Some followup on the “Statement on the Purpose of a Corporation” signed by 180 CEOs of major companies and covered in this space earlier: “What’s significant about the statement is what it does not say. The corporate signatories do not suggest in any way weakening the fiduciary duties of the boards and managers of ordinary for-profit shareholder corporations to manage such companies’ affairs for shareholders’ benefit.” [Jim Copland] “If corporate leaders, under the new Business Roundtable principles, elevate concerns about their employees and communities, are their decisions still entitled to deference under the business judgment rule?” [Alison Frankel, Reuters] Many of the assumptions underlying these discussions amount to political myths [Jonathan Macey] And the Federalist Society held a panel on “Corporate Responsibility: Maximizing Shareholder Benefit v. Social Justice” with Paul Atkins, Macey, and Andrew Schwartz.
- Neat trick: banks can get Community Reinvestment Act credit for lending in “low-income census tracts” even when that means extending $800K mortgages to gentrifiers [Diego Zuluaga, Politico, related policy analysis and Cato podcast]
- Sen. Elizabeth Warren has a plan to regulate private equity. It’s not good [Steven Bainbridge] When you’ve lost veteran liberal columnist Steven Pearlstein… [Washington Post]
- Speaking of terms with ugly histories, maybe it’s time for Sens. Warren and Sanders to retire the metaphor of the financial sector as vampires or “vultures” engaged in “sucking” or “bleeding” [Ira Stoll, related]
- Volume of securities litigation is on sharp upswing, policy remedies needed [Kevin LaCroix/D&O Diary and more, Chubb “Rising Tide” report] Rising in Australia too [Nicola Middlemiss, Insurance Business Australia]
- Unconstitutionality of CFPB structure hasn’t gone away and neither has the need for the Supreme Court to tackle the issue [Ilya Shapiro on Cato certiorari amicus brief in Seila Law LLC v. CFPB] Appointment process for Puerto Rico financial oversight board under PROMESA law is of doubtful constitutionality [Shapiro on Cato amicus brief in Financial Oversight & Management Board for Puerto Rico v. Aurelius Investment, LLC]
- In an age of professional consultants, why does the law continue to require corporate governance to be delivered by way of individual board members? Firms specializing in board services could offer attractive alternative [Todd Henderson, Charles Elson, Stephen Bainbridge, Federalist Society Forum]
Securities and Exchange Commissioner Hester Peirce has some critical comments on the California legislation signed by outgoing Gov. Jerry Brown last year requiring corporations to adopt gender quotas in the composition of their board of directors. She notes that research may not support one of the law’s stated rationales, that of improving financial results through better corporate governance, and that the law proposes to “micromanage an aspect of corporate governance that corporations, boards, and shareholders seem perfectly capable of handling on their own.” Relatedly, if women directors have an effect on corporate governance that is any different from men’s, it may relate to factors other than their gender [Tyler Cowen on Alam, Chen, Ciccotello, and Ryan paper] More: Federalist Society teleforum with Anastasia Boden, Keith Paul Bishop on unanswered questions about the law’s application. Earlier, including the law’s doubtful constitutionality, here, here, and here.
My new Cato piece begins:
Yesterday the Business Roundtable released a “Statement on the Purpose of a Corporation” signed by 180 CEOs of major companies. It proclaims “a fundamental commitment to all of our stakeholders,” including customers, employees, suppliers, communities, and, finally, shareholders. It is being widely interpreted as a victory for anti-business campaigners and “corporate social responsibility” advocates, and perhaps also as a repudiation of the shareholder-primacy norm memorably defended (though in no way originated) by free-market economist Milton Friedman.
Read on to see why I’m skeptical that the statement can be pinned down as meaning much of anything at all — and why, if it does signify anything beyond happy talk, it will probably turn out to be a bad idea.
Cato event featuring David R. Burton, Richard Hay, Karen Kerrigan, & Diego Zuluaga:
Policymakers on both sides of the aisle have proposed new regimes for small-business beneficial ownership reporting. The aim of such legislation is to eliminate opportunities for money laundering and financial crime. However, the proposals before Congress would place heavy new compliance costs on millions of America’s small businesses while continuing to provide opportunities for bad actors to engage in illicit financial activities. Beneficial ownership reporting would add to an already onerous anti-money-laundering/know-your-customer (AML/ KYC) regulatory burden, cited by community banks as the single most costly financial regulation. Furthermore, international experience with beneficial ownership reporting requirements suggests that it will be difficult to make such requirements work in the United States.
The Illinois House has passed a bill “to require every publicly traded corporation headquartered here to include at least one woman and one African-American on its board of directors. The Senate version calls for a Latino as well. Corporations that fail to meet the quota would be fined up to $100,000.” Terrible bill, as well as a good way to discourage businesses from headquartering in Illinois. University of Chicago law professor Todd Henderson expects that if the bill passes courts will strike it down as unconstitutional [Chicago Tribune editorial] More: Hans Bader.
- “In the banking world, with which I am familiar, the general belief has been that you disobey supervisory guidance at your peril. That sounds like law and regulation, but without the open process and accountability. Over many years it has certainly felt that way.” [Wayne A. Abernathy, Federalist Society commentary]
- Some House Democrats use hearings to badger banks into cutting off clients in industry areas like guns, pipeline construction [Zachary Warmbrodt, Politico]
- New U.S. Chamber Institute for Legal Reform papers on reforming securities litigation: “Risk and Reward: The Securities Fraud Class Action Lottery” [Stephen J. Choi, Jessica Erickson, Adam C. Pritchard]; “Containing the Contagion: Proposals to Reform the Broken Securities Class Action System” [Andrew J. Pincus]
- “A pot banking bill is headed to House markup with bipartisan support” [Jim Saksa, Roll Call]
- Your periodic reminder that corporate law *is* a form of public interest law [Stephen Bainbridge quoting Hester Peirce]
- “History Shows Forcing Companies to Put Workers on Boards Is a Bad Idea” [Ryan Bourne, UK Telegraph/Cato, earlier on Elizabeth Warren proposals]
- Sports betting: best to ignore the leagues’ special pleadings and let federalism work [Patrick Moran, Cato, related podcast]
- Everything you thought you knew about corporate personhood in the law is wrong [David Bernstein reviews Adam Winkler’s We the Corporations]
- Federal judge John Kane, on lawyer’s filings: “I have described them as prolix, meandering, full of unfounded supposition and speculation, repetitive and convoluted almost to the point of being maddening.” And he’s just getting started [Scott Greenfield]
- “Florida Voters Join Chevron Revolt And Strike A Blow Against Judicial Bias” [Mark Chenoweth, Federalist Society Blog] Plus video panel on “The States and Administrative Law” with Nestor Davidson, Chris Green, Miriam Seifter, Hon. Jeffrey Sutton, and Hon. Michael Scudder;
- Argument that Congressionally extended extension of copyright on (among other works) Atlas Shrugged violates Ayn Rand’s own ethical code [Edward Sisson]
- “More Legislation, More Violence? The Impact of Dodd-Frank in the Democratic Republic of the Congo” [Nik Stroop and Peter van der Windt, Cato; our longstanding coverage of the conflicts mineral fiasco]
- Gov. Jerry Brown signs into law California bill imposing minimum quota for women on corporate boards: “it’s very hard to see how this law could be upheld” [Emily Gold Waldman, PrawfsBlawg, earlier, more: Alison Somin, Federalist Society] “The passage of this law resulted in a significant decline in shareholder value for firms headquartered in California.” [Hwang et al. via Bainbridge]
- Martin Act, part umpteen: “New York Attorney General Overreaches in Climate-Change Complaint Against Exxon” [Merritt B. Fox, Columbia Blue Sky Blog]
- “Now he tells us! You’d think that maybe Bharara would have publicly acknowledged this ambiguity and haziness [in insider trading law] before bringing a series of cases that destroyed careers and imposed huge costs on the individuals who were accused.” [Ira Stoll]
- “Because [Florida agriculture commissioner-elect Nikki Fried] took donations from the medical marijuana industry, Wells Fargo and BB&T banks closed her campaign accounts briefly, citing policies against serving businesses related to marijuana, which is still prohibited under federal law.” [Lori Rozsa, Washington Post, Erin Dunne, Washington Examiner (“fix the marijuana banking mess”)]
- Survey: “Average cost of a settled merger-objection claim has increased 63% to $4.5 million over four years, with little benefit to shareholders” [Chubb] “Time for Another Round of Securities Class Action Litigation Reform?” [Kevin LaCroix, D&O Diary on U.S. Chamber paper, and more on trends in Australia]
- “Congress Can’t Create an Independent and Unaccountable New Branch of Government” [Ilya Shapiro on Cato cert amicus in State National Bank of Big Spring v. Mnuchin, on constitutionality of Consumer Financial Protection Bureau (CFPB)]
- “California’s Unconstitutional Gender Quotas for Corporate Boards” [Ilya Somin, Stephen Bainbridge, Jerome Woehrle, Ann Althouse]
- Useful tool, or abuse of power? “Leveraging allows regulators to use their gatekeeping authority to secure concessions that they might not be able to achieve otherwise—and to do so quickly and cheaply.” [William Kovacic and David Hyman, Cato Regulation magazine]
- The conflict minerals law fiasco: “between 2010 and 2012, the monthly incidence of battles, looting and violence against civilians strongly increased in the mining areas targeted by Dodd-Frank” [Nik Stoop, Marijke Verpoorten and Peter van der Windt, Washington Post “Monkey Cage”, Dominic Parker, PERC (summarizing two recent studies), my earlier]
- “Return of Bill Lerach: Disbarred attorney consults on case alleging hedge funds mismanaged Kentucky pensions” [ABA Journal]
- “The Politics of Pay: The Unintended Consequences of Regulating Executive Compensation” [Kevin J. Murphy and Michael C. Jensen, Cato Institute Research Briefs in Economic Policy series]
- “Increasingly, our [financial] regulatory structure has been adopting processes that are inconsistent with adherence to the rule of law.” What to do? [Charles Calomiris, Cato Journal]