November 24, 2015
icon Upcoming Conglomerate Book Club: How the Other Half Banks
Posted by Usha Rodrigues

Thanksgiving is my favorite holiday.  We have been making the same recipe for about 15 years, and it's simply dreamy (Cooks Illustrated: high-roasted, brined and butterflied bird, set atop a broiler pan set atop a pan of dressing that is basted in drippings as the turkey roasts.  Yum). 

For many of us this week will be filled with food, family, and friends....What could be better?  Well, if you're an introvert or your family has less-than-functional moments, if all of that togetherness starts to feel a little claustrophobic, why not retire to a quiet room with a book?  We Glommers will be reading my friend and colleague Mehrsa Baradaran's How the Other Half Banks , which has been favorably reviewed by the NYT, FT, and many others. Starting on 12/1 we'll host a book club on How the Other Half Banks. We hope you can join us next week!

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November 20, 2015
icon Family Film Blogging: Hunger Games: Mockingjay Part 2
Posted by Christine Hurt

It's over.  The Hunger Games "trilogy" movies are over.  The book/movie combination that spawned an outbreak of dystopian futures in which teenagers must topple totalitarian regimes has run its course.  I for one, am glad.  And sleepy (my 14 year-old and I went to the 10:15 showing of Mockingjay Part 2).

The best thing about the Hunger Games movies, of course, has been Jennifer Lawrence as Katniss Everdeen.  The NYT has a review of the movie that is basically an ode to both Katniss and the actress who portrays her.  The review seems to argue that Katniss is a revolutionary type of female on-screen character; she leads the action, keeps her love interests in the background, resists stereotype, etc.  But really the difference is Jennifer Lawrence, who seems to have a magical and unique ability to have a serious movie career in grown-up movies and be the teenage star of this YA action franchise.  (Imagine Meryl Streep being cast as Princess Leia and pulling off that franchise and the rest of her acting career.)  Because of Lawrence, Katniss seems a much more interesting character than her shadows (Tris of the Divergent franchise, e.g.).

This movie is the end of the Katniss story.  As some (including me) have criticized the story as being, at its core, the same as Twilight, the ultimate question of "which cute boy will I marry" is answered.  But the movie really marks the moment of Katniss' political epiphany.  We usually see only what Katniss sees, and interpret events as she does.  Though she is savvy, she is also being manipulated.  She always saw that the Capitol and President Snow were using citizens as pawns in both the actual "games" and in the larger political game, but in the final installment she sees the two sides of President Coin (get it?).  Now she realizes that Coin is just the flip side of Snow, using her own "gamemaker" to position her own pawns, including her biggest one, Katniss.  The climactic moment of the movie is the best part of the third book, and the screen version does not disappoint.  

However, the written path Suzanne Collins took between Katniss exiting the arena at the end of Catching Fire and Katniss' final arrow in the victor's arena was muddled.  Writing the tale of Katniss and the games seems to have been a lot more fun and familiar for the author than writing about the rebellion.  The two movies that follow the arc of the third book had the challenge of trying to fill in the bare cat-and-mouse military exploits that follow Katniss' joining the rebellion and the end of that rebellion.  Every other chapter in the third book opens with Katniss waking up, not knowing where she is, following a bombing, a shooting, an attack, etc.  Mockingjay Part 2 gets to focus on just two fighting episodes, though the second is the longest and final one.  Still, the ratio of Katniss' silence and brooding looks to action seems not to be optimal.  The result is a bit like space travel:  90% boredom and 10% sheer terror.

All in all, I enjoyed sharing this (admittedly violent) book series with my middle child, and humbly brag that we did go to see three of the four movies on the Thursday night pre-premieres.  It's not Marvel, but it gave us some good November nights.

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November 18, 2015
icon Remember Airgas? Now, It's For Sale.
Posted by Christine Hurt

This is the end of the semester, and time in my Business Organizations syllabus to take about takeover defenses.  And, the latest word on poison pills in the Smith & Williams textbook is Air Products and Chemicals, Inc. v. Airgas, Inc.  If you recall, in this case the board of Airgas refused to redeem its poison pill in the face of a tender offer from APC that was open for sixteen months, ending with a "best and final" offer of $70/share, all cash.  (The share price at the time of the first offer was in the $42 range.)  The Delaware Court of Chancery upheld the board's decision not to redeem the pill where the board (three members of whom were selected by APC) believed that $78 per share was the minimum price.

Today, Air Liquide and Airgas agreed to have AL purchase the company for $143/share (combination of cash (I think) and debt).  This price represents a very large premium, and the market reacted to that premium.  I'm not a big fan of the "just say no" stance of the Airgas board, but maybe they did have a long-term strategy that deserved a chance to play out.  Following the February 2011 decision, the share price has usually been higher than $78, and now shareholders will receive a large premium, though not all-cash and five years later.


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November 17, 2015
icon The SEC Goes After Congress
Posted by David Zaring

The  conflict between the SEC and Congress over its investigation of a tip from a committee staffer on Medicaid reimbursement regulations has resulted in an opinion requiring the House and the staffer to respond to an agency subpoena.  Matt Levine has the opinion and a review of it (meh, he says), here.  Here's a wrap.

I'm not sure I agree with the opinion.  On the one hand, Congress could not have more clearly waived sovereign immunity for insider trading in the STOCK Act, which applied that doctrine explicitly to itself.  On the other hand, the Speech and Debate Clause is meant to prevent the executive branch (for which read the SEC, although it less in the sway of the executive than is, say, the Department of Justice) from intimidating the legislative one when it is legislating, and there's lots of good precedent applying the protections enjoyed by members of Congress to their staffers, and applying them to investigations as well as prosecutions.  The tip in question in this case went from a staffer to a lobbyist, and I can't think of a more legislative thing to do than to have those conversations - indeed, the court acknowledges that Congress was legislating at the time.

It could be that there is no good reason to protect insider tipping by staffers, but that's not clear to me, at least under the facts of this case.  Staffers are going to want to talk to lobbyists about how to get things done, and that could easily involve discussions about what Congress is likely to do next, and that could easily be seen as market moving information.  It would make it hard to legislate if staffers had to worry about these conversations.

So maybe Congress is standing up for its staffers as a true matter of principle.  I don't quite follow the political economy here, though.  If Congress is upset about this, I'm surprised the agency is willing to take it to litigation, but maybe they take the STOCK Act especially seriously over there.

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November 16, 2015
icon Family Film Blogging: Suffragette
Posted by Christine Hurt

So, I took my 16 year-old daughter and her friend to see Suffragette on Friday in Salt Lake City.  She had been studying women's suffrage in the U.S. recently, so I thought she would enjoy it or at least not roll her eyes too much.  We had lots to talk about on the way home, then she and her friend continued discussing the movie over late-night snacks, so I take that as a win.

Suffragette focuses on a fictional "rank-and-file" soldier, Maud, in the fight for women's right to vote in Britain in 1912.   Maud seems very happy at the beginning of the film, creating a peaceful and loving life for herself, her husband and her son, George, even though she and George have low-paying jobs at the laundry.  A new employee, Violet, begins agitating for women's right to vote outside the laundry, and Maud becomes attracted to the work, eventually testifying at parliament about her life at the laundry.  Then we learn that Maud's life may not be as idyllic as it seems:  she has worked at the laundry since she was 7 and has probably been abused and harassed off and on since that time by her boss, Mr. Taylor.  Her mother died at the laundry from unsafe working conditions, and a shot of Maud's mottled shoulder suggests that she may have been involved in the accident that killed her mother.

Maud's home life begins to fall apart when Maud's activities escalate and Maud is arrested and even jailed for several days.  Maud's loving husband seems more than rattled at her "shame" and warns Maud to give up her activities, which she does not.  One more escapade causes Maud's husband to lock her out of the house, separating her from George and forcing her into homelessness.  (Strangely, fortunately, sadly??) this only hardens Maud's resolve to fight for women's right to vote.  A link is suggested between the law giving the husband rights over children to Maud's recognition that a female voting constituency could change such unjust laws.  In addition, the right to vote might increase working women's wages and rights to healthy and safe working conditions.  So, Maud now has nothing to lose and is a fearsome fighter for the right to vote.

The (nonfictional) leaders of the suffragette movement take Maud in (though not in their homes) and together their activities escalate in violence and in effect.  There is prison and a force-feeding episode.  The movie ends on a dramatic, historical moment in the suffrage movement, more than a decade before the right to vote was won.

There are lots of great things to talk about in the movie, though the movie doesn't provide any great answers.  The suffrage movement became very violent, destroying property (including a residence) in the name of the movement.  (One historical character, Edith Ellyn, promotes "deeds, not words.")  Whether the movement required violence is not debated much in the movie.  The voice against the violence is not particularly trustworthy -- the Inspector in charge of surveillance and investigation of the women.  The Inspector only briefly mentions to Maud that (1) someone was nearly killed in the home-burning plot and (2) that Maud was targeted and recruited by the middle-class suffragettes (such as Meryl Streep, briefly, as Emmaline Pankhurst) in textbook ways to join their ranks.  Is this a noble movement that must resort to property crimes to be heard or is it a dangerous permutation that uses noble goals to recruit and radicalize ordinary women to make horrible sacrifices?  Maud briefly argues to the Inspector that violence is required to get the attention of the public, and the debate is over.

What seemed to be rushed in the movie was Maud's transformation from happy married working mom who defends her boss to other workers to a woman who is willing to give up her family, job and (most importantly) her beloved son to join the militant suffragette movement.  This happens very quickly and with little explanation.  Her traumas at the laundry seem to be old scars (she has been a forewoman for four years and her handsy boss has moved on to others), and no new tragedy sparks her to action.  (One possible explanation is that she notices her boss has moved on to the 12 year-old daughter of Violet, and perhaps she wants to stop the cycle of work harassment.)  One would think that the new event or new information would have to be quite compelling for her to endure being separated from her son.  Perhaps this is why I wouldn't make a good protester or martyr -- I'm pretty set on preserving my way of life and my children, but I think some explanation would help.  Reviews seem to focus on her reaction when Parliament refused to enact a voting bill after hearing her testimony with a sympathetic ear, but that seems strained.  Other reviews paint her homelife as bleak and impoverished (hinting that she had little to stay for), but her home scenes seemed blissful in the beginning to me.  (Matthew McConaughey had a harder time leaving his daughter to go be the only person who can save the Earth than Maud has her leaving her son to go fight with scores of others for the right to vote.)  Maud also accepts the escalating violence more readily than hardened veterans of the movement, and it's hard to understand why.  Though a composite character and a literary construct to help us understand the interior of the movement, she needs a little more time to evolve.

From a legal standpoint, there are also lots of interesting issues to discuss, including surveillance, the right to assemble, the right to petition, the right to hold meetings, etc.  The differences between being a disenfranchised group and being a constituency.  The difference between agitating for a cause when you have a wealthy or middle-class family or spouse and when you do not.  Bail.

All in all, a good teachable moment for a night out with the older kids!

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icon Barnett on administrative judges
Posted by Usha Rodrigues

My esteemed colleague Kent Barnett has an op-ed in today's WSJ regarding the problematic use of in-house administrative judges.  Kent has shared some of his insights before, when a district court judge enjoined an SEC enforcement action because the presiding administrative law judge (ALJ)' s appointment violated the Constitution.  Administrative judges (AJs) outnumber ALJs and are far less independent of the federal agencies that employ them.  Here's Kent in the WSJ:

The Securities and Exchange Commission has recently come under fire for pressuring its in-house administrative-law judges to rule in its favor during agency enforcement proceedings. These are serious charges because ALJs are guaranteed independence by statute. More troubling, but largely overlooked, are the judges in federal regulatory proceedings who lack statutory independence.

They have many titles, including hearing officer, appeals officer or immigration judge. But they are often collectively referred to as administrative judges. More than 3,000 AJs—approximately double the number of administrative-law judges—work in numerous federal agencies, including the IRS and the Equal Employment Opportunity Commission.

Administrative judges preside over trial-like hearings that award or deny benefits or licenses, assess penalties for regulatory or statutory violations, or resolve private disputes. Agencies often appear in proceedings opposite the parties they regulate.

Significant statutory safeguards exist for administrative-law judges. Federal regulatory agencies appointing one must choose from three candidates whom another independent agency, after administering an exam, has deemed the most qualified. ALJs cannot receive bonuses or performance reviews from agencies. They cannot report to enforcement officials and generally cannot speak to agency officials about a case without the other party present. Agencies can discipline or remove them only if another independent agency determines that “good cause” exists for doing so.

Administrative judges are an entirely different matter. Federal agencies can appoint their own AJs directly and reward them with bonuses after agency-led performance reviews. Agency officials can discuss matters in dispute privately with them. Nearly all AJs lack statutory protection against arbitrary discipline or removal.

Go read the rest to find out what Kent recommends.  Or read this for even more of the story.

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icon A Tiny Part Of The Conflict Minerals Rule Is Unconstitutional
Posted by David Zaring

With this terse order by the D.C. Circuit, it is official, the SEC's conflict minerals rule is unconstitutional ... but only to the extent that it requires public issuers who did make use of conflict minerals to state on their disclosures that their products have “not been found to be ‘DRC conflict free.’” 

The idea is that this was forcing firms to declare that they had blood on their hands, and I find it all pretty unconvincing.  The SEC can require firms to make disclosures in particular ways, it can require firms to make climate change disclosures, and it can tell them to identify, say, risk factors of participating in a securities offering that make the issuer look bad.  This is all forced speech, and a disclosure based agency couldn't function if it couldn't require disclosures, including uncomfortable disclosures, permitting an inference that the issuer is incompetent, naive, whatever, and that the speaker would rather not say.  

There may be a line that can be drawn - the SEC can require firms to say uncomfortable things, but it can't require them to say an exact set of words that make them look bad.  I guess that would be a rule, but it wouldn't be much of a rule.

For example, consider the conflict minerals rule itself, which is both unconstitutional and very much in effect.  Although companies do not have to attest that the products they make are not DRC-conflict free, they do have to do everything else: investigate their supply chains, describe their investigation, and report on the results of that investigation, including whether it revealed that they make products involving conflict minerals.

Anyway, Congress hasn't lost its taste for conflict minerals, and bills have been introduced in the House and Senate to add to the SEC's policing in this area.  That's something that will not overjoy those in the agency who never thought of it as the tip of the spear in the spreading of human rights values.

There's a nice wrap over at Jim Hamilton's, and I've written about conflict minerals, as has Jeff Schwartz.

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November 13, 2015
icon SSRN Top Downloads For Corporate, Securities & Finance Law eJournals
Posted by David Zaring
1 869 The Evolution of Fintech: A New Post-Crisis Paradigm? 
Douglas W. ArnerJanos Nathan Barberis and Ross P. Buckley 
University of Hong Kong - Faculty of Law, The University of Hong Kong - Faculty of Law and University of New South Wales (UNSW) - Faculty of Law 
Date posted to database: 20 Oct 2015 
Last Revised: 20 Oct 2015
2 551 Seven Myths of Boards of Directors 
David F. Larcker and Brian Tayan 
Stanford University - Graduate School of Business and Stanford University - Graduate School of Business 
Date posted to database: 6 Oct 2015 
Last Revised: 6 Oct 2015
3 509 A Founder's Guide to Unicorn Creation: How Liquidation Preferences in M&A Transactions Affect Start-Up Valuation 
Robert P. Bartlett 
University of California, Berkeley - School of Law 
Date posted to database: 23 Sep 2015 
Last Revised: 24 Sep 2015
4 305 Berkshire versus KKR: Intermediary Influence and Competition 
Lawrence A. Cunningham 
George Washington University 
Date posted to database: 6 Oct 2015 
Last Revised: 7 Oct 2015
5 291 The New Firm: Staying Relevant, Unique & Competitive 
Mark Fenwick and Erik P. M. Vermeulen 
Kyushu University and Tilburg University - Department of Business Law 
Date posted to database: 14 Sep 2015 
Last Revised: 14 Sep 2015
6 280 Regulation of Digital Financial Services in China: Last Mover or First Mover? 
Weihuan ZhouDouglas W. Arner and Ross P. Buckley 
University of New South Wales, University of Hong Kong - Faculty of Law and University of New South Wales (UNSW) - Faculty of Law 
Date posted to database: 14 Sep 2015 
Last Revised: 23 Oct 2015
7 252 Digital Currencies: Principles, Trends, Opportunities, and Risks 
Paolo Tasca 
Deutsche Bundesbank 
Date posted to database: 12 Sep 2015 
Last Revised: 6 Oct 2015
8 207 Banker Loyalty in Mergers and Acquisitions 
Andrew F. Tuch 
Washington University in Saint Louis - School of Law 
Date posted to database: 23 Sep 2015 
Last Revised: 7 Oct 2015
9 205 Corporate Power Ratchet: The Courts' Role in Eroding 'We the People's' Ability to Constrain Our Corporate Creations 
Leo E. Strine 
Government of the State of Delaware - Supreme Court of Delaware 
Date posted to database: 27 Oct 2015 
Last Revised: 1 Nov 2015
10 203 Too Big to Tax? Vanguard and the Arm’s Length Standard 
Reuven S. Avi-Yonah 
University of Michigan Law School 
Date posted to database: 29 Sep 2015 
Last Revised: 6 Oct 2015

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November 10, 2015
icon Call for Papers in International Economic Law
Posted by David Zaring

Not of interest to all of our readers, but I'm hosting a works in progress workshop at Wharton at the end of January.  If you've got something on international economic law, I hope you'll consider submitting it.

The ASIL International Economic Law Interest Group will hold a works-in-progress workshop on Friday, January 29, in Philadelphia, at the Wharton School.  If you are interested in presenting a paper at the workshop, please submit an abstract by the end of the day on November 31st, 2015 to  Please place “IECLIG Works in Progress submission”

in the subject line of your submission. Abstracts can range from a paragraph in length to a page, and should include the author's name and institutional affiliation. Papers should relate to the study of international economic law, broadly construed, be it related to private ordering, trade, investment, finance, or any of the other subjects that constrain the way that business is done across borders. The workshop is designed to offer a resource for those who cannot attend our December Heidelberg workshop done in conjunction with ESIL, to help scholars prepare for the February publication cycle, and to continue to broaden and deepen the interest group's intellectual community. 

Papers selected for presentation will need to be submitted on January 15th; they will be circulated to the attendees of the workshop.  Attendees will accordingly be able to comment on all of the papers during the workshop, and may also be given responsibility to lead the discussion of one of them in particular.  One need not present a paper or comment on a paper to participate.  As is the norm for workshops sponsored by ASIL interest groups, participants will need to cover their own travel expenses.  Please do not hesitate to contact us should you have any questions about the workshop or paper submissions.


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icon National Business Law Scholars Conference Call for Papers
Posted by Usha Rodrigues

The National Business Law Scholars Conference (NBLSC) will be held on Thursday and Friday, June 23-24, 2016, at The University of Chicago Law School. 

This is the seventh annual meeting of the NBLSC, a conference that annually draws legal scholars from across the United States and around the world.  We welcome all scholarly submissions relating to business law.  Junior scholars and those considering entering the legal academy are especially encouraged to participate. 

To submit a presentation, email Professor Eric C. Chaffee at with an abstract or paper by February 19, 2016.  Please title the email “NBLSC Submission – {Your Name}.”  If you would like to attend, but not present, email Professor Chaffee with an email entitled “NBLSC Attendance.”  Please specify in your email whether you are willing to serve as a moderator.  We will respond to submissions with notifications of acceptance shortly after the deadline.  We anticipate the conference schedule will be circulated in May. 

Keynote Speakers:

Professor Steven L. Schwarcz, Stanley A. Star Professor of Law & Business, Duke Law School

Chief Judge Diane P. Wood, The United States Court of Appeals for the Seventh Circuit

Conference Organizers:

Tony Casey (The University of Chicago Law School)
Eric C. Chaffee (The University of Toledo College of Law)
Steven Davidoff Solomon (University of California, Berkeley School of Law)
Joan Heminway (The University of Tennessee College of Law)
Kristin N. Johnson (Seton Hall University School of Law)
Elizabeth Pollman (Loyola Law School, Los Angeles)
Margaret V. Sachs (University of Georgia School of Law)
Jeff Schwartz (The University of Utah, S.J. Quinney College of Law)

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November 09, 2015
icon Family Film Blogging: The Peanuts Movie
Posted by Christine Hurt

Sigh.  Rats.  Good Grief!  Our whole family made a big Friday night outing to see The Peanuts Movie on opening night.  We were not disappointed.

Just a warning:  you will not be surprised.  There are no twists, turns, special effects, or a catchy ballad.  It's just Peanuts.  If someone had a time machine and could go back to 1965 and ask Charles Schulz to write a new movie, this would have been the movie.  This isn't the Peanuts gang grown up, or the Peanuts gang in the 21st Century.  It's just Peanuts -- and that's a good thing.  Along those lines, if there's anything you like about the comic strip or the TV specials, you'll probably see it in the movie:  that funny kid in the group scene dancing to jazz music; the Red Baron, Snoopy writing on the typewriter, the red-haired girl, Lucy the psychiatrist, baseball, football, Snoopy kissing Lucy, the adult voice droning on and on, Christmas, etc.  The only element that I missed was the Linus monologue.  I love those.

The story is about what you would expect:  Charlie Brown falls for the new girl on his block (with red hair), but is afraid to talk to her all year.  He wants to impress her in various ways, but life plots against him every time.  There is a happy ending.  I will say, with all respect to the Charlie Brown specials of my childhood, this one is happier.  The happy ending is happier.  Charlie Brown is nicer to his sister.  Snoopy is nicer to him.  Everyone is a little bit nicer to each other.  Life plots against Charlie Brown, but it's not as bad.  There is melancholy, but it is more exception than the rule.  I like it.

I also like that the gang is frozen in time, or in a timeless time.  There is a snow day, but the kids don't start playing the Wii or watching Netflix.  They all get dressed to go play ice hockey.  Charlie Brown writes a book report in pencil.  On paper.  He goes to the library to find the right book.  He doesn't text the new girl because no one has a cell phone.  the only nod to modern life is that the students take a standardized test.

If you are in the mood for a bit of wonderful nostalgia and a nice story, then by all means go to see The Peanuts Movie.  If you want crude kid humor and famous voices, you'll have to go see Hotel Transylvania 2 again.

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icon Defending Me Defending Sanchez
Posted by Usha Rodrigues

My erudite and awesome friend Steve Bainbridge swiftly responded to my earlier post on the notion of director independence as described in recent Delaware Supreme Court case Del. County Emples. Ret. Fund v. Sanchez with a typically spirited riposte that you should go read in its entirety.  There he expanded on his earlier critique of the case:

My claim is that it will be much more difficult for plaintiffs use the "tools at hand" to develop sufficiently particularized facts relating to the nature of a friendship than an economic relationship. How often will a Section 220 books and records inspection produce evidence that the CEO and a director are life-long pals, for example. Or reading SEC filings, for that matter? Maybe plaintiffs will be able to find stories in the media about their lifelong friendship. A Google search turned up stories about Bill Gates being close friends at some point of his life with Paul Allen (still?), Water Buffett, Michael Larson, and Steve Ballmer (still?).

But what about less high profile CEOs with less high profile friends?

I await Usha's response eagerly.

Sadly, associate deaning duties and the myriad tiny tyrannies of a rainy day weekend spent at home with 3 children and 2 dogs, one of whom consumed not one but two chicken carcasses (he appears to be fine) conspired to keep me from responding to Steve earlier.  But procrastination sometimes bears fruits, and this morning via an email my friend Andrew Schwartz offered some thoughts that he's allowed me to share.

people these days have much of their life up on Facebook, Instagram, Twitter, et cetera, and the trend seems on the increase (in part because young people today are growing into the executives of the future).

A plaintiff could investigate personal ties between directors and CEOs (and the families of each) using these and other social media sites.  If she could show a CEO and director have commented on practically every Facebook post of the other for the past ten years, and that the director was the CEO’s first Twitter follower, and that there are selfies of the two of them on Instagram, then that might well be enough to survive a motion to dismiss on the basis of close, longstanding friendship. 

First, given the elite status of most CEOs and directors, news profiles and vanity pieces may flush out friendships.  Second, Andrew's excellently articulated point applies both to elite directors and to the comparatively rare "ordinary folks" director.   Third, it occurs to me that plaintiffs might make use of social network analysis to plead some particularized facts raising reasonable doubt as to a director's independence.  I am somewhat tentative in this suggestion because I'm not entirely clearly what social network analysis is, and class preparation demands my attention (In the immortal words of Rodney Dangerfield, "I'm gonna talk to that Dean. I mean, these classes could be a REAL inconvenience."). I would welcome reader insight here.

Finally, as Steve points out in an update to his own post

Of course, independence is an issue in many settings other than just demand excused cases. In many (most?) of those other situations, independence issues will be resolved at the summary judgment stage or even trial. Accordingly, in those cases, my objection is partially vitiated. Where to draw the line-something we must do even in a standards-based approach-remains a difficult question (IMHO).

Drawing the line here is a difficult question, and I think it's a strength of Delaware's "standard, not rule" approach that the doctrine acknowledges and embraces the complications inherent in assessing the relationship between two individuals.   But regardless of whether I (or Andrew) convince Steve on this point, however, this kind of exchange is for me the best part of blogging.

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icon Why Do Bank Supervisors Love Acronyms? Your TLAC Explainer
Posted by David Zaring

One of the amazing things that has happened in the wake of the financial crisis is that international bank regulators have moved from measuring two things - capital adequacy and the leverage ratio of banks - to measuring a lot of different things which must be computationally hard to keep in balance.  In addition to the two extant measures, banks have to establish a net stabled funding ratio (NSF) designed to deal with long term assets, a liquidity coverage ratio (LCR) designed to deal with short term assets, and let's not forget the work being done in the US by the stress tests, labelled DFAST and CCAR, or Europe's MiFID.  

Into the mix the Financial Stability Board has added a total loss absorbing capacity rule, or TLAC.  The best way to think of this rule is as an alternative measure of the capital adequacy of very big banks, with an eye to the moment of failure; it requires banks, in addition to holding common stock and cash, to hold financial instruments like convertible bonds (or maybe plain old unsecured debt) that can be used to bail-in the bank - bail-in means that the bank looks to its creditors to provide it with resources to stabilize it, bailout means it looks to the government to provide those resources.  Or, if you like, here's the FSB:

G-SIBs will be required to meet the TLAC requirement alongside the minimum regulatory requirements set out in the Basel III framework. Specifically, they will be required to meet a Minimum TLAC requirement of at least 16% of the resolution group’s risk-weighted assets (TLAC RWA Minimum) as from 1 January 2019 and at least 18% as from 1 January 2022. Minimum TLAC must also be at least 6% of the Basel III leverage ratio denominator (TLAC Leverage Ratio Exposure (LRE) Minimum) as from 1 January 2019, and at least 6.75% as from 1 January 2022.

Without going too far down this road, I think that these varied sorts of capital measurement are basically supposed to discourage regulatory arbitrage, though it also suggests how puissant big banks must be in handling their regulatory requirements.  Not a place for a financial startup.  TLAC is also a tax on big banks, of course, and a disincentive to become one of the thirty largest institutions in the world.  Here's the WSJ with an explainer.

This all has to be adopted by the G20 at its next meeting, proving once again that in finance, the rules that really matter are set by an international, non-treaty based form of administration.

Permalink | Administrative Law, Finance, Financial Crisis, Financial Institutions | Comments (View) | Bookmark

November 05, 2015
icon Defending Sanchez
Posted by Usha Rodrigues

Steve Bainbridge took up my gauntlet earlier this week, and threw it back, rejecting Sanchez for use in casebooks.  Not a good choice for a principal case, says he.  Delaware creating a muddle, says he.

I defer to Steve on most things--well, on wine and food for sure.  And, not having authored a casebook, on his first point.  I was suggesting Sanchez because of its brevity, and not thinking about how interesting/fun the facts would be as a principal case.  I concede that the Sanchez facts are not gripping. Indeed, my position was "it's nice to see Chief Justice Strine doing what he does best--writing a clear, accessible opinion acknowledging that independence is complicated and contextual. In my opinion Oracle, Beam v. Stewart, and Sanchez now make up the triumvirate of cases on this issue."  I think Steve and his esteemed co-authors did the right thing by including a reference to Sanchez in the notes but keeping Oracle as the main case.  It's the interaction of the three cases that is compelling.

But, although Steve is a very, very smart guy that knows him some Delaware law, I disagree with the plaint at his post's end: "How the [expletive deleted] are trial courts supposed to distinguish between mere social friendships and enduring close relationships? Especially because the issue will often be decided on the pleadings before discovery."

Aronson's first prong and Zapata both, in different contexts, try to get at this question: should we trust the board that recommends dismissing a derivative suit? or are the directors too biased?  Answering that question gives us a chance to play that perennial law school game, "Rules or Standards?"

Rules approach: Has the director been paid by the defendant in question?  Are they related?  If yes, they are biased. If not, they're fine.  This beauty of this definitional approach, as with all rules, is that it's simply, blessedly clear. But it also may be over- and under-inclusive.

Standards approach: Let's look at the situation.  What is the director's tie to the defendant?  Does the director depend on the defendant financially?  Are they related?  How closely?  Are they friends?  Are they in the same social circle?  How close?  The beauty of this situational approach is that it's granular.  The cost is that it is a whole lot harder to apply, and harder to plan around. 

I favor standards over rules for this particular question.  The derivative suit is at core a sorting mechanism, and it would be too easy to game a rule and stack the board with manager-friendly-but-not-financially-dependent directors, rendering the whole derivative suit mechanism a farce.   

Bringing us back to the classroom, I also like that Delaware has opted for standards here because I can use it to make the weird animal that is the derivative suit come alive for the students.  Most of our students came straight through from undergrad. When I ask them: "Would you be unbiased in deciding whether the board should sue the defendant, if the defendant was your college roommate?", I get a visceral reaction, one that gets them to engage with the complexities of the derivative suit.  And that means that they're walkin tough, baby, because they're not blind to the ties that bind.


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icon "Private Sector Influence on the U.S. Regulatory Process: A Study of the Volcker Rule"
Posted by David Zaring

I enjoyed this work, apparently a thesis by a Berkeley undergrad, that involved a ton of data gathering.  The piece looks into how the proposed Volcker rule changed when made final, and then looks at lobbying expenses, SEC meeting data, and the requests made in bespoke comment letter for changes - and whether those changes were adopted.  The bottom line is that lobbying worked in specific ways in relation to this rule.  So much hand collection that you worry about errors, and the empirics are straightforward correlations, though I do not view that as a criticism of this author. You might like it too!

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