“GOTCHA”: Social Media and the Labor Laws

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Employees sometimes post unfavorable comments about their bosses or companies on Facebook or other social media sites.  Employers sometimes don’t take too kindly to such criticism and may take adverse job actions in response.  So far so good.

But what happens when social media criticism reflects joint action by a group of employees?  Let’s say one employee says to a group of employee friends that the company is stupid and unethical and underpays and its president is creepy and someone ought to do something about it?  And one of the group posts a comment to that effect?

Enter the National Labor Relations Board, which you may recall is charged with protecting group employee action from retaliation by employers.    This post I described is “protected concerted action” by employees and legally cannot result in retaliation.  Further, employer policies about social media cannot prohibit a wide range of posts, including the oft-banned comment that may damage the reputation or goodwill of the employer.

Interestingly, over-the-top language and personal affronts don’t change the result; in one case a post described a boss as a “scumbag” and the NLRB did not care — in the heat of labor disputes nasty things are said all the time.

Since NLRB rules in this area apply to all employers and not just those companies with a union presence, it is likely that management and even in-house counsel may lack sensitivity to these issues in both HR management and in drafting policies.  This area is a “gotcha” and one of those unfortunate ones where caerful study of the NLRB report, or actually undertaking the distasteful step of hiring counsel, may be indicated.

“Occupy” and the Underlying Economics

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I don’t want to re-engage here the by now much-overworked debate as to whether there is a coherent message or an identifiable plan emerging from the “occupy” movements, or whether those movements will survive the winter snows of Boston or the police actions that will over time no doubt increase.

I do want to just record, without detailed citation (this data is easily retrieved from the internet as reported by the mainstream press), the highpoints, or rather lowpoints, of our current economic situation.  I do submit that one underlying driver of the “occupy” movement is growing awareness of great economic distress.

We have learned that poverty is growing in the US.  We have learned that the number of people who fall into the category of gross poverty (less than 50% of the poverty line earnings) has doubled over recent years.  We have learned that young people are disproportionately unemployed.  We have learned that undereducated people are losing ground relative to the educated.  We have learned (November 9 Boston Globe) that there are Boston neighborhoods with over 40% of the children below the poverty line, most in single parent homes and with 20% of those parents without a high school degree.  We have learned that on an international scale, our economic and social well-being, once pre-eminent, has fallen mightily; the Times reported the Bertelsmann Siftung survey indicating that our child poverty and senior citizen poverty rates place us in company with Grece, Chile, Turkey, Mexico and other unenviable peers,  while our “overall social justice rating” ranks us below such as South Korea, Portugal, Slovakia, Ireland, Hungary, Poland and other countries which are instinctively dismissed by Americans as not in our league.

While it is unlikely that cutting the economic legs off the wealthy will achieve anything useful in the long run (the money to be redistributed is a pittance compared to the problem), we should understand that that reaction (tax the rich) is one of frustration in light of the economic realities, and the loss of faith by the folks at the bottom that they have a reasonable shot at rising upwards.  And the internationalization of business and its growing tax-efficiencies are in fact a significant issue in our ability to afford the legitimate demands that an enlightened society puts upon its government; today’s signs in Dewey Square don’t so much want to tax people who make a lot of money, but rather to tax the entities with high untaxed profits even after the compensation of our highest earners.

It is likewise no doubt frustrating for people who work hard for their money, and perform difficult tasks, to be told they are overpaid.  The point is they are not so much overpaid as the other guys are underpaid or unpaid.  But another point is that those who work and earn and get angry at Occupy had best understand their own risk profile: regardless of who is “right” about many of these issues, the perception of these issues, if held by a large enough part of the population over a long enough period of time, will be viewed as unfair, will certainly be uncharitable in human terms, and will likely destabilize the society which is the assumed underpinning of the safe enjoyment of the wealth being accumulated by all this hard labor.

Class tension interferes with what we really need to get done: create confidence in the society so as to drive funding of innovation; allow confidence in other people so as to loosen immigration in areas that actually can expand the economy; create predictibility in our politics and public policies;  find some way to mediate the power of wealth which is driving public policy into areas of self-interest measured in the narrowest sense.

We are all in this together.  Driving to Weston doesn’t distance us from the tents in Dewey Square.  If the tents disappear from Dewey Square, the people in them, and the problems they reflect, do not disappear.  These people are like Whitman’s leaves of grass; they are ever under our feet.  And grass can be slippery for those who stride across it without heed for their footing.

Seize the Day–and the Computer

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On November 3, 2010 a US citizen returning to Cambridge, MA from a trip to Mexico was questioned at the airport by the Department of Homeland Security.  It is not clear where Homeland Security gets its lists of suspicious folks but I thought they were to protect us from terrorists.

Seems this citizen was involved with a non-profit supporting Bradley Manning, the soldier accused of leaking classfied documents to WikiLeaks.

Our citizen was released but DHS retained his laptop, USB drive and camera for almost two months.  Enter the ACLU of Massachusetts, which brought suit on free speech and unlawful search grounds; there was nothing illegal about our citizen’s support for the non-profit and thus no seeming basis, under traditional legal analysis, for searching or seizing any property.

This month ACLU lawyers go to court to challenge the oppressive impact of hassling travelers whose sole sin appears to be the exercise of First Amendment rights.  We all should be following the case ofHouse v. Napolitano, which will be argued this month in US District Court in Massachusetts.

The incursions on liberty are growing yet viewed singly and at first blush may appear subtle.  They also can be dismissed as reflecting a paranoid fear of a government we all know in fact is benign.  But those who know of McCarthy, of J. Edgar Hoover, and of the corruptive nature of combining excess zeal with unbridled power need to react against these incursions.  Today the government can easily know where we are physically, and what we say over the internet and on social media (which are the modalities of communication most used in our society). The assumption that, if our government is doing it then, it is intelligently and fairly performed flies in the face of experience and of the societal judgment of liberal and conservative alike; this is an area where all should agree that big government involvement is thought unwise by all political viewpoints.

Do Directors Matter?

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The National Association of Corporate Directors reports the median pay of a Fortune 200 director at $228,058, a tidy sum although not nearly enough if a derivative suit is filed against the board.  NACD does not report on any relationship between compensation and frequency of litigation.

Commentary on the survey attempts to make the point that weak boards of directors tend to lead to corporate catastrophe.  This surely is a conclusion that seems intuitive, but is it correct?

Fortune, as reported by CNN Money on line, collects anecdotal situations wherein problem boards ended up with big corporate problems to boot: News Corp, BP, etc.  These boards seem to lack truly independent directors (nothwitstanding regulatory requirements for public companies wherein carefully defined levels of independence are required to sit on audit and comp committees), coupled with long tenures, advanced age, lack of women or minorities, and with personal ties to top executives (which latter point is just another way of saying they lack independence).

Several issues suggest themselves.  Aside from linking some companies suffering catastrophe with a lack of strong directorship, the data does not seem to reach the question of whether poorly directed companies have a higher catastrophe RATE.  Many poorly directed companies dodge the bullet plenty.  Many well directed companies suffer major set-backs.

It is important not to use only hindsight.  It is easy, after a debacle, to go back and note that the board lacked certain attributes.  But if you did an audit of all companies, which would include the damned and the blessed, would failure follow the weakest board?

How many of us have seen very well run boards nonetheless get surprised by disaster?  The legal standard for boards is not to meddle in operations; boards do not have front-line responsibilities.  If there is risk identified, the board is supposed to inquire that the risk is being addressed, not itself seize control of a company at the operational level.  A board has a duty of care that includes using normally prudent practices to identify and cause to be addressed enterprise risk.  The management has the operational burden.

So perhaps the ultimate stopping place of the buck, at the board level, is the selection of the principal officers who DO have front line responsibility for execution?  And perhaps a non-independent board ultimately does tend to rule over a company that is disaster-prone because such a board elects cronies, retains its own membership too long, and becomes used to the nice dinners and dulled to their duties?

The last decade of corporate grief seems to this observer, indeed again anecdotally, to be spread widely across the spectrum of well-directed, ill-directed and non-directed businesses; if anyone out there has data that is more tightly ratcheted on a statistical demonstration of the avoidance of catastrophe (not the level of earnings, just the absence of disaster) in the presence of a younger and more rigidly “independent” directorship, I would be interested in hearing about it.

We strive for good directors and thus are invested in seeing better performance from boards which meet our preconceptions.  And surely independence on boards is a defense to many shareholder suits (put another way, woe be to the defendant director who can be painted in a lawsuit as a “crony” of the controlling person(s)),

And I haven’t even gotten to the implicit age-ism in the equating of older directors with lousy boards….

Companies Should not Whistle at Whistleblowers

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Public companies are required by Sarbanes Oxley to avoid adverse employment action against employees who in good faith suggest that certain laws are being violated by their employer.  The enforcement of anti-retaliation protections rests in a Review Board of the United States Department of Labor (and not, as many might assume, with the SEC).  The idea is that the DOL has experience under other laws in protecting against employer retaliation.

In September, the Review Board held (Menendez v. Halliburton) that an employer may be held to have taken unlawful retaliatory action simply by divulging the name of a whistleblower to that person’s fellow employees.  Seems the employees shunned Menendez after he blew the whistle, indicating that workers don’t like a rat even while the Congress and SEC are attempting to promote such actions.  (Indeed, the 2010 Dodd Frank Act provides cash bounties to whistleblowing employees in many circumstances.)

While it seems about four centuries since Halliburton got any piece of good publicity, the release of an anonymous whistleblower’s name clearly is not what that person wanted to have happen, and it is hard to imagine a corporate motive  for that name release except an effort to discourage the underlying behavior.  In that light, the Review Board had little choice but to condemn the practice in protection of the regulatory reporting scheme.

In an interesting sidelight, the CPAs doing the company audit declined to speak with the whistleblower until his allegations were resolved, an action that might well endear the accountants to management but is hard to parse with the idea that the CPAs need to track down the accounting truths,  at least when placed on inquiry notice.

Decline and Fall

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Today I write about the breakdown of the American social compact.

The Congress cannot engage in dialog on important issues.  We do not speak to each other, we do not listen.  Republicans stonewall.  The President campaigns rather than inspires a dialog.

A candidate for school committee in Newton campaigns on the platform of building a bridge between the schools and the 80% without children in the schools.  This in a city noted for its educational system, and where once all taxpayers understood investment in the future of the children.

Commentators on the Occupy movement criticize the participants because they do not have a program, as if having a solution to incredibly complex problems is easy to articulate in a 140 character sound bite digestible by our slogan-ized polity.  Is not the message clear, that many of our fellow citizens feel grossly disenfranchised and mistreated in our society in a variety of ways?  Even suburban populations are forming support groups for the Boston “Occupy” movement.

Is it not clear that movements such as this always attract marginal issues, but that we must strip out the clutter and understand the fundamentals, rather than marginalizing the fundamental content?

The Boston Globe reports a heightened concentration of US wealth over the last three decades, and the Globe may be the last publication on earth to discover this reality.  This factual driver of “Occupy” seems to be missed by some of “the one percent,” and the “movement” seems unable to communicate the core issue to many who clearly are not hearing it.

What do non-Americans think of our political state?   The other day in our offices, which overlook Dewey Square and Boston’s tent city, a dozen Russian entrepreneurs attended a business conference to discuss their companies.  One or two commented on the protesters, but most were politely silent. The business of business is business, not politics.

This convenient dichotomy is perhaps learned in countries where growing economic opportunity must co-exist without political freedom;  but is this a dichotomy (business as divorced from public debate of politics) that Americans living under our Constitution should embrace?  Aside from a mixture of embarrassment and distaste, what should the 1%-ers, looking down on the tents, be thinking?  How many go down to the streets and talk with the people?  Not many, to my experience.

Why is it repellent when people exercise the rights they have under our Constitution?  Seems as if many folks in the office towers love the geographic or non-specific idea of America, but not the actual exercise of American rights which are part of our social compact: free speech, free assembly, economic opportunity in fact, and open communication leading to jointly reached and mediated solutions.

For those people who think that John Locke is a bolt for your toilet door, I suggest an elevator down to the street and a modest exercise in the way in which American society ought to operate: talk with, not over your fellow citizens. THAT is the social compact we once thought we had, and the one we need to redeem.

Yesterday, one of my partners forwarded to me an on-line article complaining that the Occupy people smell bad.  This is what purports to pass for political analysis today.  I’ll bet George Washington’s armpits stank at Valley Forge; let’s give the country back to the British, seemingly smelly people don’t deserve our attention.  Although I would bet my bankbook that the author of the smell test never visited the tents and, well, sniffed around.

And, returning to the young Russian entrepreneurs for a moment, as one of them said: “The people downstairs just want to be treated as people.”  If a twenty-something Russian engineer with marginal English and no tradition of free politics can understand what “Occupy” is all about, why do so many Americans have a problem doing so?  Maybe we have stopped listening….

When Corporate Directors Should Get Proactive

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At this morning’s meeting of the New England Chapter of the National Association of Corporate Directors, the panel of senior board members  counseled a level of board activism that is at odds with the common wisdom that directors should set policy but not manage process or implementation.

Professor Walter Salmon, emeritus at Harvard Business School and an active board member of many public companies in the past, advised that in an acquisition the acquiror’s directors must evaluate whether the deal is a “bet the farm” play for the acquiror.  If it is, he suggests that the board in effect hijack the project by establishing a special independent board committee, which committee in turn hires and receives the reports from the advisors to the company.  The effect is to remove the implicit bias that outside experts feel when management hires those advisers to evaluate a deal proposed by management in the first instance.

Further, Professor Salmon suggested that a board committee be established to monitor the acquisition after it occurs, bearing in mind the many failures of acquisitions to enhance the acquiror.

Other panelists, Alan MacDonald (former CEO of Nestle) and Deborah McAneny (current lead independent director of a NYSE firm and director of another) each recounted serious corporate crises and counseled activist intervention by the board in fast-moving and unexpected situations where management might well be too close to the situation to have perspective.

We sometimes explain to directors that their job is “noses in, hands off” but the panel suggested that boards have a role, in crisis, in doing much more than suggesting strategic approaches to management, even though such activism can create tensions with the CEO.

And speaking of CEOs, Professor Salmon suggested that when things hit crisis mode a company was not necessarily well served to have sitting CEOs (a favorite choice of management) on the board because they may well not have the time that it takes to attend near-continuous board meetings that such a crisis may require.

Query whether the business judgment rule, that protects directors who exercise reasonable diligence from liability even for incorrect decisions, extends to protect directors who are at the cutting edge of board activism.  The usual lawsuit against directors is that they did not pay attention and did not do enough.  What if they jump in, fundamentally compel a prompt strategy, and that strategy is a failure?

It is not getting easier to be a corporate director….

Baseball only for Red Sox Fans

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On this morning’s drive in, radio said Big Papi is looking to NY Yankees, is tired of the “drama” in Boston.  Is that a plausible excuse for jumping for the money?  Is it better than Roger’s?  How about Damon’s?  It is of course bullshit but is it good bullshit?

You know the other side of all this is a growing belief that tickets should not be bought at all.  I know, I know, I have waxed eloquent about how in the Spring men cannot resist the call of the green viewed through the ramp when you first enter the ballpark, but this is Fall, heading for Winter, so I am not there yet.  If you think about the team without Pap, Tek, Wake, Papi, a  questionable Scutaro, maybe Beckett, Bard as no real closer’s closer, Crawdaddy feeling even more pressure, looks like a solid lock on third place.

BTW, remember how careful the team was to relieve the players, platoon them, not over-work the pitchers, so there would be general gas in the tank for the year-end?  I thought Francona was really smart in that way and what did it get us?  Not sure it mattered one way or another, but perhaps it backfired?  The winning teams I think (need data here) just played balls to the wall all year.  Like a good race horse, you don’t run a loose race, it ruins the animal who always should be looking straight ahead.  That’s what blinders and whips are for.

Plus you just cannot get comfortable in rooting for a team when its key elements go out the revolving door all the time.  Remember when you could recite from memory the starting line-up of most teams?  More important than where you finish is, how do you feel spending $500 to take your family to the ballpark?  You should not feel angry.  Right now I have this floating anger.

Morning headlines: our sainted teen-aged General Manager likely is going to Chicago.  Radio says he will be promoted to President, etc. and get $15M for five years.  The same guy who John Henry is quietly firing ala Francona (you’re fired, now go out to the microphone and say you quit).  The same guy who brought us the much criticised 2011 Red Sox!  Either the Cubs are nuts to hire this loser or the baloney in the press about the Red Sox dream team being garbage is simply space filler for the Globe.  I vote the latter; we lost, we won lots of games, we lost two starters, we had a team of overpaid, immature morons (like every baseball team), so what’s new?  What GM can hire or predict team cohesion and hunger?  My only wish is that Theo takes Crawford with him as a doorstop.

Playoff games last night were really fun.  Good to see some other teams show their grit.  These guys want it bad, you can tell.  My partners from the hinterlands (not NY, not Boston, not Philly) are emailing about how good this is for fans and baseball, albeit not for Fox TV.  Likely Fox will be mildly surprised by how much TV attendance they will get for the Series, they will get my attention regardless of who is playing from among these four survivors.  I have respect for teams that act like teams.  But no doubt the Series loser, whoever it is, will be skewered in a tell-all mega-press article about how they hated each other really and further how they never washed out their jocks after an extra-inning game.

I see deja-vu.

OR, as in the children’s rhyme:

I see London, I see France,

I see Papi’s ————-.

Shareholder nomination of public company directors

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There seems to be some confusion about what has happened to the movement to compel public companies to place shareholder nominees on the ballot for directorships.  Let me try to sort out the state of play:

1. Federal nomination rule defeated: The SEC adopted Federal Rules to compel companies to place nominees of certain shareholders on the ballot.  The National Chamber of Commerce and the Business Roundtable sued and successfully sank this proposal; the SEC gave up.

2. Companies themselves may elect to permit shareholder nominations:  A proposal to amend SEC Rule 14a-(1)(8) to permit a company to itself adopt a bylaw controlling shareholder rights to nominate directors was not objected to and has become effective as of September 20, 2011.  This Rule permits what is known as “private ordering;” a company can permit, or not permit, shareholder nominations and can define the conditions of those nominations.

3. Effect: What that means is that shareholders as a first step can compel a company to place in its proxy statement a proposal to set the terms for shareholder nominations.  This does NOT mean that now a shareholder can make a nomination and compel proxy inclusion of that nominee; that is the very thing that the rejected SEC rule calling for Federal nomination procedures attempted to achieve.

4. What can we expect?

5. Anticipated shareholder actions:  Activist shareholders, such as pension funds or aggressive hedge funds, my offer proposals for establishing a methodology to permit future shareholder nominations.  Companies with poor performance, or already under attack on other grounds, can expect an assault of this type during the coming proxy season (2012).  Such proposals must be made prior to the company’s regular cut-off date for submission of proxy proposals by shareholders; figure four months before the anniversary of  last year’s solicitation date.   That means the November-December time frame for most calendar year-end companies.

6. Possible pre-emptive board actions?:  Boards may choose to be pro-active in one of two ways.  A Board can itself forthwith amend its bylaws to provide a board-favored methodology for permitting nominations, stealing the thunder of any possible shareholder proposal.  If a company proposes a plausible methodology, then a shareholder will have to argue that ITS proposal is better; a weaker stockholder position.   Alternately, a well-run company with a confident board may try to seize the high ground by announcing that corporate success is the result of the company’s excellent board succession processes and that the board will not recommend adoption of any shareholder proposal to institute shareholder nominations, all in hopes of scaring off or positioning any shareholder who would offer such a proposal.

7. Rating agencies:  The ISS, notable among the investor advisory services, has yet to speak as to its standards for evaluating boards that resist shareholder nomination proposals, and likely those that propound proposals which are insufficiently liberal in granting shareholder rights.

8. Nominator requirements:  Note that not every shareholder will be able to make a proposal for proxy inclusion; a shareholder must hold at lest $2,000 or 1% of the company’s voting securities  for at least a year, and must hold them at meeting time.

9.  State law important:  Since the SEC rule leaves it to the company to define the rules for shareholder nominations, if any, one must look at state law to see how to achieve an effective proposal (that is, a proposal to establish shareholder nominations which must be included in company proxy solitications, which proposal in turn MUST be included in a company proxy statement under SEC Rule 14-a).

10. Private companies: None of this affects private companies (although the Delaware corporate law specifically permits such a bylaw, for all companies that solicit proxies, and that general permission would extend theoretically to private companies; see section 112).

As with all things SEC, there is plenty more detail, and some forms (including form 8-K requirements), but the above should give a basic orientation as to what has, and has not, been adopted.

Say on Pay: You don’t say!

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The SEC has mandated public companies to vote at least every three years on executive comp; shareholders must take a nonbinding (advisory) vote on whether they approve comp levels and golden parachutes.  The idea is, no doubt, to pressure the board to keep a cap on management greed.

Without speculating on whether or not boards of directors will in fact feel pressured on such matters, we can look at a recent case in which a court threw out a lawsuit by a Teamsters retirement fund, which raised one issue under the SEC say on pay scheme.

In September a Georgia court, interpreting Delaware law, threw out a claim by the Teamsters Fund against the directors for allowing excessive compensation for a management team that brought a $34 Million loss to the bottom line.  As with most law suits, there are a lot of issues and twists and turns, but what is of interest here is the claim that the directors breached their fiduciary duties by recommending that shareholders approve the compensation in its advisory vote which was compelled by the Dodd-Frank Act.

Among various holdings, some of which the court went out of its way to reach (the judge shot the plaintiffs down six ways to Sunday), the court found that since a board can in the exercise of its business judgment compensate any way it chooses (absent fraud or self-interest), it cannot be a breach of duty to ask the shareholders to bless the board decision in a process compelled by SEC regulation.  The court notes that in any event no conclusion can be supported based on a negative shareholder vote, or a positive shareholder vote, as say on pay votes are non-binding and thus failure to have shareholder approval does not at all prove excessive pay, let alone a breach of duty.

Less than 2% of companies which have held the required say on pay vote have experienced shareholder negative votes.  It is not at all clear that Dodd Frank and the say on pay SEC rules have accomplished anything of use, although I suppose a downward trend in executive comp (not in evidence yet) might in the future alter that preliminary analysis.

Law buffs might want to look at Teamsters Local 237 vs McCarthy et al, filed September 16 2011 with the Deputy Clerk of the Superior Court of Fulton County, Georgia.  If you have trouble finding it, let me know.