This academic year, the Lowell Milken Institute for Business Law and Policy will hold the inaugural competition for the Lowell Milken Institute-Sandler Prize for New Entrepreneurs. The Prize is $100,000. This entrepreneurship competition was created from gifts from the Lowell Milken Family Foundation and the Richard and Ellen Sandler Family Foundation.
The competition is a team business plan competition for new ventures. A team consists of between two and six persons. One member of the team must be either (i) a UCLA Law student who is expected to graduate from UCLA Law in May 2016 or (ii) a 2014 or 2015 graduate of UCLA School of Law. The other members must be currently enrolled at UCLA as a full-time student (in the college or any of the other schools) and in good standing. The new venture can be for-profit business or a social entrepreneurship venture. The prize money must be used to develop the venture.
Each team will be required to submit a business plan. Based upon the plans, certain teams will be selected to make oral presentations to a panel of judges at a public event. The Prize will only be awarded if, in the opinion of the judges, a business plan and presentation is deemed worthy. Details about the competition including the Competition Rules, FAQs and Resources are now available on the Lowell Milken Institute website: http://lowellmilkeninstitute.law.ucla.edu/the-lowell-milken-institute-sander-prize-for-new-entrepreneurs/ Each team will be assigned mentors to assist them in thinking about their venture, the business plan and the presentation. Mentors will include practitioners who counsel startups, entrepreneurs and investors. This fall, the Law School is also offering a course entitled, Entrepreneurship and Venture Initiation, that will provide training to interested law students on business plan development and presentation. We expect the competition to provide law students with opportunities to work on a number of important skills including collaboration, persuasive written and oral presentations, project management and leadership.
I think this prize is going to help UCLA attract some very talented students who want to get in on the burgeoning law and entrepreneurship field. After all, is there a bigger law school competition prize?
My UCLAW colleagues Steven Bank and George Georgiev have posted a concise and damning appraisal od Dodd-Frank's executive compensation provisions:
This essay argues that regulatory reforms introduced by the Dodd-Frank Act of 2010 in the area of executive compensation have not yet achieved their purpose of linking executive pay with company performance. The rule on shareholder say-on-pay appears to have had limited success over the five proxy seasons since its adoption. The rule on pay ratio disclosure, adopted in August 2015, and the rules on pay-versus-performance disclosure and the clawback of certain incentive compensation, proposed in April 2015 and July 2015, respectively, are also unlikely to succeed. For the most part, the rules are intuitive and well-intentioned, but a closer look reveals that they are easy to manipulate, counterproductive, and often interact with one another, and with other regulatory goals, in unintended ways. As a result, five years after the passage of Dodd-Frank, the decades-old goal of aligning pay with performance remains elusive.
Bank, Steven A. and Georgiev, George S., Paying High for Low Performance (August 7, 2015). 100 Minnesota Law Review Headnotes __ (2016); UCLA School of Law, Law-Econ Research Paper No. 15-11. Available at SSRN: http://ssrn.com/abstract=2641152
My friend Loyola law professor Mike Guttentag recently sent me a reprint of his article On Requiring Public Companies to Disclose Political Spending, 2014 Colum. Bus. L. Rev. 593 (2014), which reminded me that I wanted to flag it for my readers. It is, put simply, the single best thing I've read on corporate political contribution disclosure.
Here's the abstract:
Mandatory disclosure is a central feature of securities regulation in the United States, yet there is little agreement about how to determine precisely what public companies should be required to disclose. This lack of consensus explains much of the disagreement about whether the Securities and Exchange Commission should require public companies to disclose political spending.
To resolve the political spending disclosure debate I therefore begin by considering the more general question of how to evaluate any proposed mandatory disclosure requirement. I show why the presumption should be against adding a new disclosure requirement, and then identify the kinds of evidence that should be sufficient to overcome this presumption. Applying this new analytic framework to the political spending disclosure debate—and basing this analysis in part on previously unpublished empirical findings—shows that public companies should not be required to disclose political spending.
Here's a link to the the law review page from which you can download the article.
Many students find their Corporation Law class difficult because they do not understand the transactions giving rise to those cases. As with its predecessors, this third edition is intended to assist students by not only restating the law but also by putting the law into its business and financial context. The pedagogy is up-to-date, with a strong emphasis on the doctrinal issues taught in today's Corporations classes. The text is highly readable: The style is simple, direct, and reader-friendly. Even when dealing with complicated economic or financial issues, the text seeks to make those issues readily accessible.
This new edition brings the material up-to-date with complete coverage of developments in both state corporate law and federal securities law.
This text provides a reader-friendly, accessible overview of unincorporated business associations. While emphasizing the doctrinal issues taught in today's unincorporated business associations classes, it places significant emphasis on economic analysis of the major issues in that course. The second edition has been comprehensively updated. It includes extensive new treatment of the now final Restatement (Third) of Agency and amendments to the various uniform acts governing unincorporated business associations. The coverage has been expanded to include additional topics, especially in the chapter on limited liability companies, so as to reflect their continually growing popularity as a choice of form for small businesses. Among these new topics are single member LLCs, shelf LLCs, conversion to an LLC from other forms of business organizations, promoters' duties, non-profit and low profit LLCs, and freedom of contract in LLC law.
Remember those "what's wrong with this picture" games? Let's play a verbal version. Take a look at this passage from the Second Circuit's opinion in Espinoza v. Dimon:
Several Delaware intermediate appellate court cases also cited by the district court expound further on this principle that a board has wide latitude over how it chooses to investigate a demand. In Mount Moriah Cemetery ex rel. Dun & Bradstreet Corp. v. Moritz, 1991 WL 50149, at *2 (Del. Ch. Apr. 4, 1991), for example, the board refused a demand for legal action against executives that had exposed the corporation to liability for deceptive sales practices.
An EPA cleanup crew on Aug. 5 accidentally triggered a breach in an abandoned gold mine in the southwestern part of Colorado, releasing an estimated three million gallons of toxic, mustard-tinted sludge through a river system that also spans New Mexico and Utah. The sludge, which flowed down the Animas River and emptied into the San Juan River in New Mexico, contains such contaminants as lead and arsenic from the Gold King Mine, north of Silverton, Colo., one of thousands of abandoned mines across the western U.S. ...
“The EPA’s initial response to this point has been slow and insufficient,” Sen. Michael Bennet (D., Colo.) said in an emailed statement. ...
“Nobody is going to take the attention away from EPA’s incompetence on this,” [Sen. Cory Gardner (R., Colo.)] said. “If this was a private company, all hell would be breaking loose.”
Indeed, as BP employees and shareholders can attest.
Obviously, you can't throw a government agency in jail, while fining one would simply circulate money through the government. But what if we applied the responsible officer doctrine to the government officials at fault and held them civilly and criminally liable for this sort of gross misconduct? Maybe the government would become a lot more efficient.
The story of the moment sounds like a bad comedy sketch:
2012: Under pressure from Trian Fund Management LP, Kraft decides to split in two, spinning off its mature North American grocery business to highlight its global snack-food business. The larger global business–which includes Oreo, Cadbury, Wheat Thins, and other brands–is named Mondelez International Inc. The smaller company, dubbed Kraft Foods Group Inc., gets the Kraft cheese products, Maxwell House coffee, Jell-O, and Planters nuts, among other brand. ...
August 2015: Activist investor William Ackman unveils a $5.5 billion stake in Mondelez International Inc. The activist investor believes Mondelez has to grow revenues faster and cut costs significantly or sell itself to a rival. Mr. Ackman suggests that one potential buyer could be the newly formed Kraft Heinz.
So one set of activists insisted that Kraft break itself in two. Kraft did so. Now another set of activists want to put them back together.
I admit it is possible that in the last 3 years conditions have changed such that a reunification of Kraft and Mondelez makes sense (although I note that no less than Warren Buffet has thrown "cold water" on the idea.)
But consider an alternative possibility; namely, that we're in the midst of an activist bubble in which too much money managed by too many second rate activists is leading to a rash of really bad ideas. As the WSJ recently noted:
Activist investors, who take positions and agitate for financial or strategic changes, are increasingly showing up in the same stocks, often with different agendas.
They can't all be right, after all. Some contend that:
“There just aren’t enough good ideas out there,” said David Rosewater, who heads Morgan Stanley’s activist-defense group.
But consider the possibility that there are almost no good ideas out there. After all, do we really think a hedge fund manager is systematically going to make better decisions on issues such as the size of widgets a company should make than are the company’s incumbent managers and directors? Of course, a hedge fund is more likely to intervene at a higher level of generality, such as by calling for the company to enter into or leave certain lines of business, demanding specific expense cuts, opposing specific asset acquisitions, and the like, but the argument still has traction. Because the hedge fund manager inevitably has less information than the incumbents and likely less relevant expertise (being a financier rather than an operational executive), his decisions on those sorts of issues are likely to be less sound than those of the incumbents. It was not a hedge fund manager who invented the iPhone, after all, but it was a hedge fund manager who ran TWA into the ground.
Occasionally activists in the CEO pay wars show their hand honestly. Their goal is not to change CEO pay practices so much as flog eternal outrage over CEO pay for political purposes.
Under a Dodd-Frank rule finally imposed last week, activists have succeeded in forcing the Securities and Exchange Commission to force companies to compute a ratio showing the CEO’s pay in relation to the median worker’s, an arbitrary and uninformative mathematical exercise of no value to investors, just like the last such effort, and destined to have the same effect: zero.
So why bother? Jenkins explains:
Thirty-five years into the CEO pay boom, it’s hard to sustain outrage based on mere resentment. And yet the cause has morphed into a perma-cause for certain journalists, think tankers and labor lobbyists because executive compensation has become a piece of the chorus of grievance that’s supposed to make sure liberals get elected.
Jenkins left out the academic enablers who provide the activists with purportedly objective, nonpartisan cover, but otherwise he's right on target.
[William] Ackman uses stock options to control a company’s shares and agitate for change and is celebrated. A CEO is granted stock options in hopes that he or she will agitate for change and is vilified. What’s the difference? (Only one: The CEO has a contract that won’t allow him or her to pocket a short-term pop in the stock price and take off.)
This study explores the scholarly impact of law faculties, ranking the top third of ABA-accredited law schools. Refined by Professor Brian Leiter, the “Scholarly Impact Score” for a law faculty is calculated from the mean and the median of total law journal citations over the past five years to the work of tenured members of that law faculty. In addition to a school-by-school ranking, we report the mean, median, and weighted score, along with a listing of the tenured law faculty members at each ranked law school with the ten highest individual citation counts.
Curiously, they find that "The most dramatically under-valued law school is the University of St. Thomas, which ranks inside the top 40 (at #39) for Scholarly Impact, while being relegated by U.S. News outside the top 100 (at #135)—a difference of 96 ordinal levels." A cynic might make hay with that outcome, but I don't have a cynical bone in my body.
Anyway, getting on to the important stuff, UCLA is ranked 13th under their methodology, which means we outperformed our US News ranking (16) and our US News Reputation ranking (also 16). Our top ten most frequently cited faculty (in alphabetical order) are: Bainbridge, S.; Carbado, D.; Crenshaw, K.; Kang, J.; Korobkin, R.; Motomura, H.; Netanel, N.; Raustiala, K.; Salzman, J.; Volokh, E.; Winkler, A.
Finally, they offer an interesting assessment of the state of faculty scholarship that ends up defending it against the law school scam folks.
How, exactly, will this “simple benchmark” help investors do those things? What number, or range, for this ratio tells an investor that a company is treating its average workers well or poorly, or that a company is paying its CEO reasonably? What economic or financial standards can be created using this or other data to enable investors to figure these things out?
It's hard to argue with Hodak's view that "the SEC is simply being used in an experiment in social engineering." It's equally hard to argue with his conclusion that the experiment will fail, as have so many before.
In any case, the key question has always been whether director primacy is a valid model for describing Delaware corporate law. Some say so, albeit with qualifications. See, e.g., Kevin L. Turner “Settling The Debate: A Response To Professor Bebchuk’s Proposed Reform Of Hostile Takeover Defenses," 57 Ala. L. Rev. 907 (2006) (noting that note that “the Delaware jurisprudence, while not explicitly affirming ‘director primacy,’ does implicitly leave the directors to make decisions with shareholders expressing their views only in specific and limited situations”).
In fact, more recent Delaware cases have expressly held that “director primacy remains the centerpiece of Delaware law, even when a controlling stockholder is present.” In re CNX Gas Corp. S'holders Litig., 2010 WL 2291842, at *15 (Del.Ch. May 25, 2010).
So what does that mean in practice? Via our friend Francis Pileggi we learned of a new Delaware case that as Mr. Pileggi states: "affirms the board-centric foundation of Delaware corporate law." I take the liberty of excerpting Mr. Pileggi's summary of the case's key points:
stockholders may not remove directly corporate officers–and a bylaw that purports to confer such authority would improperly interfere with one of the most important functions of the board of directors ...
stockholders do not have unlimited power to amend bylaws, and their ability to do so is not coextensive with the board’s concurrent power. Moreover, DGCL section 141(a) grants prerogatives to the board that limit the power of stockholders to interfere with board powers. See also DGCL section 109
Money quotes are provided on page 12 and footnote 25 that describe the “director primacy” theory of Delaware corporate law which prohibits the stockholders from directly managing the business and affairs of the corporation–without specific authority in either the statute or the certificate of incorporation.
Thus, bylaws may not control specific substantive (as opposed to procedural) business decisions.
Sadly, none of those tasty "money quotes" cite yours truly. To quote Bertie Wooster from The Code of the Woosters, "I mean, while one lives for one's Art, so to speak, and cares little for the public's praise or blame and all that sort of thing, one can always do with something to paste into one's scrap-book, can one not?" Such as a citation?
Kudos, however, to my friend Usha Rodrigues, whose article, A Conflict Primacy Model of the Public Board, 2013 U. ILL. L. REV. 1051, 1075 (2013) was cited for the proposition that: “Appointing a CEO, after all, is likely the most important decision a board will ever make.”
Update: VC Laster did it to me too! See Fox v. CDx Holdings, Inc., C.A. No. 8031-VCL (Del. Ch. July 28, 2015) (stating that "director primacy remains the centerpiece of Delaware law, even when a controlling stockholder is present" without citing yours truly).
The AFL-CIO, America’s labour federation, said the new rules would “shame” firms into cutting bosses’ pay. Not everyone agrees on the likely losers. “The real-world effects, if any,” says James Copland of the Manhattan Institute, a think-tank, “will be for managers of public companies to offload lower-cost employees.”