August 09, 2014
Disruptive Legal Technologies: Benefit Corporations and the Crowdfunding of Firms
Posted by Eric Orts

Two recent developments in the law and practice of business include:  (1) the advent of benefit corporations (and kindred organizational forms) and (2) the application of crowdfunding practices to capital-raising for start-ups.  My thesis here is that these two innovations will become disruptive legal technologies.  In other words, benefit corporations and capital crowdfunding will change the landscape of business organization substantially.

A disruptive technology is one that changes the foundational context of business.  Think of the internet and the rise of Amazon, Google, etc.   Or consider the invention of laptops and the rise of Microsoft and the fall of the old IBM.  Automobiles displace horses, and telephones make the telegraph obsolete.  The Harvard economist Joseph Schumpeter coined a phrase for the phenomenon:  “creative destruction.”

Technologies can be further divided into two types:  physical technologies (e.g., new scientific inventions or mechanical innovations) and social technologies (such as law and accounting).   See Business Persons, p. 1 (citing Richard R. Nelson, Technology, Institutions, and Economic Growth (2005), pp. 153–65, 195–209).  The legal innovations of benefit corporations and capital crowdfunding count as major changes in social technologies.  (Perhaps the biggest legal technological invention remains the corporation itself.)

1.  Benefit corporations began as a nonprofit idea, hatched in my hometown of Philadelphia (actually Berwyn, Pennsylvania, but I’ll claim it as close enough).  A nonprofit organization called B Lab began to offer an independent brand to business firms (somewhat confusingly not limited to corporations) that agree to adopt a “social purpose” as well as the usual self-seeking goal of profit-making.  In addition, a “Certified B Corporation” must meet a transparency requirement of regular reporting on its “social” as well as financial progress.  Other similar efforts include the advent of “low-profit” limited liability companies or L3Cs, which attempt to combine nonprofit/social and profit objectives.  In my theory of business, I label these kind of firms “hybrid social enterprises.”  Business Persons, pp. 206-15.

A significant change occurred in the last few years with the passage of legislation that gave teeth to the benefit corporation idea.  Previously, the nonprofit label for a B Corp required a firm to declare adherence to a corporate constituency statute or to adopt a similar constituency by-law or other governing provision which signaled that a firm’s sense of its business objective extended beyond shareholders or other equity-owners alone.  (One of my first academic articles addressed the topic at an earlier stage.  See “Beyond Shareholders:  Interpreting Corporate Constituency Statutes.”  I also gave a recent video interview on the topic here.)  Beginning in 2010, a number of U.S. states passed formal statutes authorizing benefit corporations.  One recent count finds that twenty-seven states have now passed similar statutes.  California has allowed for an option of all corporations to “opt in” to a “flexible purpose corporation” statute which combines features of benefit corporations and constituency statutes.  Most notably, Delaware – the center of gravity of U.S. incorporations – adopted a benefit corporation statute in the summer of 2013. According to Alicia Plerhoples, fifty-five corporations opted in to the Delaware benefit corporation form within six months.  Better known companies that have chosen to operate as benefit corporations include Method Products in Delaware and Patagonia in California.

2. Crowdfunding firms.  Crowdfunding along the lines of Kickstarter and Indiegogo campaigns for the creation of new products have become commonplace.  And the amounts of capital raised have sometimes been eye-popping.  An article in Forbes relates the recent case of a robotics company raising $1.4 million in three weeks for a new project.  Nonprofit funding for the microfinance of small business ventures in developing countries seems also to be successful.  Kiva is probably the best known example.  (Disclosure:  my family has been an investor in various Kiva projects, and I’ve been surprised and encouraged by the fact that no loans have so far defaulted!)

However, a truly disruptive change in the capital funding of enterprises – perhaps including hybrid social enterprises – may be signaled by the Jumpstart Our Business Start-ups (JOBS) Act passed in 2012. Although it is limited at the moment in terms of the range of investors that may be tapped for crowdfunding (including a $1 million capital limit and sophisticated/wealthy investors requirement), a successful initial run may result in amendments that may begin to change the face of capital fundraising for firms.  Judging from some recent books at least, crowdfunding for new ventures seems to have arrived.  See Kevin Lawton and Dan Marom’s The Crowdfunding Revolution (2012) and Gary Spirer’s Crowdfunding:  The Next Big Thing (2013).

What if easier capital crowdfunding combined with benefit corporation structures?  Is it possible to imagine the construction of new securities markets that would raise capital for benefit corporations -- outside of traditional Wall Street markets where the norm of “shareholder value maximization” rules?  There are some reasons for doubt:  securities regulations change slowly (with the financial status quo more than willing to lobby against disruptive changes) and hopes for “do-good” business models may run into trouble if consumer markets don’t support them strongly.  But it’s at least possible to imagine a different world of business emerging with the energy and commitment of a generation of entrepreneurs who might care about more in their lives than making themselves rich.  Benefit corporations fueled by capital crowdfunding might lead a revolution:  or, less provocatively, may at least challenge traditional business models that for too long have assumed a narrow economic model of profit-maximizing self-interest.  James Surowiecki, in his recent column in The New Yorker, captures a more modest possibility:  “The rise of B corps is a reminder that the idea that corporations should be only lean, mean, profit-maximizing machines isn’t dictated by the inherent nature of capitalism, let alone by human nature.  As individuals, we try to make our work not just profitable but also meaningful. It may be time for more companies to do the same.”

So a combination of hybrid social enterprises and capital crowdfunding doesn’t need to displace all of the traditional modes of doing business to change the world.  If a significant number of entrepreneurs, employees, investors, and customers lock-in to these new social technologies, then they will indeed become “disruptive.”

Permalink | Business Ethics| Business Organizations| Corporate Governance| Corporate Law| Delaware| Economics| Employees| Entrepreneurs| Entrepreneurship| Environment| Fiduciary Law| Finance| Financial Institutions| Investing| JOBS Act| Legal Theory| Organizational Theory| Securities| Social Entrepreneurship| Social Responsibility| Technology| Venture Capital | Comments (0) | TrackBack (0) | Bookmark

August 07, 2014
New Directions in Corporate Disclosure: Politics, Environment, and Religion
Posted by Eric Orts

Corporate disclosure, especially in securities regulation, has been a standard regulatory strategy since the New Deal. Brandeisian “sunlight” has been endorsed widely as a cure for nefarious inside dealings. An impressive apparatus of regulatory disclosure has emerged, including annual and quarterly reports enshrined in Forms 10K and 10Q. Other less comprehensive disclosures are also required: for initial public offerings and various debt issuances, as well as for unexpected events that require an update of available information in the market (Form 8K).

For the most part, corporate disclosure has focused on financial information: for the good and sufficient reason that it is designed to protect investors – especially investors who are relatively small players in large public trading markets. Some doubts have been raised about the effectiveness of this kind of disclosure and, indeed, the effectiveness of mandatory disclosure in general. A recent book by Omri Ben-Shahar and Carl Scheider, More Than You Wanted to Know: The Failure of Mandated Disclosure, advances a wide-ranging attack on all mandatory disclosure. (I think that their attack goes too far: I’ll be coming out with a short review of the book for Penn Law’s RegBlog called “Defending Disclosure”).   Assuming, though, that much financial disclosure makes sense, what about expanding it to include other activities of business firms?

Consider three types of nonfinancial information that might usefully be disclosed: information about a business firm’s activities with respect to politics, the natural environment, and religion.

1. Politics. One good candidate for enhanced corporate disclosure concerns business activities in politics. Lobbying laws require various disclosures, and various campaign finance laws do too. It is possible to obscure actual political spending through the complexity of corporate organization. (For a nice graphic of the Koch brothers’ labyrinth assembled by the Center for Responsive Politics, see here.) Good reporters can ferret out this information – but they need to get access to it in the first place. My colleague Bill Laufer has been an academic leader in an effort to encourage public corporations to disclose political spending voluntarily, with Wharton’s Zicklin Center for Business Ethics Research teaming up with the nonpartisan Center for Political Accountability to rank companies with respect to their transparency about corporate political spending. The rankings have been done for three years now, and there are indications of increased business participation.  Recently, even this voluntary effort has been attacked by business groups such as the U.S. Chamber of Commerce for being “anti-business.” See letter from U.S. Chamber of Commerce quoted here.  Jonathan Macey of Yale Law School has also objected to the rankings in an article in the Wall Street Journal, arguing that the purpose of political disclosure is somehow part of “a continuing war against corporate America.” These objections, however, seem overblown and misplaced. What is so wrong about asking for disclosure about the political spending of business firms? One can Google individuals to see their record of supporting Presidential and Congressional candidates via the Federal Election Commission’s website, yet large businesses should be exempt? Political spending by corporations and other business should be disclosed in virtue of democratic ideals of transparency in the political process. Media, non-profit groups, political parties, and other citizens may then use the resulting information in political debates and election campaigns. Also, it seems reasonable for shareholders to expect to have access to this kind of information.

In Business Persons, I’ve gone further to argue (in chapter 7) that both majority and dissenting opinions in Citizens United appear to support mandatory disclosure as a good compromise strategy for regulation. One can still debate the merits of closer control of corporate spending in politics (and I believe that though business corporations indeed have “rights” to political speech these rights do not necessarily extend to unlimited spending directed toward political campaigns). It seems to me hard to dispute that principles of political democracy – and the transparency of the process – support a law of mandatory disclosure of corporate spending in politics.

2. Natural environment. Increasingly, many large companies are also issuing voluntary reports regarding their environmental performance (and often adding in other “social impact” elements). Annual reports issued under the International Standards Organization (the ISO 14000 series), the Global Reporting Initiative, and the Carbon Disclosure Project are examples. The Environmental Protection Agency (EPA) has also established a mandatory program for greenhouse gas emissions reporting, which is tailored to different industrial sectors. One can argue about whether these kinds of disclosures are sufficiently useful to justify their expense, but my own view is that they help to encourage business firms to take environmental concerns seriously. Many firms use this reporting to enhance their internal efficiency (often leading to financial bottom-line gains). As important, however, is the engagement of firms to consider environmental issues – and encouraging them to act as “part of the solution” rather than simply as a generating part of the problem.

One caveat that is relevant to all nonfinancial disclosure regimes:   The scope of firms required to disclose should be considered.  I do not believe that the case is convincing that only public reporting companies under the securities laws should be included.  (For one influential argument to the contrary, see Cynthia A. Williams, “The Securities and Exchange Commission and Corporate Social Transparency,”  112 Harvard Law Review 1197 (1999)).  Instead, it makes to sense for different agencies appropriate to the particular issue at hand to regulate:  the Federal Election Commission for political disclosures and the EPA for environmental disclosures.

3. Religion? In the wake of the Hobby Lobby case, some have called for greater disclosure about a firm’s values on this score both with respect to employment and investors. See, e.g., Joan Heminway’s piece here. Stephen Bainbridge has also called attention to this question here.  Probably it makes sense to consider disclosure as a partial solution, though the idea of mandatory government disclosure of religious characteristics makes me nervous on “separation of church and state” grounds. It might be better to “wait” (as Frank Partnoy advises us often to do in his recent book) and see how the Hobby Lobby line of cases develops. My guess is that some tensions will become apparent that may result in keeping Hobby Lobby limited to the context of close and usually small corporations (though Hobby Lobby itself is an exception, having more than 10,000 employees).
But a rule of disclosure might not be the best approach with respect to religion and firms. Better in this context perhaps to bite the bullet and ascertain when for various legal purposes a business firm “crosses the line” from a private organization (with rights of self-organization and self-determination with respect to many internal business practices) to a public-facing organization (with duties to treat public customers, employees, and business partners in a non-discriminatory manner). These issues are not easy. As I suggest in Business Persons (chapter 3), a central problem in business theory concerns “the public/private distinction” which I conceive as involving “two faces of the business enterprise.” Here, the religious preferences of private owners require balancing with the public role undertaken when holding out one’s shingle in public markets. Drawing legal lines isn’t always easy, but often it’s necessary.  And disclosures alone will not always be sufficient.

Permalink | Business Ethics| Business Organizations| Corporate Governance| Corporate Law| Employees| Environment| Finance| Financial Institutions| Hobby Lobby| Legal Theory| Organizational Theory| Politics| Religion| Securities| Social Responsibility | Comments (0) | TrackBack (0) | Bookmark

March 10, 2014
ScarJo, SodaStream, and Competing Stakeholder Interests
Posted by Greg Shill


Scarlett Johansson has been in the news a lot lately because of her twin roles as spokeswoman for Oxfam and SodaStream. For nine years, Johansson served as an ambassador for Oxfam. She was a major fundraiser and public face of the charity. But this January, Oxfam told her she had to choose between representing them and SodaStream, and she chose the latter. The episode suggests some important limitations of the stakeholder theory of corporate organization.

Why did Oxfam give Johansson an ultimatum? SodaStream manufactures popular home carbonation systems in 22 facilities around the world. Some are in the U.S., China, Germany, Australia, South Africa, Sweden, and Israel, and one is in the West Bank. The company has recently been targeted by the pro-Palestinian “Boycott, Divestment, Sanctions” movement (BDS), which seeks to delegitimize either certain Israeli policies or the State of Israel itself (depending on who you talk to). The BDS movement is boycotting SodaStream because, it argues, the company promotes the Israeli occupation of the West Bank by operating a factory there. Oxfam backs the BDS boycott of Israel and insisted Johansson choose between them and SodaStream.

This should not have been an intuitive response. And curiously enough, corporate law—specifically the stakeholder theory of the firm—helps illuminate the oddness of Oxfam's single-minded boycottism.

There are many strains of the stakeholder theory, but in general the idea is that management should consider the impact of its decisions not only on shareholders but on “stakeholders” of the firm—employees, suppliers, customers, community members, and other constituencies beyond its owners. (For simplicity, we'll consider the term "stakeholder" to exclude shareholders.)

The stakeholder model is often presented as an alternative to the standard shareholder model. But forget shareholders. Say you have a company that is unequivocally committed to the stakeholder model—their slogan is “people before profits,” and shareholders have no special claim on company decisions. What should the company do when the interests of employees and community members collide? Who should win out?

Ostensibly, the SodaStream boycott is being conducted on behalf of the Palestinian community and cause. The assumption is that short-term pain (i.e., probable unemployment) for the factory’s 500 Palestinian employees is the price of long-term gain (i.e., a Palestinian state) for the community.

Politics aside, the SodaStream boycott assumes a hierarchy of stakeholder interests that seems extremely tenuous. Even those sympathetic to the boycott—and this is probably obvious by now, but I am not—acknowledge that shutting SodaStream’s West Bank factory would bring hardship to a lot of Palestinian families who depend on those jobs. I would add that that sacrifice is a really bad deal for those stakeholders if the boycott does not succeed (and most don’t). Regardless, the question of the normative justness or wisdom of the boycott is beside the point—what about those stakeholder employees? They're not trying to live their politics; they want to work. What value do we place on their interests versus those of boycott advocates? In other words, how do we assess the boycott from a stakeholder perspective?

A few concerns I have with the SodaStream boycott from a stakeholder standpoint, moving from specific to general: 

  • The Palestinian SodaStream employees almost certainly share the same political aspirations as their community (e.g., statehood). Yet they're rejecting the boycott by working for SodaStream. Shouldn’t stakeholder-employees get a voice in whether they are forced to sacrifice their jobs in service of community goals?
  • What’s the boycott’s limiting principle? Should no foreign businesses be permitted to employ Palestinians in settlements? What about a non-profit? Why limit it to settlements? If SodaStream moved its operations a few miles up the street to Palestinian-governed territory, would the BDS movement call off the boycott?
  • SodaStream is headquartered in Israel. Does the boycott only apply to Israeli firms? If so, could SodaStream continue to operate in the West Bank if it sold itself to a foreign company? Stakeholder theory self-consciously promotes the observance of international law and fairness norms. Under what circumstances is per se discrimination on the basis of employer nationality okay?
  • More broadly, what is the limiting principle behind privileging somewhat amorphous community interests over the clear and important interests of a defined group of stakeholders, like employees? Aren’t the sum total of global interests affecting a firm (e.g., preventing climate change) always going to be more powerful than narrow stakeholder interests (e.g., jobs on oil rigs)?

One thing I find fascinating is how quickly questions about stakeholder priority (on which the literature is pretty sparse) verge towards politics and ideology. It’s almost enough to make you miss having profit maximization as the lodestar! Snarkiness aside, I don't think advocates of the stakeholder theory would dispute that “take stakeholder interests into account” is a fuzzy objective to begin with. But as the SodaStream controversy illustrates, this is not only because a stakeholder-centric view creates conflicts between shareholders and stakeholders. It also creates confusion about how to prioritize the legitimate concerns of stakeholders as against one another.

In sum, to paraphrase ScarJo, it's hard to find a principled way to rank the competing interests of stakeholders. That observation doesn't invalidate the stakeholder theory, of course. It just shines a light on some of its limitations as a principle of organization.

Photo: E!

Permalink | Business Organizations| Corporate Law| Employees| Environment| Social Responsibility | Comments (2) | TrackBack (0) | Bookmark

November 05, 2011
A Shout Out To Brazen And Tenured
Posted by Peter Huang

I am happy to recommend a new blog Brazen And Tenured - Law Politics Nature and Culture from two of my colleagues: Pierre Schlag, Byron White Professor of Constitutional Law, and Sarah Krakoff, Wolf-Nichol Fellow. Pierre's research interests include constitutional law, jurisprudence, legal philosophy, and tort law. Pierre wrote an essay, The Faculty Workshop, which examines how the institution of law school faculty workshops expresses, regulates, and reproduces legal academic behavior, governance, hierarchy, norms, and thought. Sarah's research interests include civil procedure; Indian law, and natural resources law. Sarah is working on a book about the different stages of humans' relationship to nature, which extends her book chapter, Parenting the Planet.



As Pierre described their blog, it's quite idiosyncratic as far as blogs are concerned. That having been said, Glom readers are likely to find their blog to be amusing, informative, and thought-provoking. Here are the two most recent examples.

Pierre's post entitled Tips for Legal Commentators: How to Talk to the Press is a delightful compendium of speaking points. It explains why the legal talking heads who come out of the woodwork to appear on television during any high-profile trial or other legal event always seem to say the same things with a high noise to signal ratio. My personal expeirence when speaking to print media financial journalists about securities fraud, materiality, derivatives, and Goldman Sachs is there is a very high probability (equal to one minus epsilon, where epsilon is a very small positive number) that I'll be misquoted to have said exactly the opposite of what I actually said! Pierre's advice for speaking to journalists has the virtue that it has the property of being subject matter and position invariant. In other words, no matter what legal topic and what viewpoint you have, Pierre's suggested sound bites will apply. Because they are universal and timeless, these quotes have the added virtue of making you sound profound and wise. Finally, these sample responses to media questions are brief, intuitive, memorable, and predictable. Once you deploy one, there is likely to be repeat demand for your expertise. On the other hand, if you do not enjoy being a talking head, then do the opposite of what Pierre recommends to ensure that reporters will not seek you out.

Sarah's post entitled The Economy versus the Environment? Not! (Or Why to Be Tigger Instead of Eeyore this Halloween) is a welcome reminder for both economists and environmentalists that being offered a choice between the economy and the environment is a false dichotomy that privileges a myopic time horizon and local opposed to global perspectives. Her post also nicely dovetails the small but growing literature applying empirical happiness research to support sustainable environmental policy. For example, Daniel A. Farber recently posted a working paper entitled Law, Sustainability, and the Pursuit of Happiness, which demonstrates that sustainability for society and the pursuit of individual happiness do not have to be at odds. 


Permalink | Blogs and Blawgs| Current Affairs| Economics| Environment| Law & Economics| Law & Society| Law Schools/Lawyering| Legal Theory| Popular Culture| Wisdom and Virtue | Comments (0) | TrackBack (0) | Bookmark

September 30, 2011
Assessing DC's Bag Tax
Posted by Lisa Fairfax

When it was enacted, I blogged about DC's bag tax law which went into effect in January of 2010 and charges customers five cents for each disposable bag they take at checkout.  After well over a year, several studies have emerged assessing the law's impact, with some conflicting results--perhaps reflecting the conflicts inherent in such a law.

On the one hand, at least one study suggests that the law is having a negative impact on DC's economy and jobs in the area.  According to the study, the law causes people to purchase fewer items and avoid shopping in DC, leading to a drop in sales and a corresponding drop in jobs.  The study also points out that the law has not generated the amount of revenue proponents projected, indicating that the revenue collected under the law will be at least $1 million less than expected.  To be sure, this revenue shortfall highlights a potential contradiction of the law--to the extent it successfully encourages reduction in bag use, one should expect a corresponding reduction in any revenues associated with that use.

Advocates of the law appear to insist that the law is a win-win for DC’s economy and environmental efforts.  First, such advocates question these negative studies not only because they fail to pinpoint any actual job loss, but also because they do not seem to account for other studies in which most business owners report that the law has either had no impact or a positive impact on their business.  Proponents also point out that business owners receive one cent out of the five cents collected under the law.  Second, advocates note that the law has led to significant reduction in bag use.  Hence, one study found that after the law's enactment, customers used 3.3 billion bags in one month, compared to an estimated 22.5 billion being used prior to the law taking effect.  Estimates of the overall reduction in bag use range from 50% to 80%.  And this reduction has an impact on bags found in the Anacostia River.  Hence, one cleanup agency reported a 50% drop in the number of bags found in the river, suggesting that the law is having its desired environmental impact of helping cleanup efforts at the river. 

Since the law's enactment I certainly have found myself using less disposable bags and more reusable bags.  There are also many times when I am buying a small number of items where I simply will not use a bag, and this is true both in DC and in places where there is no bag tax law.  So the law has changed my behavior and I was interested to know if it was having its desired impact--but perhaps that depends on your perspective about the desired impact the law was aimed at having.


Permalink | Current Affairs| Economic Development| Environment | Comments (0) | TrackBack (0) | Bookmark

June 02, 2010
The Financial Crisis and the BP Oil Spill: Risk, Externalities and Criminal Investigations
Posted by Christine Hurt

No corporate law professor (or follower of business generally) should be surprised that the Obama administration announced today that criminal charges may be brought against BP for the spill in the Gulf of Mexico and ensuing failure to remedy the situation.  This case can be analogized to many of the corporate law scandals in the past decade, specifically the financial meltdown of 2008 ncaused by the collapse of the subprime mortgage-backed securities market.

So, for years mortgage-backed securities were packaged and sold by various issuers to investors of all kinds.  Recently, much of the growth in this market has been in the subprime mortgage area, with even riskier mortgages being "sliced and diced" and packaged into investments supposedly safe for the investing public.  Perhaps most investors did not know how risky some of these investments were.  Perhaps they were misled by ratings given them by ratings agencies, information provided by the issuers, or just an overconfidence in the real estate market.  Or perhaps they just weren't paying attention because these investments have historically been quite profitable and safe.  To reduce exposure to risk, institutions and other investors hedged risk by buying insurance products, credit default swaps, that would pay if the mortgaged-backed securities failed.  And the number of firms that sold these swaps were few, and one large insurer, AIG, got stuck being obligated on many, many of these swaps.  And when the music stopped, a lot of financial institutions owned these declining securities, swaps sold by defunct insurers, and loser swaps they themselves had sold.  And so the credit markets dried up very quickly.  And the administration tried to make credit flow, but it was very difficult.  The administration created bailouts for individual institutions and the financial industry, but they were slow to work to clean up the mess made by a number of participants engaging in risky ventures that paralleled one another.  It's fine to take on risk for yourself or your shareholders, but these risks increased systemic risk, creating the externality of severly damaging the credit market, the real estate market, and the U.S. economy as a whole.  So, what do we do?  We see if any AIG executives maybe could be criminally liable; we investigation Goldman, Sachs for criminal activity, we pass new regulation trying to avoid such problems in the future of such large-scale risk taking.

So here's BP.  They explore, extract, produce, refine and sell a very popular product.  Oil allows us all to light and heat our homes and businesses, get to work every day, travel, distract ourselves with numerous electronic gadgets, cook and store our food, and fight and defend wars.  But oil exploration and extraction is risky.  At best, it's risky to the oil producer and its workers -- the costs of unsuccessful exploration, injuries to workers, costs of equipment and technology, etc.  However, at its worst, the externalities are huge, particularly with riskier types of exploration made feasible by high demand.  As we've seen with the Deepwater Horizon explosion, the economic and environmental impact of off-shore drilling can be immeasurable.  (As well as the loss of 11 lives, a fact which tends to be forgotten.) So, BP could have been negligent in two ways.  First, its well-capping procedure could have been a suboptimal choice -- choosing a less expensive procedure with foreseeably higher risks of failure.  Second, the company may be negligent in not having a great plan in place for remedying such failure.  And just as we all stood and watched the stock market decine in value in October 2007 and beyond, we all just stand and watch the oil spread without consensus or a clear idea of how to stop it.

Of course, there will be lawsuits against BP.  People are up in arms that recent curtailments of punitive damages will let BP go scot-free, but let's be realistic.  The compensatory damages, if BP is found to be negligent, will be astronomical.  If BP has any money after compensatory damages, even the smallest ratio of punitives-to-compensatories will inflict whatever punishment necessary.  BP has already spent $1 billion on unsuccessful cleanup and the meter is still on.  I would think that other oil companies are experiencing an deterrence value just by turning on the TV or picking up a newspaper right now. 

But that's not going to get the Obama administration off the hook as the frustrated look to the government to do something, anything.  Regulatory reform in the area of safety for future drilling seems pretty light-handed.  Civil fines and penalties may seem like a cost of doing business.  So, there will be a criminal investigation.

Permalink | Environment| Financial Crisis | Comments (0) | TrackBack (0) | Bookmark

May 10, 2010
BP's Image Problem
Posted by Tamara Piety

As oil continues to pour out of the BP managed rig in the Gulf of Mexico, the discussion in marketing circles is (of course) what this will mean for BP's image. See Advertising Age. About a decade ago BP launched an intensive effort to brand itself as the "responsible" and "green" oil company with its "Beyond Petroleum" campaign and a logo change to a green and yellow stylized sunburst. (This campaign apparently included some pretty weird, but entertaining, viral videos. See this  I say "apparently" because although the production values of the video are very high, it almost seems like a spoof with its inclusion of things like breast implants ["beyond pain, joy"] and a guy running out of toilet paper ["beyond fear, courage"]).

Some observers think the campaign was never anything more than greenwashing; that is, it was an attempt to manipulate public perception without any significant commitment to alternative energy exploration. For example see this criticism in 2000 and this in 2010.

But reading the article in Advertising Age, which dissects what PR observers appear to think is a less than stellar response to the accident on the part of BP, is instructive about what everyone in the business thinks is going on with these campaigns. A problem they say is that BP's campaign was so successful it underscored the disconnect between the campaign claims and the reality in the Gulf. (Ironically, BP was actually on the verge of winning an award for its safety record, an award the article implies, but does not say, may have been more attributable to the campaign than to the actual record.) This disconnect is a problem. But you'd think it is one that could have been avoided by making a commitment to these issues that was more than rhetorical. Too often though the commitment stops at the marketing.

On the blow out, management at BP has apparently been slow to control "the message" and has actually been doing things that might make a bad situation worse; like "offering $5,000 settlements to residents if they waived their rights to sue for any damages." As one PR pro put it:

"That's a profoundly disturbing message to have resonating as one of your first public messages ... When the public sees the company leading with a legal protection agenda trying to limit legal exposure, it's not a good thing. The next shoe to drop is usually the attorney general intervening to remind the company of its obligations. Perception-wise, this is out of control."

Uh, yeah.  Although perhaps it isn't just the perception. 

This is a perennial problem with PR - the temptation to believe that the response stops with managing the public perception and that changing the perception is the solution to any problem. That can work pretty well until reality collides with promotion. And then promotion may not help much. As the article notes:

"Of course, all the social media in the world won't do much if millions of gallons of oil wash ashore, crippling the fishing industry in Louisiana and Mississippi or destroying the white-sand beaches (and tourism trade) in Alabama and Florida."

It will be interesting to see if BP does manage to get its arms around a better PR strategy, in addition to actually fixing the problem.  But I'm betting it does the first before it does the second.

Permalink | Corporate Governance| Current Affairs| Environment| Marketing| Social Responsibility | Comments (0) | TrackBack (0) | Bookmark

December 06, 2009
Profits and the Environment 101
Posted by Gordon Smith

Jared Diamond:

There is a widespread view, particularly among environmentalists and liberals, that big businesses are environmentally destructive, greedy, evil and driven by short-term profits. I know — because I used to share that view.

What caused Diamond to change his mind? His experiences working with business people have taught him that environmental responsibility is good business. Diamond spends the first half of his editorial arguing that Wal-Mart, Coca-Cola, and Chevron -- and, by extension, other businesses -- have market incentives to be environmentally responsible (when being environmentally responsible leads to long-term profitability). I added the bit in the parentheses because Diamond seems to have missed that part of the lesson.

Diamond then asks: "In view of all those advantages that businesses gain from environmentally sustainable policies, why do such policies face resistance from some businesses and many politicians?" The problem, of course, is that no one opposes private initiatives that serve both the bottom line and the planet, like those Diamond describes from Wal-Mart, Coca-Cola, and Chevron. So this is a silly question.

Problems arise only when serving the environment reduces profits. The point is not that "measures promoting environmental sustainability inevitably yield a net economic cost rather than a profit," rather that such measures sometimes yield a net economic cost. Figuring out when that happens is the hard part, but he is right that businesses have an incentive to do that calculation well.

Permalink | Environment | Comments (0) | TrackBack (0) | Bookmark

September 22, 2009
Greenhouse Gas Regulation Through The Nuisance Suit
Posted by David Zaring

In what could be a big, big case, the 2d Circuit just permitted a federal common law nuisance suit to go forward against power companies that contribute to greenhouse gas emissions.  As you might imagine, the interplay between this and Massachusetts v. EPA, the Supreme Court's greenhouse gas case, is quite complicated.  UDPATE: Here's Jonathan Adler on the case, treading much of the same ground ... only a day earlier.  But some observations:

  • Standing here would presumably extend to every property owner in the country ... and possibly the world.  Standing isn't supposed to permit generalized grievances to be pursued in court, and so I see that as a problem if Supreme Court review is sought...but many of the plaintiffs here are states, who get that specialized standing as a result of Massachusetts v. EPA (it's a bit more controversial with the trust plaintiffs who, at least in my view, look a like like other private property owners).
  • Is the injury redressable?  The Second Circuit thinks that this argument has been resolved: "Defendants’ assertions echo their arguments for nonjusticiability under the political question doctrine: because global warming is a world-wide problem, federal courts are not the proper venue for this action, nor could the courts redress the injuries about which Plaintiffs complain because global warming will continue despite any reduction in Defendants’ emissions. Massachusetts disposed of this argument. The Court recognized that regulation of motor vehicle emissions would not “by itself reverse global warming,” but that it was sufficient for the redressability inquiry to show that the requested remedy would “slow or reduce it.”
  • The case was argued in 2006.  Sonja Sotomayor presided.  Interesting, no, that somehow a decision wasn't rendered until her confirmation over three years later?  On the other hand, the opinion, which is over 100 pages long, must have taken quite a while to write.
  • 3 GOP appointees on the unanimous panel, in what is undoubtedly some creative litigation spearheaded by environmental activists (viz, the NRDC), though pursued both by them and by states.
  • In theory, people like Richard Epstein should be overjoyed at this use of a common law cause of action to achieve a regulatory end.  Bet he won't be, though.  Which shows that it's a bit silly to argue that regulation is bad, and common law is good (or vice versa) without knowing the ends to which the two governance techniques is being put.

After the jump, the court's quick and dirty summary of the opinion.  I can't imagine the Supreme Court won't be looking at this very closely - the implications are vast.

From the opinion summary:

In 2004, two groups of Plaintiffs, one consisting of eight States and New York City, and the other consisting of three land trusts (collectively “Plaintiffs”), separately sued the same six electric power corporations that own and operate fossil-fuel-fired power plants in twenty states (collectively “Defendants”), seeking abatement of Defendants’ ongoing contributions to the public nuisance of global warming. Plaintiffs claim that global warming, to which Defendants contribute as the “five largest emitters of carbon dioxide in the United States and . . . among the largest in the world,” Connecticut v. Am. Elec. Power Co., 406 F. Supp. 2d 265, 268 (S.D.N.Y. 2005), by emitting 650 million tons per year of carbon dioxide, is causing and will continue to cause serious harms affecting human health and natural resources. They explain that carbon dioxide acts as a greenhouse gas that traps heat in the earth’s atmosphere, and that as a result of this trapped heat, the earth’s temperature has risen over the years and will continue to rise in the future. Pointing to a “clear scientific consensus” that global warming has already begun to alter the natural world, Plaintiffs predict that it “will accelerate over the coming decades unless action is taken to reduce emissions of carbon dioxide.”

Plaintiffs brought these actions under the federal common law of nuisance or, in the alternative, state  nuisance law, to force Defendants to cap and then reduce their carbon dioxide emissions. Defendants moved to dismiss on a number of grounds. The district court held that Plaintiffs’ claims presented a non-justiciable political question and dismissed the complaints. See id.

On appeal, Plaintiffs argue that the political question doctrine does not bar adjudication of their claims; that they have standing to assert their claims; that they have properly stated claims under the federal common law of nuisance; and that their claims are not displaced by federal statutes. Defendants respond that the district court’s judgment should be upheld, either because the complaints present non-justiciable political questions or on a number of alternate grounds: lack of standing; failure to state a claim; and displacement of federal common law. In addition, Defendant Tennessee Valley Authority (“TVA”) asserts that the complaints should be dismissed against it on the basis of the discretionary function exception.

We hold that the district court erred in dismissing the complaints on political question grounds; that all of Plaintiffs have standing; that the federal common law of nuisance governs their claims; that Plaintiffs have stated claims under the federal common law of nuisance; that their claims are not displaced; and that TVA’s alternate grounds for dismissal are without merit.

We therefore vacate the judgment of the district court and remand for further proceedings.

Permalink | Environment | Comments (0) | TrackBack (1) | Bookmark

July 01, 2009
Cash for Clunkers: Who Benefits?
Posted by Christine Hurt

So last Saturday, I'm on an early flight home from our Outer Banks vacation, trying to read the NYT while hoping that the baby would fall asleep in his car seat (no such luck).  But, I see an article on "Cash for Clunkers."  This seems like the government is giving away coupons on new cars.  I'm not above clipping coupons, so I read on.  The program is officially titled the Car Allowance Rebate System (CARS, get it?).  If you trade in a qualifying car to buy a qualifying car, then you get a rebate of up to $4500.  Sounds pretty sweet.  The whole point is for people to trade in gas guzzlers and buy cars with better gas mileage.  I'm for gas mileage, and $4500 coupons.  This could be a match made in heaven.  But, no.

So, the first thing is that your trade-in will be scrapped, so the most you can "trade in" your car for is $4500 plus the scrap price, which I'll assume is pretty low here.  WikiAnswers told me $250/ton, so we'll say $500.  So, if you trade in a $10,000 car, you won't get to apply $14,500 toward a new car, you'll just get to apply $5000.  Logically, no one will take advantage of the program if the trade in value of their car is less than $4000 or so. 

OK, $5000 still covers a lot of cars on the road, so I'm still interested.  But, the trade-in has to qualify.  It can't be more than 25 years old (still a lot of cars on the road) and must have a combined new mpg of 18 or less. This website tells you what the combined (city/highway) mpg of your car is.  The car we would want to trade in is a Honda Pilot, which we bought in the summer of 2002.  However, because car things are silly, my husband tells me that our Pilot is a 2003 model.  Woo-hoo!  The 2003 Pilot's combined mpg is 17! 

So, we have an eligible trade, and now we just have to buy an eligible car.  An eligible car just has to be a new car (not pre-owned) and have a combined mpg of 22.  Wow, that's pretty low.  I thought it would be at least 30.  Well, I can't imagine that any car we would look at wouldn't qualify under that mpg.

As I'm looking this up, Paul is reminding me that we don't want to trade in the Pilot and that it is worth more than $5000.  But, I argue, in two years, this coupon will be gone, gone, gone, so we should think about taking advantage of it.  However, I look up the Bluebook value of our car, and Paul is right.  Even with the heavy wear that three kids have caused, I can't imagine this makes any sense at all for us.

So, who theoretically does it make sense for?  People with old cars worth a few thousand dollars or less on a trade in who were going to buy a new car anyway.  The NYT article didn't seem to find many car dealers who were optimistic.  Besides the occasional person who keeps cars for 10-15 years (like us and the guy in the article), most people who are driving around in $1000 cars can't afford a brand new car, they say. 

This of course leaves open the question of whether the program makes any sense at all.  Presumably, the thought is to get cleaner, more fuel efficient cars on the road, giving a boost to auto manufacturers in the process.  But the minimum mpg's are not all that great.  Even if a lot of people took advantage of the program, it might just succeed in replacing cars with only marginally more efficient cars.  I'm also not sure if it would save drivers that much money.  I remember in Texas, the government would host these "tax holiday" weekends with no sales tax.  On those days, though, retailers ran no sales.  Why run your normal 20% back-to-school sale if the government is going to subsidize a 9% sale?  The weekend after had more bargains.  Likewise, is a dealer going to negotiate off the sticker price very much when the government is giving you a rebate anyway?

Finally, although I'm assuming that the primary goals are upgrading cars on the road and increasing demand for new cars, the program distinguishes between "owners" and "speculators."  To qualify, the car must have been registered to you for a year.  So, you can't raid Craigslist and then use your "$2000 or best offer" find to upgrade to a Prius, even if the effect meets the program's primary goals.  This distinction seems silly to me, unless it's just a way to limit the number of users of the program.  The goal can't be to get people without drivable cars into a drivable car (a qualifying car must be drivable) or really even to get people into cars that are cheaper to drive (the difference in the qualifying mpg's is so small).

Permalink | Environment | Comments (6) | TrackBack (0) | Bookmark

July 19, 2008
Posted by Gordon Smith

If you don't recognize those initials, I assume you don't pay much attention to venture capital investing. Kleiner, Perkins, Caufield, and Byers is featured in the most recent issue of Fortune in a story by Adam Lashinsky because of its investments in "Greentech" and its move away from Internet companies. The story -- entitled "Kleiner bets the farm" -- is getting a lot of play on the tech blogs because of this paragraph:

Several Valley investors who monitor startups tell me they don't bother sending Web-oriented entrepreneurs to pitch Kleiner anymore; they say the firm just doesn't seem interested. As if to prove the point, not one Kleiner partner attends the 600-person [AllThingsD].

But the main thrust of the story is that KPCB is putting all of its eggs in the Greentech basket. This comes from an unidentified KPCB investor: "I hope to God they're right.... But if they're wrong it'll be the end of Kleiner Perkins."

So how risky is this move by KPCB? For a more balanced perspective on what KPCB is doing, you might want to watch KPCB partner Beth Seidenberg's presentation in the Entrepreneurial Thought Leader series at Stanford. Particularly this segment, where she explains KPCB's investment mix. About one-third of 2007 investments went to Greentech. The firm is also plowing a bunch of money into mobile technologies, which Lashinsky mentions, but the significance of this move is overwhelmed in the article by the emphasis on green. The bottom line is that KPCB isn't much interested in Web 2.0, and so far, the firm looks amazingly insightful on this point.

As for the riskiness of Greentech as a sector, does anyone really believe that this is a potential loser? Especially when KPCB has it's own in-house hype generator in Al Gore. People are ready for clean tech and KPCB is sitting pretty.

Permalink | Environment| Venture Capital | Comments (0) | TrackBack (0) | Bookmark

July 15, 2008
Recycling Office Paper
Posted by Gordon Smith

This made me laugh:

I often work odd hours and so have become familiar with the custodians everywhere I’ve been (more familiar, sad to say, than with many of my colleagues).  But I haven’t (yet!) been employed by enough schools that I would have any standing for sweeping generalisations.  Somewhere, right, there must be college custodians who don’t just put the recycling in with all the rest of the rubbish?  Even when you are not watching them?

(I’ve never complained to the custodians, their superiors, or anyone else about this.  I’ve a strict rule against doing anything to anger alienated labor when it has unrestricted access to my things.)

Several years ago, I sent an email to the faculty listserv at Wisconsin asking whether others separated their trash when the custodians just combined it. (We talked about such things on the listserv at Wisconsin. We don't have those conversation via email at BYU.)

The first response to my email was from a clinical professor, who accused me on the list of being a racist. Without replaying the whole event, suffice it to say that he was reading a lot into my email that no one else on the faculty seemed to see ... at least judging by the flood of sympathetic messages and office visits throughout the day.

Though my accuser never apologized directly, he subsequently engaged me in a friendly conversation that seemed intended to convey remorse. Unfortunately, I am not a big enough person to have forgotten the initial accusation. But I can laugh about it. Maybe that's worth something.

Anyway, what I am curious to know is whether office paper recycling is effective. One of my sympathetic colleagues claimed that the paper would be re-sorted at some later stage in the process, but that seemed unlikely to me. I found lots of articles on the internet extolling the benefits of office paper recycling, but what happens to all of that combined paper?

Permalink | Environment | Comments (3) | TrackBack (0) | Bookmark

July 02, 2008
Car Talk
Posted by Fred Tung

A couple of car-related items:

First, about hybrid cars . . . . 

Christine and Gordon's recent hybrid car postings (Highlander for Christine; Prius for Gordon) got me thinking. You see, my family lives in a Prius-rich environment.  Literally about a third of our friends have at least one Prius in the family, and one family has two--and they are Prius proselytizers as well.  We, on other hand, drive a couple of relatively old, relatively guzzly cars.  The efficient one is a 12-year-old Volvo, which gets about 15 mpg in city driving.  The other is a 10-year-old Lexus SUV (the big one), which gets about 10 mpg (with a tailwind).  When I get self-conscious about our old guzzlers, my defense mechanisms cause me to speculate about whether buying a new hybrid is as green as generally believed.  Specifically, the manufacture of a new car--even a really fuel-efficient one--must leave a pretty big carbon footprint, right?  All that steel and shipping!  Is it possible we'd be better off just keeping our old cars forever and repairing them as needed, as they do in Cuba?   

Turns out, building a new Prius requires 113 million BTUs of energy.  So compared to an existing car, in carbon footprint terms, a new Prius has already consumed 1,000 gallons of gasoline before it rolls off the showroom floor!  Instead of a new Prius, buy:

i. a 1998 Toyota Tercel, which gets about 35 mpg.  You'd have to drive the Prius 100,000 miles before you broke even with the old Tercel.


ii. a 1994 Geo Metro XFi, which gets the same 46 mpg as the new Prius, but without the carbon overhead.  In terms of carbon footprint, the Prius will never catch up.

Of course, odds are that you won't be getting that new-car smell.  As one analyst concludes, "You might feel better driving a hybrid, but you won't necessarily be greener."

Second, about road rage. . . .

Did you hear that bumper stickers cause road rageThis study's been out for a few weeks now, and actually that's not what it said.  Apparently, bumper stickers signal the driver's territoriality.  Bumper stickers personalize the car, marking the driver's territory.  These drivers are quicker to perceive a threat to their territory by the actions of other drivers, and they are correspondingly more lively at defending against these perceived incursions.  And this is independent of any substantive message on the bumper sticker:

It does not seem to matter whether the messages on the stickers are about peace and love -- "Visualize World Peace," "My Kid Is an Honor Student" -- or angry and in your face -- "Don't Mess With Texas," "My Kid Beat Up Your Honor Student."

So watch out for those bumper stickers!

Permalink | Environment| Miscellany | Comments (7) | TrackBack (0) | Bookmark

May 13, 2008
Posted by Gordon Smith

You may remember that my oldest daughter is in BYU's Animation Program. Each year students in the program complete an animated film, and I was just looking over some of their past work. The film Lemmings caught my eye. Here is a clip:

You know, of course, that lemmings don't really commit suicide. According to the Wikipedia entry on Lemming, the suicide myth has been around for a very long time, and remains a powerful image in popular culture. The clip below is from a 1964 Disney film entitled White Wilderness that purports to show the very act of lemmings jumping from a cliff.

This has been called "Disney's Snuff Film," but Wikipedia makes the point somewhat more delicately: "An investigation in 1983 by the Canadian Broadcasting Corporation's Brian Vallee, showed that the Disney film makers faked the entire sequence using imported lemmings (bought from Inuit children), a snow covered turntable on which a few dozen lemmings were forced to run, and literally throwing lemmings into the sea to show the alleged suicides."

The other famous lemmings image that pops to mind is Apple's 1985 advertisement:

All of this ickiness associated with lemmings ... I'm not sure that I will ever be able to use that metaphor again.

Permalink | Environment | Comments (1) | TrackBack (0) | Bookmark

March 29, 2008
Earth Hour
Posted by Gordon Smith

What are you doing during Earth Hour?

I'm blogging in the dark.

Permalink | Environment | Comments (6) | TrackBack (0) | Bookmark

Recent Comments
Popular Threads
Search The Glom
The Glom on Twitter
Archives by Topic
Archives by Date
January 2019
Sun Mon Tue Wed Thu Fri Sat
    1 2 3 4 5
6 7 8 9 10 11 12
13 14 15 16 17 18 19
20 21 22 23 24 25 26
27 28 29 30 31    
Miscellaneous Links