The AALS Section on Business Associations will meet during the AALS Annual Meeting in New Orleans, Louisiana, from 3:30-5.15 pm on January 5, 2013.
The topic for this year’s session is: Business Associations and Governance in Emerging Economies.
Panelists will be chosen on the basis of submissions made in response to this Call for Papers. In addition, distinguished scholars will provide comments on the chosen papers. The topic is intended to be broad. Papers may deal with just one emerging economy, or may compare several or many emerging economies as well as other economies. Papers may cover any issues relevant to the governance of corporations or other kinds of business associations. The Executive Committee welcomes submissions on a broad range of issues related to this year’s topic, including empirical and theoretical perspectives. The Committee specifically encourages submissions from junior scholars.
If you are interested in presenting a paper, please submit a summary of no more than three double-spaced pages, preferably by e-mail, before Friday, June 29, 2012. In addition to the summary, you also may submit a complete draft of your paper. Direct your submission to:
Professor Brett McDonnell
University of Minnesota Law School
229 19th Avenue South
Minneapolis, MN 55405
Papers will be selected after review by members of the Executive Committee of the Section on Business Associations, including:
Jayne Barnard (William & Mary) Robert Bartlett (Berkeley)
Daniel Greenwood (Hofstra) Joan Heminway (Tennessee, Chair Elect)
Kim Krawiec (Duke) Don Langevoort (Georgetown)
Brett McDonnell (Minnesota, Chair) Tamara Piety (Tulsa)
Usha Rodrigues (Georgia) Hillary Sale (Washington U., Past Chair)
Guhan Subramanian (Harvard) Cheryl Wade (St. John’s)
Authors of accepted papers will be notified by September 7, 2012. Please feel free to pass this Call for Papers along to any colleagues who may be interested.
Law schools are under attack. Depending upon the source, between 20-50% of corporate counsel won’t pay for junior associate work at big firms. Practicing lawyers, academics, law students and members of the general public have weighed in publicly and vehemently about the perceived failure of America’s law schools to prepare students for the real world.
Admittedly, before I joined academia a few months ago, I held some of the same views about lack of preparedness. Having worked with law students and new graduates as outside and in house counsel, I was often unimpressed with the level of skills of these well-meaning, very bright new graduates. I didn’t expect them to know the details of every law, but I did want them to know how to research effectively, write clearly, and be able to influence the clients and me. The first two requirements aren’t too much to expect, and schools have greatly improved here. But many young attorneys still leave school without the ability to balance different points of view, articulate a position in plain English, and influence others.
To be fair, unlike MBAs, most law students don’t have a lot of work experience, and generally, very little experience in a legal environment before they graduate. Assuming they know the substantive area of the law, they don’t have any context as to what may be relevant to their clients.
How can law schools help?
First, regardless of the area in which a student believes s/he wants to specialize, schools should require them to take business associations, tax, and a basic finance or accounting course. No lawyer can be effective without understanding business, whether s/he wants to focus on mom and pop clients, estate planning, family law, nonprofit, government or corporate law. More important, students have no idea where they will end up after graduation or ten years later. Trying to learn finance when they already have a job wastes the graduate’s and the employer’s time.
Of course, many law schools already require tax and business organizations courses, but how many of those schools also show students an actual proxy statement or simulate a shareholder’s meeting to provide some real world flavor? Do students really understand what it means to be a fiducuiary?
Second and on a related point, in the core courses, students may not need to draft interrogatories in a basic civil procedure course, but they should at least read a complaint and a motion for summary judgment, and perhaps spend some time making the arguments to their brethren in the classroom on a current case on a docket. No one can learn effectively by simply reading appellate cases. Why not have students redraft contract clauses? When I co-taught professional responsibility this semester, students simulated client conversations, examined do-it-yourself legal service websites for violations of state law, and wrote client letters so that the work came alive.
When possible, schools should also re-evaluate their core requirements to see if they can add more clinicals (which are admittedly expensive) or labs for negotiation, client consultation or transactional drafting (like my employer UMKC offers). I’m not convinced that law school needs to last for three years, but I am convinced that more of the time needs to be spent marrying the doctrinal and theoretical work to practical skills into the current curriculum.
Third, schools can look to their communities. In addition to using adjuncts to bring practical experience to the classroom, schools, the public and private sector should develop partnerships where students can intern more frequently and easily for school credit in the area of their choice, including nonprofit work, local government, criminal law, in house work and of course, firm work of all sizes. Current Department of Labor rules unnecessarily complicate internship processes and those rules should change.
This broader range of opportunities will provide students with practical experience, a more realistic idea of the market, and will also help address access to justice issues affecting underserved communities, for example by allowing supervised students to draft by-laws for a 501(c)(3). I’ll leave the discussion of high student loans, misleading career statistics from law schools and the oversupply of lawyers to others who have spoken on these hot topics issues recently.
Fourth, law schools should integrate the cataclysmic changes that the legal profession is undergoing into as many classes as they can. Law professors actually need to learn this as well. How are we preparing students for the commoditization of legal services through the rise of technology, the calls for de-regulation, outsourcing, and the emerging competition from global firms who can integrate legal and other professional services in ways that the US won’t currently allow?
Finally and most important, what are we teaching students about managing and appreciating risk? While this may not be relevant in every class, it can certainly be part of the discussions in many. Perhaps students will learn more from using a combination of reading law school cases and using the business school case method.
If students don’t understand how to recognize, measure, monitor and mitigate risk, how will they advise their clients? If they plan to work in house, as I did, they serve an additional gatekeeper role and increasingly face SEC investigations and jail terms. As more general counsels start hiring people directly from law schools, junior lawyers will face these complexities even earlier in their careers. Even if they counsel external clients, understanding risk appetite is essential in an increasingly complex, litigious and regulated world.
When I teach my course on corporate governance, compliance and social responsibility next spring, my students will look at SEC comment letters, critically scrutinize corporate social responsibility reports, read blogs, draft board minutes, dissect legislation, compare international developments and role play as regulators, legislators, board members, labor organizations, NGOs and executives to understand all perspectives and practice influencing each other. Learning what Sarbanes-Oxley or Dodd-Frank says without understanding what it means in practice is useless.
The good news is that more schools are starting to look at those kinds of issues. The Carnegie Model of legal education “supports courses and curricula that integrate three sets of values or ‘apprenticeships’: knowledge, practice and professionalism.” Educating Tomorrow’s Lawyers is a growing consortium of law schools which recommends “an integrated, three-part curriculum: (1) the teaching of legal doctrine and analysis, which provides the basis for professional growth; (2) introduction to the several facets of practice included under the rubric of lawyering, leading to acting with responsibility for clients; and (3) exploration and assumption of the identity, values and dispositions consonant with the fundamental purposes of the legal profession.” The University of Miami’s innovative LawWithoutWalls program brings students, academics, entrepreneurs and practitioners from around the world together to examine the fundamental shifts in legal practice and education and develop viable solutions.
The problems facing the legal profession are huge, but not insurmountable. The question is whether more law schools and professors are able to leave their comfort zones, law students are able to think more globally and long term, and the popular press and public are willing to credit those who are already moving in the right direction. I’m no expert, but as a former consumer of these legal services, I’m ready to do my part.
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Time Magazine’s “person of the year” is the “protestor.” Occupy Wall Street’s participants have generated discussion unprecedented in recent years about the role of corporations and their executives in society. The movement has influenced workers and unemployed alike around the world and has clearly shaped the political debate.
But how does a corporation really act? Doesn’t it act through its people? And do those people behave like the members of the homo economicus species acting rationally, selfishly for their greatest material advantage and without consideration about morality, ethics or other people? If so, can a corporation really have a conscience?
In her book Cultivating Conscience: How Good Laws Make Good People, Lynn Stout, a corporate and securities professor at UCLA School of Law argues that the homo economicus model does a poor job of predicting behavior within corporations. Stout takes aim at Oliver Wendell Holmes’ theory of the “bad man” (which forms the basis of homo economicus), Hobbes’ approach in Leviathan, John Stuart Mill’s theory of political economy, and those judges, law professors, regulators and policymakers who focus solely on the law and economics theory that material incentives are the only things that matter.
Citing hundreds of sociological studies that have been replicated around the world over the past fifty years, evolutionary biology, and experimental gaming theory, she concludes that people do not generally behave like the “rational maximizers” that ecomonic theory would predict. In fact other than the 1-3% of the population who are psychopaths, people are “prosocial, ” meaning that they sacrifice to follow ethical rules, or to help or avoid harming others (although interestingly in student studies, economics majors tended to be less prosocial than others).
She recommends a three-factor model for judges, regulators and legislators who want to shape human behavior:
“Unselfish prosocial behavior toward strangers, including unselfish compliance with legal and ethical rules, is triggered by social context, including especially:
(1) instructions from authority
(2) beliefs about others’ prosocial behavior; and
(3) the magnitude of the benefits to others.
Prosocial behavior declines, however, as the personal cost of acting prosocially increases.”
While she focuses on tort, contract and criminal law, her model and criticisms of the homo economicus model may be particularly helpful in the context of understanding corporate behavior. Corporations clearly influence how their people act. Professor Pamela Bucy, for example, argues that government should only be able to convict a corporation if it proves that the corporate ethos encouraged agents of the corporation to commit the criminal act. That corporate ethos results from individuals working together toward corporate goals.
Stout observes that an entire generation of business and political leaders has been taught that people only respond to material incentives, which leads to poor planning that can have devastating results by steering naturally prosocial people to toward unethical or illegal behavior. She warns against “rais[ing] the cost of conscience,” stating that “if we want people to be good, we must not tempt them to be bad.”
In her forthcoming article “Killing Conscience: The Unintended Behavioral Consequences of ‘Pay for Performance,’” she applies behavioral science to incentive based-pay. She points to the savings and loans crisis of the 80's, the recent teacher cheating scandals on standardized tests, Enron, Worldcom, the 2008 credit crisis, which stemmed in part from performance-based bonuses that tempted brokers to approve risky loans, and Bear Sterns and AIG executives who bet on risky derivatives. She disagrees with those who say that that those incentive plans were poorly designed, arguing instead that excessive reliance on even well designed ex-ante incentive plans can “snuff out” or suppress conscience and create “psycopathogenic” environments, and has done so as evidenced by “a disturbing outbreak of executive-driven corporate frauds, scandals and failures.” She further notes that the pay for performance movement has produced less than stellar improvement in the performance and profitability of most US companies.
She advocates instead for trust-based” compensation arrangements, which take into account the parties’ capacity for prosocial behavior rather than leading employees to believe that the employer rewards selfish behavior. This is especially true if that reward tempts employees to engage in fraudulent or opportunistic behavior if that is the only way to realistically achieve the performance metric.
Applying her three factor model looks like this: Does the company’s messaging tell employees that it doesn’t care about ethics? Is it rewarding other people to act in the same way? And is it signaling that there is nothing wrong with unethical behavior or that there are no victims? This theory fits in nicely with the Bucy corporate ethos paradigm described above.
Stout proposes modest, nonmaterial rewards such as greater job responsibilities, public recognition, and more reasonable cash awards based upon subjective, ex post evaluations on the employee’s performance, and cites studies indicating that most employees thrive and are more creative in environments that don’t focus on ex ante monetary incentives. She yearns for the pre 162(m) days when the tax code didn’t require corporations to tie executive pay over one million dollars to performance metrics.
Stout’s application of these behavioral science theories provide guidance that lawmakers and others may want to consider as they look at legislation to prevent or at least mitigate the next corporate scandal. She also provides food for thought for those in corporate America who want to change the dynamics and trust factors within their organizations, and by extension their employee base, shareholders and the general population.
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Massey Energy and Walmart made headlines last week for different reasons. Massey had the worst mining disaster in 40 years, killing 29 employees and entered into a nonprescution agreement with the Department of Justice. The DOJ has stated in the past that these agreements balance the interests of penalizing offending companies, compensating victims and stopping criminal conduct “without the loss of jobs, the loss of pensions, and other significant negative consequences to innocent parties who played no role in the criminal conduct, were unaware of it, or were unable to prevent it.”
Massey’s new owner Alpha Natural Resources, has agreed to pay $210 million dollars in fines to the government, compensation to the families of the deceased miners and for safety improvements (the latter may be tax-deductible). The government’s 972-page report concluded that the root cause was Massey’s “systematic, intentional and aggressive efforts” to conceal life threatening safety violations. The company maintained a doctored set of safety records for investigators, intimidated workers who complained of safety issues, warned miners when inspectors were coming (a crime), and had 370 violations. The mine had been shut down 48 times in the previous year and reopened once violations were fixed. 112 miners had had no basic safety training at all. Only one executive has been convicted of destroying documents and obstruction, and investigations on other executives are pending. However, the company itself has escaped prosecution for violations of the Mine Safety and Health Act, conspiracy or obstruction of justice. Perhaps new ownership swayed prosecutors and if Massey had its same owners, things would be different. But is this really justice? The miner’s families receiving the settlement certainly don’t think so.
Walmart announced in its 10-Q that based upon a compliance review and other sources (Dodd-Frank whistleblowers maybe?), it had informed both the SEC and DOJ that it was conducting a worldwide review of its practices to ensure that there were no violations of the Foreign Corrupt Practices Act (“FCPA”). Although no facts have come out in the Walmart case and I have no personal knowledge of the circumstances, let’s assume for the sake of this post that Walmart has a robust compliance program, which takes a risk based approach to training its two million employees in what they need to know (the greeter in Tulsa may not need in-depth training on bribery and corruption but the warehouse manager and office workers in Brazil and China do). Let’s also assume that Walmart can hire the best attorneys, investigators and consultants around, and based on their advice, chose to disclose to the government that they were conducting an internal investigation. Let’s further assume that the incidents are not widespread and may involve a few rogue managers around the world, who have chosen to ignore the training and the policies and a strong tone at the top.
As is common today, let’s also assume that depending on what they find, the company will do what every good “corporate citizen” does to avoid indictment --disclose all factual findings and underlying information of its internal investigation, waive the attorney client privilege and work product protection, fire employees, replace management, possibly cut off payment of legal fees for those under investigation, and actively participate in any government investigations of employees, competitors, agents and vendors.
Should this idealized version of Walmart be treated the same as Massey Energy? (For a great compilation of essays on the potential conflicts between the company and its employees, read Prosecutors in the Boardroom: Using Criminal Law to Regulate Corporate Conduct, edited by Anthony and Rachel Barkow). Should they both be charged and face trial or should they get deferred or nonprosecution agreements for cooperation? Do these NPAs and DPAs erode our sense of justice or should there be an additional alternative for companies that have done the right thing -- an affirmative defense?
A discussion of the history of corporate criminal liability would be too detailed for this post, but in its most simplistic form, ever since the 1909 case of New York Central & Hudson River Railroad Co v. United States, companies have endured strict liability for the criminal acts of employees who were acting within the scope of their employment and who were motivated in part by an intent to benefit the corporation. As case law has evolved, companies face this liability even if the employee flouted clear rules and mandates and the company has a state of the art compliance program and corporate culture. In reality, no matter how much money, time or effort a company spends to train and inculcate values into its employees, agents and vendors, there is no guarantee that their employees will neither intentionally nor unintentionally violate the law.
The DOJ has reiterated this 1909 standard in its policy documents. And because so few corporations go to trial and instead enter into DPAs or NPAs, we don’t know whether the compliance programs in place would have led to either the potential 400% increase or 95% decrease in fines and penalties under the Federal Sentencing Guidelines because judges aren’t making those determinations. The DPAs are now providing more information about corporate compliance reporting provisions, but again, even if a company already had all of those practices in place, and a rogue group of employees ignored them, the company faces the criminal liability. The Ethical Resource Center is preparing a report in celebration of the 20th Anniversary of the Sentencing Guidelines with recommendations for the U.S. Sentencing Commission, members of Congress, the DOJ and other enforcement agencies. They are excellent and timely, but they do not go far enough.
A Massey Energy should not receive the same treatment as my idealized model corporate citizen Walmart. Instead, I agree with Larry Thompson, formerly of the DOJ and now a general counsel and others who propose an affirmative defense for an effective compliance program- not simply as possible reduction in a fine or a DPA or NPA.
While the ideal standard would require prosecutors to prove that upper management was willfully blind or negligent regarding the conduct, this proposed standard may presume corporate involvement or condonation of wrongful conduct but allow the company to rebut this presumption with a defense.
In the past decade, companies drastically changed their antiharassment programs after the Supreme Court cases of Fargher and Ellerth allowed for an affirmative defense. The UK Bribery Act also allows for an affirmative defense for implementing “adequate procedures” with six principles of bribery prevention. Interestingly, they too are looking at instituting DPAs.
I would limit a proposed affirmative defense to when nonpolicymaking employees have committed misconduct contrary to law, policy or management instructions. If the company adopted or ratified the conduct and/or did not correct it, it could not avail itself of the defense. The company would have to prove by a preponderance of the evidence that: it has implemented a state of the art program approved and overseen by the board or a designated committee; clearly communicated the corporation’s intent to comply with the law and announced employee penalties for prohibited acts; met or exceeded industry standards and norms; is periodically audited and benchmarked by a third party and has made modifications if necessary; has financial incentives for lawful and penalties unlawful behavior; elevated the compliance officer to report directly to the board or a designated committee (a suggestion rejected in the 2010 amendments to the Sentencing Guidelines); has consistently applied anti-retaliation policies for whistleblowers; voluntarily reported wrongdoing to authorities when appropriate; and of course taken into account what the DOJ has required of offending companies and which is now becoming the standard. The court should have to rule on the defense pre-trial.
Instead of serving as vicarious or deputized prosecutors, under this proposed standard, a corporation’s cooperation with prosecutors will be based on factors more within the corporation's control,rather than the catch-22 they currently face where if employees are guilty, there is no defense. And if the employees are guilty, this would not preclude the government from prosecuting them, as they should.
Responsible corporations now spend significant sums on compliance programs and the reward is simply a reduction in a fine for conduct for which it is vicariously liable and which its policies strictly prohibited. A defense will promote earlier detection and remedying of the wrongdoing, reduce government expenditures, provide more assurance to investors and regulators, allow the government to focus on companies that don’t have effective compliance program, and most important provide incentives for companies to invest in more state of the art programs rather than a cosmetic, check the box initiative because the standard would be higher than what is currently Sentencing Guidelines.
Perhaps only a small number of companies may be able to prevail with this defense. Frankly, corporations won’t want to bear the risk of a trial, but they will at least have a better negotiating position with prosecutors. Moreover, companies that try in good faith to do the right thing won’t be lumped into the same categories as those who invest in the least expensive programs that may pass muster or worse, engage in clearly intentional criminal behavior. If companies have the certainty that there is a chance to use a defense, that will invariably lead to stronger programs that can truly detect and prevent criminal behavior.
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Bainbridge writes so much that it is hard to know where to start. But he seems to be boiling it down for you in advance of a corporate governance conference at UCLA. Here he is on director primacy; here he is on the misguided efforts to get corporations to act ethically, or at least less insidery.
I'm not sure that director primacy is consistent with a disregard for business ethics. If director primacy is taken seriously, then it can't prevent boards from acting in all kinds of ethical ways to the detriment of shareholders. Otherwise, it wouldn't be director primacy. And of course, boards do that all the time, particularly if they come from corporatist jurisdictions like, say, Germany of today, or pre-Depression America. But I make this probably well-known observation mildly - for internal corporate governance wisdom, the other authors of this blog are the better guides!
In Business Associations a few weeks ago, as we wrapped up our discussion of partnerships, I mentioned LLPs and observed that, as we moved to limited liability forms like the corporation and LLCs, one trend would be the need, in the title of the organization, to highlight its limited liability status. Hence statutory requirements that a limited liability business organization's name contain "Corp.", "Inc.", or "LLP" : businesses need to put the public in general, and creditors in particular, on notice that the assets of the owners won't be available for their benefit.
A few days later a student posed a question: he'd been getting interviews with various law firms, and they all dutifully notified the world of their limited liability status. You're familiar with these markers: Sullivan & Cromwell LLP, Latham & Watkins, LLP, Wilson Sonsini Goodrich & Rosati, PC (my firma mater). Those capital letters after the fancy names put clients and creditors alike on notice that the firm has opted out of the general partnership default, where each partner is jointly and severally liable for the debts of the firm.
So the student had been in talks with Jones Day and noticed the absence of any limited liability suffix. I was puzzled: how could Jones Day be evading this basic requirement? A little poking around on the law firm website provided the answer:
Jones Day is organized as a true partnership, and it operates as such, not as an LLP or LLC or some other quasi-corporate entity. We see ourselves as a global legal institution based on a set of principles to which a large number of men and women can commit – principles that have a social purpose and permanence, that transcend individual interests. While this may well be a more sociological description than you would see on most law firm web sites, and no doubt is subject to a skeptical reaction from many when they first read or hear it, we believe it accurately describes one important aspect of what makes Jones Day the client service organization that it is.<7
Update: Larry Ribstein reminds me that Scott Baker and Kim Krawiec have already written about this. In 2005 they performed an empirical study of NYC law firms and predicted that the GP law firm was on its way out:
...it is apparent that unlimited liability is generally considered burdensome, and it is the authors’ prediction that, at some point in time, nearly all the firms in their sample will choose to file as limited liability partnerships. The general partnership form, with its unlimited liability, will operate only as a penalty default that punishes parties who fail to sufficiently define their organization, forcing firm members to reveal relevant information to courts and interested third parties.
I guess we're not there yet.
My apologies for arriving late to the party. I am currently teaching Corporations in London as part of the Georgetown Summer Law Program, and finding the time to blog has been a challenge.
In reading the posts in this Roundtable, I was struck by the fact that all of them deal with coverage! While teachers of other courses face the issue of what to leave in and what to leave out, I can't think of another course in the curriculum where this issue is so prominent. (As an associate dean in charge of curriculum, I have some standing to make this claim, though I assume others would take a different view.)
The problem with business organizations is not just that there is so much law, but rather that we rely on this course to provide a general introduction to business for students who have no past experiences with business. Some schools offer a separate "business principles" course (accounting + finance) to get at this problem, but the problem persists for the business organizations course because most students don't take the business principles course. As a result, we spend time on these basic business concepts, time that could otherwise be spent on myriad doctrinal puzzles.
One way to get at the problem, described by David Millon, is to devote more time to business organizations generally. The W&L solution is to divide business organizations into two courses, one relating to closely held businesses and one relating to public corporations. While this has long been my preferred solution (it's the structure we used at Wisconsin), as David noted, only about half of the students who take the first course enroll in the second. That seems like a big miss to me, since the course on public corporations is the place where students engage many of the big policy questions relating to the role of corporations in society.
At BYU we teach Business Associations as a three-credit course, and we treat this as an overview course. Almost all of the students in the law school take the course, which is offered both semesters. When I first started teaching in this system, I argued that three credits was wholly inadequate to cover the field, and that is undoubtedly true. But this overview course is starting to grow on me. Strangely, being constrained in this way is liberating in that I don't feel any pressure to cover every doctrinal twist and turn. Instead, I feel pressure to focus on foundational concepts, which the students can use in Corporate Finance, Mergers and Aquisitions, Securities Regulation, and other advanced courses if they choose to deepen their training in business organizations.
The advantage of our system, then, is that almost all students get some grounding in the whole field, from agency law through hostile takeovers. Although some superficiality is inevitable when striving to cover that much territory, I have the sense that my students now are more fluent in the role of limited liability, the essence of fiduciary obligation, and the varied conflicts inherent in business organizations than they were when I taught more of the particulars of the doctrine. To invoke that old saw, they are seeing more of the forest by focusing less on the trees. Is it possible that less is actually more in this instance?
Our approach to teaching the basic Business Organization survey at Washington and Lee splits the course into two parts, a three-credit course called Close Business Arrangements (CBA) and a second three-credit course called Publicly Held Businesses (PHB). Our basic assumption is that the legal issues confronting the organization and management of privately owned, typically small businesses are different enough from those of large, publicly held firms to warrant separate courses. As a result, we have six hours to cover material that is typically taught in a four- (or even three-) credit survey. Needless to say, that is a much-appreciated luxury.
The CBA course begins with a thorough study of agency law, with an emphasis on authority issues. (We don't do much with vicarious liability for torts in this class.) We think this is important because questions of actual and apparent authority can be complicated, come up frequently in practice, and are nowadays not given the attention they deserve at most law schools. We then do an extended look at partnership law, followed by several weeks on corporate law as it relates to privately owned firms. So we don't do much with complex m&a or federal securities regulation (other than the law governing exemptions from registration). Once the students understand partnerships and corporations, the LLC is easy to grasp as a hybrid organizational form.
Having three hours to cover this material makes broader, deeper coverage of the cases and statutes possible. Importantly, it also allows more time for attention to business considerations – concepts like leverage and problems like conflict of interest or minority shareholder oppression, for example. In our experience, introducing students to basic business concepts and vocabulary is at least as important as teaching them the law; most are almost entirely ignorant about such things. We also take advantage of the extra time to introduce basic accounting concepts and terminology, with the goal of getting the students to understand the purposes of and differences between the income statement and the balance sheet.
The follow-on PHB course focuses on the legal problems related to publicly owned corporations. This is essentially a detailed study of Delaware law. (For the corporate law part of the CBA course we use the MBCA.) In addition, we cover the federal proxy rules and offer a brief overview of the mandatory disclosure system. Having three hours for this subject allows us to cover material that is more typically dealt with in a corporate finance course. So, we can devote significant attention to preferred stock and debt as well as to m&a. We cover the leading Delaware cases dealing with defenses to hostile takeovers in detail. Again, in this course a great deal of time is spent on non-legal issues – valuation, for example – because students know so little about the world of business. In our experience, students who end up in a sophisticated, big-firm corporate practice believe that they are very well prepared.
At W&L, most students take CBA, usually in their second year. Enrollment in the PHB course varies from around 40 to 60 or so percent of the class. CBA is a prerequisite for PHB, though we allow students to take both concurrently if they need to.
Because our two-course sequence is unusual, available teaching materials are limited. Most casebooks attempt to cover both the CBA and PHB material in a single volume, with varying emphases and degrees of thoroughness. For CBA we use the only casebook devoted to privately owned businesses, the Ragazzo and Moll book. For PHB, Klein, Ramseyer, and Bainbridge works well because it covers debt securities and includes the most important Delaware takeover cases. For both courses, though, it's necessary to supplement the casebooks with additional cases and materials.
Today and tomorrow we are pleased to host another in our series of summer roundtables on teaching business law courses. We have already been fortunate to have law professors share their insights on teaching Contracts, Banking Law, and Corporate Finance. Today we kick off our Roundtable on Teaching Corporations/Business Associations.
Our own Gordon Smith (BYU) and Lisa Fairfax (George Washington) will be joined by Afra Afsharipour (UC Davis), Kent Greenfield (Boston College), and David Millon (Washington & Lee). As with the previous roundtables, we give our panelists free rein to discuss any aspect of teaching Corporations or Business Associations. Some of the topics they might discuss include:
- What are the core ideas you want students to take away from the course? What are your core objectives?
- To what extent should the course include Agency, Partnerships, LLCs, and other unincorporated entities?
- To what extent do you focus on publicly held corporations versus closely held ones?
- How do you handle the wide dispersion in students – in terms of both reasons for taking the course (ranging from “it’s on the bar” to “I want to run my own hedge fund”) and background in business or economics? What kind of practice do most of your students aim for?
- How much do you teach basic economic concepts? What are those concepts? Does this course tend to focus too much on agency costs to the exclusion of other important dynamics?
- Do you include basics of corporate finance or accounting in the course?
- To what extent do you cover securities and m&a?
- How much do you focus on problem solving, problem sets or simulations versus traditional case law analysis? Do you include any other innovations, such as business school style case studies?
- How much of a transactional versus a litigation focus do you have?
- How do you approach issues of Corporate Social Responsibility? (I’ll have another post framing some of the issues on this later) Where do you place it in the syllabus? Do you teach Citizens United? Is there any public law intersection in the course?
- How has the financial crisis changed what you teach or the way you teach?
- How important is Sarbanes Oxley and Dodd-Frank in your course?
Let’s get started!
AALS Section on Business Associations
Call for Papers
January 2012 Annual Meeting
The AALS Section on Business Associations will meet during the AALS Annual Meeting in Washington, D.C., from 2.00-5.00 pm on January 5, 2012.
The topic for this year’s session is: The “New” Corporate Governance.
At least one panelist will be chosen on the basis of submissions made in response to this Call for Papers. The topic is intended to be broad, to encourage submissions that deal with the state and federal “corporate law” systems, questions about Dodd-Frank and its governance role, as well as international corporate and business topics. The Executive Committee welcomes submissions on a broad range of issues related to this year’s topic, including empirical and theoretical perspectives. The Committee specifically encourages submissions from junior scholars.
If you are interested in presenting a paper, please submit a summary of no more than three double-spaced pages, preferably by e-mail, before Wednesday, July 20, 2011. In addition to the summary, you also may submit a complete draft of your paper. Direct your submission to:
Professor Hillary Sale
Washington University School of Law
One Brookings Drive
Campus Box 1120
St. Louis, MO 63130
Papers will be selected after review by members of the Executive Committee of the Section on Business Associations, including: Jayne Barnard (William & Mary), Jessie Fried (Harvard), Kent Greenfield (Boston College, Past Chair), Daniel Greenwood (Hofstra), Joan Heminway (Tennessee), Kim Krawiec (Duke), Don Langevoort (Georgetown), Brett McDonnell (Chair Elect), Lawrence Mitchell (George Washington), Tamara Piety (Tulsa), Roberta Romano (Yale), Hillary Sale (Washington U., Chair), and Cheryl Wade (St. John’s).
Authors of accepted papers will be notified by September 9, 2011. Please feel free to pass this Call for Papers along to any colleagues who may be interested.
New York City alone has the Durst Organization, the Brodsky Organization, the Trump Organization, &c. Why are these called organizations? It's not that they aren't also limited liability companies as well. And it is the case that many non real estate firms will set up internal "real estate organizations" to manage their property. But my quick search on Westlaw and through the websites of these companies didn't reveal the reason for the fashion for the "organization" moniker. The question isn't easy to resolve via text searching ("organization" isn't very unique). So I thought I might crowd-source the question. Do our readers know the answer? I'll update the post if I find out more.
I enjoy looking over the Corner Office column in the New York Times, partly to see if Adam Bryant can draw CEOs out from pallid nostrums, or whether he's just going to have to print things like "I hire for excellence, above all," this week. He's got a book on the habits of highly effective managers based on those interviews coming out, and the Times has an excerpt. It has bullet points that go into making succesful CEOs - like "passionate curiosity." and "battle-hardened confidence." So is this an airport book? A journalism project with 70 interviews? Or something that looks a little like a qualitative sociology project?
It's not always easy to police those boundaries. But you might like Bryant's excerpt, at least, if you're interested in the CEO effectiveness literature.
If there is one thing that can distract me from a crushing load of commitments, it is superheroes. One of my favorite colleagues, sent me a link to a post on "Superhero Organizations and Business Entities". The post deals with the question of "what kind of business entity would be best for superhero organizations like the Avengers or the Justice League."
When I get a free moment, I'll add my own nuanced analysis to this under-theorized field to examine the embedded tensions. For now, several big ticket items are missing from this opening volley of a post. The big issues with superhero organizations do not concern limited liability (which may be surprising given the tendency of superteams to regularly level Metropolis, Gotham, or NY). Instead, my empirical data suggest that the most common issues are control ("Will Captain America remain team leader?"), the admission of new members ("Should the Avengers roster be capped at seven?"), and the expulsion of members ("Green Arrow is a loose cannon!").
I am wondering how business associations and corporations teachers approach executive compensation. After teaching now at two law schools, I’m still surprised how this hot-button issue does NOT provoke one of the more interesting class discussions of the semester. I wonder if it is because I look at executive compensation in discrete units – first in fiduciary duties and later in discussing the proxy system. Does it pay to revisit executive compensation again as a stand-alone issue?
Two things I do think are worth imparting about compensation. First, is a question about what causes high levels of compensation for executives. The law school environment tends to promote a sense that legal rules or failures of legal rules are the key drivers to all sorts of problems. The business associations world tends to use agency costs as its prime prism. But older economic scholarship on “superstars” suggests other potential causes to extreme disparities in salary, in particular when the market for high level employees expands to national or even global levels. The Times had a nice feature on this scholarship a few weeks ago that provides for an interesting link between the compensation of star athletes and executives.
Second, I aim to spend at least one class at the end of the semester talking about corporate reform – including but not limited to corporate social responsibility. One point in the lesson plan is to beware of unintended consequences for any reform you tout. Executive compensation and “pay for performance” is Exhibit B. Now questioned for lining the pockets of wealthy executives at the expense of shareholders, the movement began as a reform effort to address concerns about entrenched management.
Ideas on teaching executive compensation are more than welcome in the comments.
Larry Cunningham has a nice post on contracts casebooks, with a little Amazon data to back it up. Bainbridge, who has the best selling corporations casebook, take a different view about the best way to assess their merits - lean and mean are his bywords. Read the comments too, if you're interested in that sort of thing. I've been thinking about the issue of casebook concision lately, especially since at Wharton, we teach such concise courses that there's literally not a concise enough casebook in existence to support them. We accordingly have put together our own stripped down materials in most of the classes I'm aware of. And it strikes me that this is a problem for the short courses that surely will only grow in number in law as well as business schools. Is there's a good couple-week course casebook? I'm not sure that many are made at all - perhaps that's the next growth sector for the textbook industry.