Monday, April 27, 2015

Can "Conscious Capitalism" and Profit Maximization Coexist?

Can corporate executives of public companies practice conscious capitalism without running afoul of shareholder expectations?  The current CEO of the "Container Store" Kip Tindell is currently in the trenches as that question confronts him directly. 

According to Bloomberg:  "A few years ago, the CEO of the Container Store, Kip Tindell, wanted to expand the chain beyond big metropolitan areas into smaller cities, but he also wanted to offer more employees stock in the company. Financing that with debt, additional private equity, or by selling the company were not acceptable options so he decided the best option was to take the company public.

Tindell’s personal philosophy is crucial to the company’s identity. He adheres to a model for conducting business without any trade-offs: Pay employees well and treat them with respect; consider suppliers and customers as family; have fun. This sort of management model has been called conscious capitalism. Companies that practice conscious capitalism are supposed to have a higher purpose. Costco aspires to this ethic, as do public companies such as, Starbucks, Southwest Airlines, and Whole Foods Market."

As expected, when profits were sky high, conscious capitalism was fine with shareholders, but as profits have stagnated in recent years, Tindell is facing criticism and scrutiny from them as prizing employee satisfaction and supplier familiarity should not substitute for shareholder gain, at least to some of the shareholders. 

Again, as reported by Bloomberg BusinessWeek:  "Most executives who practice conscious capitalism confront the tension between those measuring in months and those measuring in years. Tindell has been trimming costs, though not salaries, and looking for other ways to increase productivity in the stores. Growth presents challenges, too. It’s possible that the impulse, and the means, to organize a home isn’t as strong in the less affluent cities and suburbs where the company is expanding. The company's gross profit margin is still high, but if sales don't improve Tindell will be in a difficult position. His principles won't substitute for a better plan."

Short of organizing as a Benefit Corporation or a L3C, can Tindell practice capitalism consciously and keep shareholders happy?

Sunday, April 19, 2015

Shareholder Litigation "War" in Delaware

As asked recently in DealB%k of the New York Times: "Delaware is going to war over shareholder litigation, but will shareholders or corporations emerge victorious?" There may soon be changes in the landscape of corporate law in the United States. Delaware, home to many U.S. corporations, is considering three amendments to its laws that will reduce and deter shareholder litigation. The first purportedly tramples the rights of shareholders of an acquired company to argue in court that the takeover price was too low. This proposal would limit small shareholder claims by banning all appraisal rights of shareholders, “if the aggregate amount of claims asserted were less than 1 percent of the outstanding shares or $1 million in total.”

The second proposed change would allow Delaware companies to amend their bylaws, without shareholder permission, to require that all claims brought against it be litigated in Delaware.  This may hamstring plaintiffs in their efforts to hold corporations accountable for injuries that occur throughout the nation.  The third and most questionable change “would ban fee-shifting bylaws, which require the loser in fiduciary duty litigation to pay the fees and expenses ofboth sides.”  This proposed amendment to current law could bring shareholder class-action to a stalemate, because plaintiff’s attorneys will be deterred from filing meritorious cases, based on a fear that they would be stuck with millions of dollars in legal fees if they lose.

Again, according to Dealb%k commenting on the proposed fee-shifting rule: "It’s all a bit curious because losers already pay in the United States if their suits are frivolous. Because courts can already award attorneys’ fees, fee-shifting bylaws run the risk of deterring valid claims.  While the Delaware Legislature and the corporate bar are dealing with these issues as three different problems, they are, in fact, related. Each is aimed at altering the ability of shareholders to bring suit. Perhaps a better approach would be a thoughtful discourse on how all of these proposals work or don’t work together and whether they would curtail shareholders’ rights too much."

For many Delaware corporations these proposed changes may be appealing, but for shareholders the potential outcomes of these changes could derail efforts to vindicate the limited rights that they currently possess.

** This post was co-drafted by 2L Shawn Good of the Indiana Tech Law School and Dean andré douglas pond cummings

Thursday, April 9, 2015

Executed for a Broken Taillight (in 2015?)

The Corporate Justice Blog often takes up issues of wrongheaded carceral policy and the need for  policing reform in the United States.  Ultimately, for us, the issues of discrimination in policing and the perverse incentives inherent in for-profit incarceration are not just social justice issues, but also economic issues and portend a difficult economic road ahead if we as a nation cannot get out in front of these very real  and very old problems.

Take for example the killing of Walter Scott in North Charleston, South Carolina.  Before the video became public, the story told by police officer Michael Slager was one of justified killing.  "He took my taser" was his tagline and "I was in fear for my life" would have been the testimony, just as it was for a carefully-coached officer Darren Wilson in Ferguson.  However, here, the video simply cannot support a story of "stolen taser" and "fear for life."  The video shows Officer Slager shooting a slowly running away Walter Scott in the back eight times.  Any reasonable viewing of the video shows a calm and callous Slager not only firing eight times without giving further chase, but then that Slager later picks something up that was at his feet when shooting, carries it to the prone Scott and drops it down next to the body (the taser?).  Officer Slager has been charged with murder.  Video is here.

Friend of the Corporate Justice Blog Law Professor and Vice-Provost Dorothy Brown discusses the events above and deconstructs them for CNN in "Did Cops Learn From Mistakes of Ferguson?" posted earlier today.  Professor Brown writes:

"This time the stage was set in North Charleston, South Carolina, a city of about 100,000 people. Walter Scott was stopped by Officer Michael Slager for a broken taillight, and within minutes Scott was dead. According to the incident report, Slager said: "Shots fired, and the subject is down. He took my Taser." His attorney at the time, David Aylor, said that Slager "felt threatened and reached for his department-issued firearm and fired his weapon."

But then came the video.

We watched in horror as we saw Slager shoot Scott in the back multiple times. Then we saw Slager pick up something from one location and place it near Scott's lifeless body. On Tuesday, the officer was arrested on murder charges. North Charleston police Chief Eddie Driggers told reporters, "I have watched the video, and I was sickened by what I saw." Apparently so was Slager's attorney, who announced after the video was made public that he was no longer representing the officer."

As we argue repeatedly in this blog space, the United States must get it right by reforming carceral policy in this nation and figuring out a different and better way to police our citizens.  We have suggestions . . .