Newsletter from John Knox, Independent Expert on human rights and the environment

John H. Knox, UN Independent Expert on Human Rights and the Environment and Henry C. Lauerman Professor of International Law has been advancing his mandate.  (See HERE)

 

 (John Knox)

 

Professor Knox recently provided a report of his activities in his role as U.N. Independent Expert, which I have re-posted here. 

On Corporate Personhood: Attorney-Client Privilege, Corporate Stakeholders and Transactions in Corporate Control in the U.S.

One of the most contentious and complicated emerging issues of corporate law in the United States is the issue of attorney client privilege when it is asserted by an entity.  The difficulty, of course, stems from the reality that though the entity (usually a corporation) is an autonomous legal person, it may act only through others, usually natural persons in positions of authority (board members or officers) with whom the attorney interacts. This affects not merely business enterprises, but is at the heart of civil and criminal cases involving other enterprises--for example state assisted universities. Mike Dawson, "Judge to consider whether Cynthia Baldwin represented Penn State or Graham Spanier in Sandusky case," Centre Daily Times, Dec. 18, 2013.

Read more here: http://www.centredaily.com/2013/12/18/3948448/judge-to-consider-whether-cynthia.html#storylink=cpy

(Pix (c) Larry Catá Backer 2013)

A particularly interesting issue arises when the underlying ownership of the autonomous enterprise passes from one group to another, resulting in changes in management. The issue was recently considered by the Delaware Chancery court in  Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLP, C.A. No. 7906 (Nov. 15, 2013) (Del. Ch.).  The opinion in that case, written by, Chancellor Strine, is bound to have a substantial influence on the ongoing judicial discussion of attorney client privilege in the context of entity representation in general, and more specifically, on the practices of lawyers in managing control of that privilege in the context of corporate transactions. It is also a great lesson in record keeping in the current environment of digital records.

Though the extent and application of the normative choices made by Chancellor Strine may be questioned, and strongly (e.g., Tekni-Plex, Inc. v. Meyner & Landis, 674 N.E.2d 663 (N.Y. 1996)), the influence of the opinion is less likely to be challenged.  The opinion is also remarkable for its aggressive insistence ("The lady doth protest too much, methinks." Hamlet act III, scene II) of the use of a plain meaning rule of statutory construction in an area where the meaning and application of the statutory framework is anything but clear.  (On the distinctions between formalism and functionalism in statutory Interpretation see HERE). But in the end, the most interesting aspect of the case is the way in which law is understood as open textured enough to permit private governance through contract.  Chancellor Strine's narrow and tightly woven legalism expands the corporate law's more open textured structures, within which private governance regimes may be constructed in the shadow of and beyond law, to statutory behavior and expectation management rules.

This post includes a brief framework for consideration the case, the text of  Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLP, C.A. No. 7906 (Nov. 15, 2013) (Del. Ch.) and some practical analysis of the consequences of the case publicly circulated by leading U.S. lawyers and law firms.

Just Pre-Published On Line--"The Basis for the Legitimacy 正当性 of the Chinese Political System: Whence and Whither? Dialogues among Western and Chinese Scholars"

Philip C. C. Huang, Professor Emeritus (History) and the founding director of the Center for Chinese Studies at the University of California, Los Angeles from 1986 to 1996 has produced a constitutionalism symposium that focuses on emerging frameworks for understanding the Chinese constitutional state both within and outside China. In addition to Professor Huang's masterful Introduction, the symposium includes contributions of  Jiang Shigong (Peking University), Wang Hui (Tsinghua University), and me (Penn State University).

("Modern China (MCX), peer-reviewed and published bi-monthly, is an indispensable source of scholarship in history and the social sciences on late-imperial, twentieth-century, and present-day China. For more than 30 years MC has presented scholarship spanning the full sweep of Chinese studies and based on new research or research that is devoted to new interpretations, new questions, and new answers to old questions.")

As Professor Huang notes in his Introduction, "The issue under discussion in this symposium volume is the basis for the “legitimacy”正当性 of the contemporary Chinese political system, from whence it came and whither it might go [for which] we must seek to understand Chinese constitutionalism on its own terms, by its own logic."

The symposium has now been “pre-published online” in Modern China Online First, by which forthcoming articles are published online before they are scheduled to appear in print. The formal paper version in Modern China will be out early March 2014. This post includes links to all of the symposium papers (available now to those with access to Sage publications) and abstracts of the contributions.

SEC Announces Rule Proposal on Regulation A+

This from the California Corporations Section e-Bulletin (Dec. 19, 2013):

 (Pix (c) Larry Catá Backer 2013)

 SEC Announces Rule Proposal on Regulation A+

At today’s Open Meeting, the Securities and Exchange Commission (SEC) voted to propose rules intended to increase access to capital for smaller companies. Because these rules build upon Regulation A, the exemption created by the new rules is commonly known as “Regulation A+”. The proposed rule amendments would create two tiers of offerings:
--Tier 1 – offerings of up to $5 million in a 12-month period, including up to $1.5 million for the account of selling security-holders (already covered by Regulation A);
--Tier 2 – offerings of up to $50 million in a 12-month period, including up to $15 million for the account of selling security-holders.

Companies who elect to proceed under either Tier 1 or Tier 2 would be subject to basic eligibility and disclosure requirements similar to the existing provisions of Regulation A. Additionally, the proposed rules would implement certain other recent securities laws updates, including permitting companies to submit draft offering statements for nonpublic SEC review prior to filing, permitting companies to use “testing the waters” solicitation materials and requiring electronic filing of offering materials.

The SEC’s press release and fact sheet on the proposal can be found here and below.  The proposed rule can be found here. A 60-day comment period will commence upon publication in the Federal Register.  While the sentiment is certainly worthy, it may appear to those with more than a passing interest that this opening up  may be, in functional terms, less than it appears.  The problem remains--how does one bend the now complex architecture of disclosure for the protection of securities markets to the public policy of reducing the resulting costs of capital to enterprises that might have little access to it.  The more difficult question, and one that continues to evade exposure, is whether that architecture itself might benefit from rethinking.

 

 

Part XXXI (31) Zhiwei Tong (童之伟) Series: "Totalitarian Personality and Bo Xilai's Poliitcal Failure"

 (Zhiwei Tong, PIX (c) Larry Catá Backer)

For 2012, this site introduced the thought of Zhiwei Tong (童之伟), one of the most innovative scholars of constitutional law in China. Professor Tong has been developing his thought in part in a essay site that was started in 2010. See, Larry Catá Backer, Introducing a New Essay Site on Chinese Law by Zhiwei Tong, Law at the End of the Day, Oct. 16, 2010. Professor Tong is on the faculty of law at East China University of Political Science and Law. He is the Chairman of the Constitution Branch of the Shanghai Law Society and the Vice Chairman of the Constitution Branch of the China Law Society. The Series continues.

The Zhiwei Tong (童之伟) Series focuses on translating some of Professor Tong's work on issues of criminal law and justice in China, matters that touch on core constitutional issues. Each of the posting will include an English translation from the original Chinese, the Chinese original and a link to the original essay site. Many of the essays will include annotations that may also be of interest. I hope those of you who are interested in Chinese legal issues will find these materials, hard to get in English, of use. I am grateful to my research assistants, YiYang Cao, Bo Wang, and Zhichao Yi for their able work in translating these essays.

TABLE OF CONTENTS FOR THE SERIES AVAILABLE HERE.

For this contribution to the Zhiwei Tong (童之伟) Series /(Part XXXI) we translate (via Bo Wang):
--Totalitarian Personality and Bo Xilai's Political Failure  (Aug. 24, 2013).

 

Article Published: "Sovereign Investing and Markets-Based Transnational Legislative Power: The Norwegian Sovereign Wealth Fund in Global Markets"

My article, "Sovereign Investing and Markets-Based Transnational Legislative Power: The Norwegian Sovereign Wealth Fund in Global Markets" has just been published and will appear in the American University International Law Review 29(1):1-122 (2013).  My thanks to Mary Grinton, the Volume 29 Editor in Chief for an excellent volume.

(Enda Curran, "Norway’s Oil Fund Doubles Up Down Under," Moneybeat Wall Street Journal, March 13, 2013)

This article builds on earlier work both on the Norwegian sovereign wealth fund architecture and on  sovereign investing more generally.  It suggests that states, like corporations and civil society actors, are turning to social norms and societally constituted governance frameworks to effect changes to the behavior norms and customs of business enterprises, and that sometimes this form fo governance may be more effective than traditional lawmaking.  Norway appears to mean to transpose international norms into state policy, and to transpose state policy into the governance cultures of corporations.  This may represent an important new means of extending state power extraterritorially without invoking legal regimes and in furtherance of a coherent international framework for business behavior.

The abstract and introduction of my article follow. A pre-publication version of the article may be accessed HERE.

Part XXX (30) Zhiwei Tong (童之伟) Series: "The Punishment Decision Should Be Made Based on Criminal Facts and Law Regulations--My Thoughts On the Written Judgment of Bo Xilai’s First Instance"

 (Zhiwei Tong, PIX (c) Larry Catá Backer)

For 2012, this site introduced the thought of Zhiwei Tong (童之伟), one of the most innovative scholars of constitutional law in China. Professor Tong has been developing his thought in part in a essay site that was started in 2010. See, Larry Catá Backer, Introducing a New Essay Site on Chinese Law by Zhiwei Tong, Law at the End of the Day, Oct. 16, 2010. Professor Tong is on the faculty of law at East China University of Political Science and Law. He is the Chairman of the Constitution Branch of the Shanghai Law Society and the Vice Chairman of the Constitution Branch of the China Law Society. The Series continues.

The Zhiwei Tong (童之伟) Series focuses on translating some of Professor Tong's work on issues of criminal law and justice in China, matters that touch on core constitutional issues. Each of the posting will include an English translation from the original Chinese, the Chinese original and a link to the original essay site. Many of the essays will include annotations that may also be of interest. I hope those of you who are interested in Chinese legal issues will find these materials, hard to get in English, of use. I am grateful to my research assistants, YiYang Cao, Bo Wang, and Zhichao Yi for their able work in translating these essays.

TABLE OF CONTENTS FOR THE SERIES AVAILABLE HERE.

For this contribution to the Zhiwei Tong (童之伟) Series /(Part XXX) we translate (via Bo Wang):
-->The Punishment Decision Should Be Made Based on Criminal Facts and Law Regulations--My Thoughts On the Written Judgment of Bo Xilai’s First Instance (Sept. 22, 2013).

Three Approaches to Regulating Corporate Governance: State Regulation Through Law; Market Regulation Through Mandatory Transparency and State Intervention as an Active Shareholder--The Example of Capping Executive Pay

(Pix (c) Larry Catá Backer 2013)

States and the international community have been moving toward one of three distinct approaches to regulating corporate governance.  The first and most traditional involves direct regulation through  the domestic legal order of states.  It is the most effective, but only to the extent that the regulated community is trapped within the territory of the regulating state. The second involves control of corporate governance indirectly through state control of markets for information.  The idea here is that investor tastes will determine the viability of corporate behavior and states may signal approval or disapproval through mechanics of disclosure. The last escapes the public regulatory sphere in favor of markets.  Here the state becomes a private investor in enterprises in which they assert the ordinary rights of influential investors to change corporate behavior like an ordinary owner. This approach privatizes regulation or inserts the state into the private sphere in new and innovative ways. 

The resulting fracture in approaches suggests the complications of regulation in the 21st century and suggests the ways in which multiple layers of overlapping regulation, each with distinct boundaries, may be shaping a polycentric governance universe in this century. More importantly, this fracturing of approaches is having real time effects in contemporary controversies over the regulation of corporate conduct with respect to specific issues. One of the hottest issues of corporate governance in recent years has been that of the growing gap between the pay of the highest and lowest paid employees of enterprises.   

This post considers how the emerging "schools" of corporate governance management, direct control through state law, indirect control through mandatory transparency regimes, and private control through active shareholding may affect the current debates over the regulatory intervention of the state in the market for corporate talent, and specifically in the context of the current debate about controlling executive pay.

The 2nd U.N. Forum on Busness and Human Rights Live Streaming and Thoughts on Trends in Managing Business Behaviors

The plenary sessions of the 2013 UN Forum on Business and Human Rights, held in Geneva on 2–4 December are being streamed.

Watch the plenary sessions of the Forum - Live streaming.

At the 2nd U.N. Forum on Business and Human Rights--Reflections on Bilchitz and Deva (eds) "Human Rights Obligations of Business: Beyond the Corporate Responsibility to Respect?"

In a prior post I noted the then upcoming Second Annual United Nations Forum on Business and Human Rights, of the Working Group on the issue of human rights and transnational corporations and other business enterprises, will be held in Geneva 2-4 December 2013. (e.g., 2013 United Nations Forum on Business and Human Rights--Forum Documents Available).

I have the delightful privilege of serving as a commentator at one of the side events of this Forum, the book launch of The Human Rights Obligations of Business:  Beyond the Corporate Responsibility to Respect? (Surya Deva and David Bilchitz, eds., Cambridge University Press, 2013).  This event takes place on Monday 2 December 2013 in the Library Events Room (B-135) Building B, 1st Floor at the U.N. HQ in Geneva.  The work is important and deserves critical engagement at the highest levels for the reasons I elaborate below.

This post includes my review of The Human Rights Obligations of Business from which I will draw the comments I will make at that book launch.