Friday, October 30, 2020

Teaching "Corporate Governance" Differently in 2020

by Cheryl Wade, Harold F. McNiece Professor of Law, St. John's University School of Law

I decided to teach my Corporate Governance seminar slightly differently this semester in light of all that is happening in 2020. We have discussed the nuts and bolts of corporate governance – the roles of officers, directors and the process for nominating them; fiduciary duty; compliance; and shareholder democracy, among other things – but our discussion is taking place in the context of the corporation’s position and status in civil society. Some of my students will explore the role of public companies in addressing existential issues such as the global pandemic as a matter of social responsibility. We discussed the ability and appropriateness of public companies in addressing climate change. We considered the corporate governance failures at financial institutions that exploited consumers. Our approach this semester acknowledges the inextricable link between even the most mundane corporate governance issues on one hand and environmental and social matters on the other. 

Earlier this semester, I asked my students to think about the role of the corporate lawyer in helping companies avoid the public relations nightmares that sometimes ensue socially irresponsible behavior. Zach Sobel wrote, “imagine this, a corporate lawyer pushes their client to accept responsibility for whatever actions were alleged (assuming they actually did do what they are accused of). The public would be left with nothing to complain or hypothesize over, and the conversation moves from what the company did to how the company will respond.” Ricardo Gray agrees with Zach about the benefits of a corporation admitting wrongdoing “The corporate attorney serves the corporation so advice to have the corporation admit wrongdoing may seem backward, but after a corporation is caught red-handed remedial steps that do not leave those injured with a bad taste in their mouth, will only improve the likelihood of the corporation's success in the future.” Then Ricardo waxed poetic. “Specifically, once the corporation has caused harm to stakeholders, a corporate attorney becomes both a shield of the corporation, in that he or she will attempt to minimize liability and defend it from lawsuits and a sword, in that he or she will cut a path forward for the corporation to continue operations after the harm is caused.” 

I asked my students how firms can avoid litigation in the first place? Chris Gaine suggested that risks may be mitigated “by creating and implementing robust legal compliance systems.  In seeking to comply with the law, companies should look at relevant legal standards and aim to exceed them instead of just adhering to them.  Companies should also aim to comply with the “best practices” of a given industry, which manifest ideal ethical standards beyond what the law requires.” Greg Kramer also focuses on the potential of adequate corporate compliance. “One lesson from the spate of fraudulent, coercive, and otherwise illegal behavior of financial institutions leading up to the Great Recession (as well as more recent examples like Wells Fargo) is that these crises were not merely the result of a handful of bad actors at the top of an organization.  They involved systemic misbehavior of frontline employees across different parts of the organization.  But obviously, a board is incapable of monitoring every single operational activity of a company where the potential for misconduct exists.  Thus, boards must sift through this “noise” and focus their monitoring on key “signals” of systemic misconduct.” Federica Marini mentioned another crisis-avoidance structure that complements what Chris calls “robust” compliance. Federica writes that “while solving crises focuses on ending on-going emergencies and limiting damages to a client’s business, risk management is about finding solutions to avoid loss altogether prior to the occurrence of crises.”

Ryan Smith was concerned about another context with which public companies grappled in recent years – sexual harassment allegations. Ryan considers this problem in light of companies’ public disclosure about their investigation of harassment claims. “In the course of investigation, the firm should ask outside counsel to assess whether the company’s public statements require correction or updating based on what the investigation reveals.” Alexa Major also wrote about disclosure but did so in the context of COVID-19 and admonished firms to be careful about disclosing information about “the impact of the current pandemic on ‘business as usual’.”

All of my students submitted answers that reflect hopeful perspectives concerning the roles and obligations of public corporations. I have shared the ideas from just a few of them in this post.


14 comments:

  1. thanks for this post cheryl and sharing your student's perspectives. i wonder whether you all discussed the implications of #metoo and #blacklivesmatter in the context of recent corporate pronouncements to spends billions BILLIONS of dollars in promoting diverse hiring and promotion of equality? Citi, JP Morgan and AMEX have all announced huge expenditures to promote these aims in recent weeks and months.

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  2. I think this is an awesome approach to teaching any business-related class in the year 2020. Having thought-provoking conversation like this--about the link between important social issues and corporate governance--is essential to shaping law students into more than just competent corporate lawyers, but into ethical and responsible ones. I have certainly appreciated the conversations like this that my Business Associations professor has started this semester. I think that getting students to start thinking independently and critically about relevant social issues as they relate to business will allow for innovation in how corporations approach and interact with relevant social issues that may be beyond the scope of their industry.

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  3. Thanks Professor, for your valuable insight on the current state of corporate governance and ESG matters--enjoying your seminar!

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  4. I wonder if companies who see ESG as a means to an end (i.e. Shareholder Value) behave differently those who see it as an end in itself. Certainly, corporate action perceived to be authentic will solicit a better public reaction. But, in many cases, it seems hard to distinguish between behavior that is done for the sake of "PR" from "authentic" corporate engagement with a cause.

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  5. This course has made me consider issues of corporate governance in a completely different way. As someone who originally held shareholder interests above all else, this course has changed my way of thinking, and how important stakeholders as a whole are. Coming into this semester, I never thought I'd be researching and writing on the influence of social justice interests on corporate governance. I am interested to see how and to what extent corporations which make statements act upon them, and litigation which may ensue based on inaction.

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  6. I've truly enjoyed the class and the various perspectives on corporate governance. It's been fascinating learning about the growth of alternative perspectives on corporate governance as opposed to the shareholder primacy theory. I for sure will be monitoring these alternative perspectives on the role of corporate governance long past this class, and am excited to see what we discussed in this class come to life.

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  7. I very much appreciate how Prof. Wade teaches much more than the existing law and regulations in the Corporate Governance Seminar by emphasizing the importance of taking accountability one step further for corporations. Discussions like the comparison of legal "duties" v. corporate "responsibilities" do not usually come up in Business Organizations, but they are arguably as important as the black letter law as for 3L students who are about to start practicing law.

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  8. I have really enjoyed this course and appreciate that we are able to talk about the social justice and environmental issues that are so prevalent today in relation to corporate governance. It has been particularly interesting to me to learn more about how changing social norms have pressured companies to enact more ESG measures and be more transparent with disclosure.

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  9. This course has inspired us students to think normatively about corporate law. Not only have we developed a better understanding of corporate governance through our time together with Professor Wade, we have also developed a deeper understanding of what corporate governance can and should look like going forward. There are many different issues that the world is confronted with right now, and we now understand that the corporate attorney can be a significant figure when resolving various issues that are of the utmost importance.

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  10. The subject matter in this class is well-suited for 2020's conditions. Conversations about corporate social responsibility and racial justice take on new importance as we deal with the COVID-19 pandemic and the social change movements in this country. Learning about how these issues affect large publicly-traded corporations is crucial to understanding how they affect the rest of society, given the outsized influence these corporations have on our lives.

    To be completely honest, I did not expect much of this subject matter to be discussed in this class when I first registered. Then again, I did not expect many of the events of 2020 to take place the way that they have. Considering the backdrop of the past eight months, learning about corporate governance through a social justice lens has been especially illuminating, as it bears real-world relevance that is more apparent than ever.
    - Chris

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  11. This has been an extremely informative course filled with discussions about vital issues pertaining to not only corporate governance, but society as a whole. I have a great deal of faith in the future of the legal field after listening to how thoughtfully and carefully each of my colleagues have weighed in on these important topics throughout the semester!

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  12. Thinking about business associations through an intersectional lens has emphasized the importance of the content of this class. I have appreciated taking class time to examine the success of companies who maintain a commitment to corporate justice like Ben and Jerry's, TOM'S and Patagonia. Understanding the way that power and privilege affect boardroom decisions about corporate justice issues as students of the law better prepares us when we are charged with with making these decisions as attorneys.

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  13. Before taking BA, I would not have thought that social justice or politics had anything to do with laws for corporations. I guess I just saw it as more of an efficiency standard, like "Corporations are there to make money in the best way possible through supply chains and cost efficiency and here's how it's regulated by law", but I see now how naive that was. I have an undergrad and masters in business, but it amazes me that the aspects of social responsibility and the power that corporations have in shaping society were barely touched on. I have a whole new perspective on the role corporations play now.

    -Jaci Roberts

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