ teaspoon of smoked hot paprika. I reduced the heat to medium-low, and sweated the veggies for about 30 minutes, stirring occasionally, until they were soft and beginning to show signs of carmelization. I then added a couple of grinds of pepper, 2 tablespoons of tomato paste, and 6 crushed cloves of garlic, turned the heat up to medium and stirred for 1 minute. 

One cup of a cheap (but not undrinkable) Pinot Grigio went into the pot with the veggies. (A couple of glasses of the Pinot Grigio went into your chef as the cooking process continued.)  I cranked the heat to high and allowed the wine to cook down to a glaze. One can of evaporated milk went into the Dutch oven and was allowed to reduce by half. I lowered the heat to medium.

Then one 28 ounce can of crushed tomatoes and one 28 ounce can of whole plum tomatoes, along with their juices in both cases, went into the pot. (I prefer the Muir Glen brand.) As I added the whole tomatoes, I grabbed the tomatoes and squeezed them to break them up before dropping them one by one into the pot. I then added to the pot a 14.5 ounce can of low sodium beef broth, the beef and bacon, 2 tablespoons ketchup, a tablespoon of Worcestershire sauce, a big pinch of red pepper flakes, 2 teaspoons of dried Italian herbs, a teaspoon of dried basil, and a teaspoon of dried oregano.

I then thoroughly rinsed 1 ounce of Mycological dried porcini mushrooms and, using kitchen shears, snipped them into small pieces that I let fall into the pot.

I reduced the heat to low, covered the Dutch oven, and let the sauce cook for three and a half hours, stirring every 30 minutes. At the end of the cooking time I tasted the sauce and thought it needed a pinch of salt, two grinds of pepper, two pinches of dried Italian herbs, a squirt of tomato paste, and small dashes of Tabasco and sherry vinegar to brighten it a bit. 

I cooked a pound of rigatoni (I like the Barilla brand) for 11 of the recommended 13 minutes, drained the pasta, reserving 1 cup of cooking water, returned the pasta to the cooking pot, added the reserved cooking water and about a third of the sauce, and let the sauced pasta cook over medium for 2 more minutes. 

We had leftover sauced pasta, which will make a nice dinner after late Mass tomorrow, and leftover sauce to freeze for future dinners. 

We drank a delightful 2015 Foxen Vineyards Volpino. 

Dinner tonight was rigatoni w/ beef bolognese. We drank a @foxenwinery 2015 Volpino. Raspberry, cranberry, and plum notes above an earthy undertone. Well balanced. Consistently my favorite California Sangiovese (83% w/ 17% Merlot). Grade: 91 https://t.co/c4yMgFoGQK

— Professor Bainbridge (@ProfBainbridge) February 17, 2019

The Vatican summit on the Church's sex abuse scandal is sure to disappoint. God willing, however, it will leave the US Bishops space to act.

The National Catholic Register has a symposium of leading figures assessing what to expect from next week's Vatican summit on the Church's sex abuse scandal. Robert Royal's analysis strikes me as the most plausible:

For most Americans, Catholic and not, the burning question is how to hold bishops accountable — for what they’ve done themselves or failed to do in disciplining malefactors.

The Holy Father’s last-minute request that the U.S. bishops not vote on concrete measures at their annual November meeting last year was predicated on the idea that the Church should work out a global approach — which early moves by Americans might short-circuit. Now, Vatican spokesmen are telling us that we should lower expectations because this meeting is intended to be more about educating than disciplining.

So it’s not mere cynicism to see the actual record here, whatever the intentions, as blocking proposed action in the name of seeking a consistent approach, then dithering and then redefining what was supposed to be an occasion for concrete proposals leading to action. ...

Recent polls have shown a sharp drop in confidence toward Pope Francis among American Catholics. This is not the result of conservative websites and Twitter feeds, as some in Rome are claiming. Anyway, the debate should not be about interactions in cyberspace, but about what is going to be done in our everyday world about failures of bishops. Defenders of the Pope who do not see the harm delay is causing to his moral witness are doing him no favors.

Perhaps the best thing we may expect to come out of the February meeting is a certain freedom for the various bishops’ conferences around the world to take steps themselves, whether the Vatican is involved or not. Our American bishops had some good ideas about personal conduct and mechanisms for accountability before they were asked not to proceed.

Speaking of "ideas about personal conduct and mechanisms for accountability," I have offered several in a forthcoming law review article Restoring Confidence in the Roman Catholic Church: Corporate Governance Analogies:

Events of the Summer 2018 brought the long running sexual abuse crisis in the Roman Catholic Church back onto the front pages, highlighting the role of diocesan bishops in covering up the scandal and enabling abusers. In response to these developments, the Church is again considering reforms to protect victims and punish abusers and enablers. This article proposes that the Church create a system for laity to anonymously report allegations, enact strong protections for whistleblowers, and impose a mandatory whistleblowing requirement on priests. As a 2018 Pennsylvania grand jury report demonstrates, however, the laity was reporting the abuse to the Church but the hierarchy buried those reports in secret files. The ultimate problem thus is not so much the lack of reporting, as it was the lack of action after the report. Accordingly, the article’s principal proposal is the creation of both diocesan and national disciplinary bodies led by expert lay members as the ultimate authorities in sex abuse cases. The proposal draws an analogy between these bodies and corporate audit committees and argues that a number of aspects of how audit committees function can be usefully adapted to the proposed review bodies.

I offered an updated and shorter version of the basic argument in a opinion column for Public Discourse: Canon Law Should Be Changed to Make Catholic Bishops Accountable, which asserts that:

The Catholic Church in the United States has been rocked by revelations that multiple bishops actively covered up sexual abuse cases. The time has come to take responsibility away from Church tribunals and diocesan bishops, even if that means changing canon law to create mandatory compliance mechanisms like those developed and enforced by for-profit corporations.

Apropos of Royal's hope that the Vatican will leave national conferences a space within which to act, I argued that "National conferences such as the USCCB should be empowered to issue mandatory governance and compliance requirements and to create mechanisms for disciplining prelates who fail to comply."

Yvan Allaire makes "The Case for Dual-Class of Shares"

Allaire, Yvan, The Case for Dual-Class of Shares (December 20, 2018). Available at SSRN: https://ssrn.com/abstract=3318447 or http://dx.doi.org/10.2139/ssrn.3318447

The debate over whether dual class of shares increases or decreases share value, should be prohibited or not, should be subjected to mandatory sunset provisions, and so on has been heating up over the last few years. This paper reviews the pros and cons of dual class of shares in light of more recent empirical results of (mostly) American studies. The paper surveys the evolution of dual-class companies in the Canadian context and makes a number of recommendations to enhance the usefulness of this type of capital structure and protect the rights of minority shareholders.

The paper comes out against time-based sunset clauses but supports the obligation for dual-class companies to adopt a “coattail” provision, as is the case in Canada, which provision ensures that all shareholders will have to be offered the same price and conditions should the controlling shareholder decide to sell its controlling stake in the company. The paper also recommends that separate tallies of vote results be made public for each class of shares and that a third of board members be elected by shareholders with “inferior” voting rights.

Not only is there growing evidence of their better economic performance but the coupling of dual class and family ownership brings about longer survivorship, better integration in the social fabric of host societies, less vulnerability to transient shareholders and more resistance to strategic and financial fashions.

This precious form of ownership must come with appropriate measure to ensure and protect the rights of minority shareholders.

I have addressed the issue in prior posts:

Understanding Dual Class Stock Part I: An Historical Perspective

Understanding Dual Class Stock II: The Flawed Corporate Democracy Argument

Understanding Dual Class Stock III: The Conflict of Interest Argument

Elizabeth Warren's Proposal to Give Employees 40% of Corporate Board Seats Will Increase Inequality

This is fascinating:

This paper examines how direct involvement of employees in corporate governance affects executive compensation. German law mandates that half of the supervisory board seats belong to employee representatives in firms with over 2,000 domestic employees. For identification, we exploit this discontinuity, a law change which grants employees more influence over compensation, and a combination of both. In all three settings, we find that executive compensation rises by about one-third if employee voice is strengthened. Employees are also better off, as evidenced by increased employment protection. These results support that employee control facilitates the alliance between managers and employees.

Lin, Chen and Schmid, Thomas and Sun, Yang, Conflict or Collusion?: How Employees in the Boardroom Affect Executive Compensation (January 9, 2019). Available at SSRN: https://ssrn.com/abstract=3313123 or http://dx.doi.org/10.2139/ssrn.3313123

Rule 14a-9 meets Rule 14a-8: The Oracle Proxy Litigation re Gender Pay Bias

Bloomberg reports:

New York City Comptroller Scott Stringer, in a Feb. 7 letter obtained by Bloomberg Law, called for the investigation into what he says are “dramatically” contrasting stories about Oracle’s pay practices. The Labor Department has alleged in an ongoing lawsuit that the software maker systematically shorted women and minorities $400 million in wages.

Oracle’s board painted a different pay picture when it recently tried to quash a shareholder proposal seeking disclosures on any gender-based pay gaps at the company, Stringer wrote. The board told investors to vote against the proposal at its most recent annual meeting, citing Oracle’s commitment to avoiding gender pay gaps.

Stringer called the board’s statement “a model of self-promotion, avoidance, and evasion.” New York City’s pension funds, which hold about 6 million Oracle shares, supported the pay gap proposal.

This prompted Ann Lipton to tweet:

So as I understand it, Scott Stringer is alleging Oracle committed securities fraud in its management recommendation against a shareholder proposal, is that right? Been waiting for something like this but I don't remember seeing it before. https://t.co/mkOKUzCqER

— Ann Lipton (@AnnMLipton) February 8, 2019

There aren't a ton of cases but there have been a few. United Paperworkers Intern. Union v. Intl. Paper Co., 985 F.2d 1190, 1198 (2d Cir. 1993), is especially interesting because it held that any shareholder (not just the proponent) could bring a 14a-9 suit where management's response to a shareholder proposal put forward under Rule 14a-8 was fraudulent.

A case that may be particularly pertinent to the Oracle litigation is Amalgamated Clothing and Textile Workers Union, AFL-CIO v. J. P. Stevens & Co., Inc., 475 F. Supp. 328 (S.D.N.Y. 1979), vacated sub nom. on other grounds, Amalgamated Clothing and Textile Workers Union v. J. P. Stevens & Co., Inc., 638 F.2d 7 (2d Cir. 1980).

Labor unions that held stock in Stevens alleged Stevens had committed numerous violations of the federal proxy rules, the most pertinent of which for present purposes alleged "proxy rule violations in statements made by Stevens in response to shareholder proposals submitted at the 1976, 1977 and 1978 annual meetings."

The 1976 shareholder proposal recommended that the Stevens Board appoint a committee of outside directors to study and report to shareholders on the costs of Stevens' then current labor disputes. The 1977 proposal requested the Board to report to shareholders on Stevens' labor policies and practices. Three 1978 proposals requested a Board report to shareholders on the company's labor policies and practices, the impact of the company's labor-management policies on the economic performance of the company's stock, and on employee occupational safety and health. A fourth 1978 proposal asked the Board to establish a review committee to advise on management-employee relations. Each of these proposals was overwhelmingly defeated. The complaint alleges that management's statements addressed to these proposals were misleading essentially for failure to include the same kinds of information which plaintiffs contend should have been included in the proxy statements.

The court explained:

Section 14(a) of the 1934 Act prohibits solicitation of proxies “in contravention of such rules and regulations as the Commission may prescribe . . . .” Rule 14a-9 prohibits solicitation by means of a proxy statement which contains “any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading. . . . ” ...

Plaintiffs contend that the proxy rule requires in connection with the election of directors the disclosure of Stevens' alleged corporate policy to “thwart”, “resist”, and “abuse” the federal labor laws as well as alleged expenses (primarily legal fees) resulting from such policies. Plaintiffs do not dispute that Stevens has disclosed the various labor litigation in which it has been involved and the specific findings of labor law violations. Rather, disclosure is sought of the corporate policy to thwart the labor laws in substance the aims and intentions of the Stevens board with respect to a body of law.

The court rejected plaintiff's claims, inter alia, because "the proxy rules simply do not require management to accuse itself of antisocial or illegal policies." 

As to management's responses to the shareholder proposals, once again management is not required to accuse itself of evil or illegal intentions. Plaintiffs' claim here is somewhat stronger because management did make self-serving declarations in response to the proposals, including statements that “it is not and never has been (Stevens') policy to violate (the) law”; that Stevens has “a total commitment to conduct (its) affairs completely within the law”; that “the Company has offered contract terms (to its employees) believed to be fair and reasonable”; and that “the Company costs . . . attributable to the union organizing and related activities are not material in the Company's overall operation.”

If management had undertaken in its responses to recite facts establishing its innocence, such recitation might well give rise to an obligation to disclose any additional facts needed to put the statements made in perspective or prevent them from being misleading. But the assertions complained of here amount to nothing more than protestations of innocence of mind. They do not give rise to an unrealistic obligation to declare guilt.

In my view, allegations of "self-promotion, avoidance, and evasion" likewise "do not give rise to an unrealistic obligation to declare guilt."

Badawi and de Fontenay: Is There a First-Drafter Advantage in M&A?

Interesting new paper:

Does the party that provides the first draft of a merger agreement get better terms as a result? There is considerable lore among transactional lawyers on this question, yet it has never been examined empirically. In this Article, we develop a novel dataset of drafting practices in large M&A transactions involving U.S. public-company targets. We find, first, that acquirers and sellers prepare the first draft of the merger agreement with roughly equal frequency, contrary to the conventional wisdom that acquirers virtually always draft first. Second, we find that there is little or no advantage to providing the first draft with respect to the most monetizable merger agreement terms, such as merger breakup fees. Third, and notwithstanding, we do find an association between drafting first and a more favorable outcome for terms that are harder to monetize, more complex, and that tend to be negotiated exclusively by counsel, such as the material adverse change (MAC) clause. These findings are consistent with the view that the negotiation process generates frictions and agency costs, which can affect the final deal terms and result in a limited first-drafter advantage.

Badawi, Adam B. and de Fontenay, Elisabeth, Is There a First-Drafter Advantage in M&A? (January 17, 2019). Available at SSRN: https://ssrn.com/abstract=3317622 or http://dx.doi.org/10.2139/ssrn.3317622