As Pressure on Japanese Corporate Boards Rises, the Legal Uncertainty Around Corporate Defenses Stands Out

Corporate governance in the world’s third-largest economy is at an inflection point. Facing an influx of foreign and domestic activists in their shareholder registers, Japanese boards are pressured to explore what defenses are legal. Unfortunately for them (and their lawyers), the Japanese courts have done a poor job of clarifying what is OK and what is not.

On October 29, 2021, the Tokyo District Court upheld Tokyo Kikai Seisakusho’s exclusion of Asia Development Capital (ADC), a 40% shareholder, from voting at the shareholder meeting. This ruling, which was supported by the Tokyo High Court and Japan’s Supreme Court, is not yet publicly available. But one Tokyo-based corporate lawyer who received the opinion on a confidential basis lambasted the District Court’s reasoning. The opinion read that “it cannot be summarily said that in light of the relevant circumstances, it was unreasonable to leave the judgment whether corporate value or collective shareholder interests would be harmed to the decision of the shareholders affected.” The decision reportedly does not refer to precedent or statute, nor does it spell out what circumstances wouldn’t be enough to exclude a shareholder.

The circumstances in the Tokyo Kikai case were as follows. TSE-listed ADC is a Chinese-controlled entity with an admittedly shady reputation that includes past securities fraud, murky ownership, and unclear business operations. It had rapidly built up a 40% stake over warnings from Tokyo Kikai and failed to offer a management plan to the company’s board. Under Japanese law, with more than 33% ownership, ADC would have veto rights over important board decisions. Sensing danger, Tokyo Kikai convened a special shareholders meeting to vote on implementing a poison pill, and it decided to exclude ADC from that vote. After failing to obtain an injunction in court, ADC conceded to reduce its stake to 32.7%, just below the 33% threshold.

The Japanese courts have been loath come up with a clear rule on corporate defenses. The only Supreme Court case to ever consider poison pill-like defenses, Bull-Dog Sauce (2007), is disappointingly vague, and its value as precedent is questionable. In that case, sauce manufacturer Bull-Dog Sauce’s board attempted to ward off a takeover by U.S. private equity fund Steel Partners by proposing an option dividend that could be exercised by all shareholders except Steel Partners. Unlike a traditional poison pill, Steel Partners would receive cash compensation if the options were exercised, effectively forcing it to cash out as a shareholder. As many as 83.7% of the Bull-Dog Sauce shareholders (virtually every shareholder other than Steel Partners) voted for the proposal, and the U.S. investor went to court for an injunction.

Steel Partners lost. The highest court ruled that the discriminatory dividend did not violate the principle of shareholder equality (Article 109 of Japan’s Companies Act) because it was reasonable. The court reasoned that the interests of shareholders depend on the continuance and development of the company, and when these are threatened by a particular shareholder, discriminatory treatment of that shareholder to protect the other shareholders’ interests is not per se unreasonable. Shareholders must decide whether a particular shareholder is a threat to corporate value, and their decision, if informed and made through proper procedures, must be respected. Since 83.7% of the shareholders had voted in favor of the board’s proposal, they had evidently determined that Steel Partners was a threat, so the defensive measure was legal.

Bull-Dog Sauce involved unusual facts unlikely to recur. In its wake, the poison pills that Japanese companies adopted did not involve cash payments to compensate hostile acquirers. What little the case did suggest is that boards should obtain shareholder ratification of defensive measures, given how much value the Bull-Dog Sauce court assigned to the shareholder vote in that case. Thus, in contrast to Delaware, where boards can independently adopt pills, Japanese boards typically obtain shareholder approval before implementing defensive measures. To illustrate, a Tokyo court recently struck down a poison pill because it was implemented without shareholder ratification.

With Japan, Inc. more threatened than ever before, the need for clarity is at an all-time high. After a record amount of shareholder activism last year, 2021 is shaping up to be an even more eventful year for Japanese boards. Probably the biggest recent highlight was Toshiba’s decision to unwind its conglomerate structure after years of shareholder pressure, adding another chapter to the rollercoaster Toshiba saga of rigged shareholder votes, collusion with government officials, and the CEO being shown the door. Another highlight is SBI’s ongoing hostile takeover attempt for Shinsei Bank, one of the country’s largest banks. The trend of rising activism in Japan is unlikely to reverse course, and one hopes that the country’s courts will address the need to clarify what corporate defenses are legal.

Amidst Industry Volatility, The Fed Fires a Warning Shot Over ‘Meme’ Stocks

Casual observers, traditional retail stock traders, and financing industry professionals alike were off-guard as “meme stocks” surged in value after blocks of retail investors eschewed traditional notions of investing in favor of fun. Meme stocks—securities that experienced rapid volatility stemming from social media—took their place in the cultural zeitgeist after thousands of investors poured support into struggling companies such as Gamestop (GME) and AMC Entertainment Holdings (AMC). Though these stocks were expected to return to their “real” value, “meme-flated” prices have left an impact. A recent November 2021 Federal Reserve report cautions that the rise of meme stocks could pose risks to future financial stability.

Traditionally, stock prices are expected to reflect the value of the company and its future cash flows. This was certainly true for GME and AMC. These publicly traded companies were on thin ice even before the pandemic, amid the decline of brick-and-mortar store and the rise of streaming services. The pandemic caused these companies even sharper losses. Accordingly, bearish hedge funds bet against GME and AMC using options because their share values were low and their core businesses were still struggling. However, these funds recoiled when Gamestop and AMC’s stock prices surged 1,700% and 840%, respectively, late this past January.

AMC and GME shot up due to social media chatter, most notably in the subreddit r/WallStreetBets. The popular Reddit forum provides communication channels for novice stock traders to collectively get behind in certain stocks, regardless of public factors indicating lack of profitability. While many expected meme stocks to be only a fad, that has not been the case. Now, the Fed is paying attention – and warning investors.

The Federal Reserve’s biannual financial stability report published earlier this month directly addressed this trend. The report noted the impact thus far on the markets has been minimal. However, it also highlighted that the GME and AMC short squeezes indicated several trends that could create “broad financial instability.”

First, meme stocks could pose risks to vulnerable investors. While the rise in meme stocks has been driven by young and social media-savvy trading novices, younger investors may wind up bearing the bulk of the negative consequences. The Fed’s report noted that investors with greater debt (including a high percentage of younger investors) are left more vulnerable by large swings. The increased use of “options,” whereby investors can bet on the value of a stock at cost, tend to amplify losses. This leaves younger investors particularly susceptible to sizable swings caused by their peers’ erratic social media chatter.

Second, the Fed likewise warned that elevated risk appetite among retail investors could lead to wider trepidation if the relationship between traditional retail investors and social media continues to become more unpredictable. No one wants to be the next Melvin Capital (a hedge fund that bet against Gamestop during its meme-fueled rise and experienced a 46% loss in the first half of the year). Social media investors’ lack of predictability may incentivize traditional retail investors away from taking risks, driving prudent investors out of the market. Third, the Fed warned that risk management systems lacked calibration for such episodes, noting how this sharp volatility “may require further steps to ensure the resilience of the financial system.”

Despite the Fed’s warnings, the market’s reaction has been to try to ride out the meme-stock wave rather than to try to quell it. Undaunted by the seemingly unpredictable nature of social media stock surges, some have tried to quantify and forecast social media “hype.” In March, Buzz Holdings created an exchange-traded fund called the VanEck Social Sentiment ETF (BUZZ) that tracks the performance of stocks receiving social media hype. The index uses language algorithms monitoring broad social media sources to examine whether comments are positive, negative, or neutral and ranks the stocks based on sentiment and prominence in discussion. BUZZ has not yet proven to be a crystal ball for the next meme stock. Nevertheless, the project demonstrates the industry’s awareness of the potency of meme stocks and its early attempts to predict social media discourse and its effects on share prices.

The Fed’s report confirms that market watchers and financial institutions will likely be on the lookout for market volatility due to social media attention. In turn, the industry’s reaction demonstrates that, despite the Fed’s warnings, it wants to capture the value in that volatility. Predicting the next Gamestop may prove elusive – but doing so could be the name of the game.


The Covid-19 M&A Tsunami: Causes and Characteristics

We are experiencing the biggest year for global M&A ever. Companies are relentlessly looking for potential targets while re-examining their business strategies. With healthy macroeconomics drivers and CEOs’ confidence through the roof, the pace is hectic and remote work has been a strategic accelerator. Corporate lawyers are gasping for air, and employers across the spectrum of M&A, divestitures, and capital markets are scrambling to hire experienced professionals. Some in large law firms are even worried that the boom in hiring resembles the housing bubble originated by the subprime mortgage market.

According to Refinitiv data, M&A activity worldwide totaled $4.4 trillion between January 1 and September 30, 2021. It’s the strongest opening since recordings began in 1980 and a 92% increase compared to the previous year. The tech, healthcare, and energy sectors are under the spotlight. Software deals are becoming more and more crucial, and companies are accelerating the transition to a “green future.” Goldman Sachs earned $17.7 billion in the first nine months of 2021, making it the bank’s most profitable year ever, even without considering earnings from October to the end of December. The records are piling up month after month, lots of capital is moving, and players are constantly looking for opportunities.

While in the past, especially before the 1970s, M&A deals were mainly friendly and financed by cash or equity, nowadays sellers and buyers have a myriad of options, and navigating through them can be a headache. The current M&A boom is characterized by a high demand for private equity and a rebound in SPAC acquisitions.

Transaction cycles can be explained through different drivers. U.S. M&A activity generally comes in “waves,” and it seems that we are currently undergoing a tsunami after the economic decline in the opening months of 2020. To understand how Covid-19 impacted M&A activity, we can identify four main drivers by extrapolating M&A waves and trends: the regulatory landscape, access to liquidity, stock market performance, and emerging strategic needs.

Interest rates are low, and the stock market is performing exceptionally well overall. The pandemic has shown weaknesses and created new necessities, such as in digital channels, supply chain links, and operating models. At the same time, many players have been left severely wounded with declining revenues and financial distress, leaving them open to aggressive takeovers or forcing them to divest and optimize.

On the other hand, the Covid-19 pandemic remains remarkably unpredictable. Structural macroeconomic issues seem to constitute sizable wave-blocking elements. In particular, supply chain fallout and inflation are at the center of media attention. The Biden administration is scaring players with its antitrust policies, and the SPAC rebound could attract stricter regulatory scrutiny. With foreign direct investment regulators adding more uncertainty, the overall regulatory environment paints a scary picture.

Assessing the duration or outcomes of the current M&A surge and economic recovery is nearly impossible without enormous margins for errors. Nonetheless, one factor is worth looking at: CEO confidence is still sky-high. It’s essential that leaders in charge of navigating corporate strategy and with the final say in M&A decisions remain optimistic. In the PwC 24th Annual Global CEO Survey (2021), when asked about their prediction on economic growth for the year, 76% of CEOs expected growth and less than 15% a decline. Concerns about the health emergency and macroeconomic obstacles do not seem to overly impact the expectations of key players.

On November 11 and 12, the Berkeley Forum for Corporate Governance hosted some of the most prominent and influential figures in corporate law in San Francisco. During their panels, the speakers agreed near unanimously that current market trends in M&A activity are unlikely to cease or reverse by next year. As Anu Aiyengar of JP Morgan said, “M&A is a confidence game.” As long as the players, including CEOs, sponsors, and advisors, feel good about the environment, they will continue to play.

Disruptive events can be followed by innovation and prosperity. This wave could lead to productive and sustainable economic growth, supposing that players are not just reacting to exogenous incentives but strategically planning for the future. It also assumes that macroeconomic obstacles will be short-lived, and the negative effects of Covid-19 will eventually subside. These are good times for those curious about change, and we should keep an eye on how the global M&A scene is reshaping.


Raising Standards for User Safety: How Roblox Creates a Challenge for Social Media Platforms

With tech companies increasingly under scrutiny for privacy violations and inappropriate content, one gaming company has been lauded by several of its peers for its ability to develop a child appropriate and seemingly safe game. Roblox, an online game platform, has shown increased attention and care for the safety of the game’s youngest users while simultaneously evolving its app to keep up with older audiences.

Immensely popular with children for years, Roblox’s recent customer patterns show that, the game has expanded beyond their young customer base and attracted the attention of some older users, specifically young adults. During a speech by CEO Dave Baszucki, a large number of young adults were spotted in an audience that historically would have been only children. In a time when the Senate subcommittee is focusing on a whistleblower’s concern that Instagram is harming teenagers, Roblox has grown and expanded its customer base by actively seeking out older users. While mixing younger and older audiences poses a significant challenge, Baszucki has assured the public that additional safeguards are being put in place to prevent dangerous behavior in the Roblox universe.

The industry is taking account of Roblox’s efforts as well. Titania Jordan, the chief executive of Bark, an AI company, has come out in support of Roblox. While acknowledging that some poor behavior by the users has managed to slip through the cracks, Jordan stated that Roblox is doing commendable work, especially when compared to other social media platforms. For its part, Roblox has acknowledged bad user behavior on its platform and is actively looking into methods to curb third-party chat apps that are the conduit for some dangerous behavior.

It is safe to say that Roblox has gone beyond the ordinary duty and standard of and has raised the standard for other tech companies. The duty of care of any company is measured by what another prudent corporation would do in similar circumstances. Roblox has dedicated a large part of their design to deal with illicit material. It has incorporated parental controls that children cannot disable, updated its community standards to ban terrorist groups from recruiting and fundraising through the game, banned discussions of political parties and romance, and requires users to upload a government-issued ID with a selfie in order to confirm their age.

Even with these security measures, there have been instances where Roblox users have been caught engaging in graphic sexual acts, profanity or recreating mass shootings. This exposes a risk to other gaming and internet companies as well, as it shows that even with the increased precautions taken by Roblox, things do slip through the cracks. It also means that the precautions taken by Roblox may become the bare minimum acceptable standard – raising the duty of care standard for other tech companies.

Despite these stumbling blocks, Roblox’s actively seeking out and adding older users to the mix will create safety challenges. This is especially true when it comes to protecting its youngest users from predators and exposure to cybersex or violent acts. While Baszucki has acknowledged this difficulty and has proposed new plans in response, only time will tell whether these measures will suffice. Meanwhile, Roblox shows other tech companies a road map to a greater duty of care, a standard that might end up being forced on them.

Recent Setbacks in the Legal Battle to Hold Opioid Manufacturers and Distributors Accountable

In California and Oklahoma, two recent court decisions dealt severe blows to the viability of a novel legal strategy created by lawyers representing plaintiffs harmed by prescription opioids. The innovative legal approach—suing manufacturers and distributors of prescription opioids for public nuisance or interference of a right common to the public—was first conceived in 2014 and has since become the basis for over 3,000 lawsuits attempting to hold these businesses accountable. While an attractive legal strategy for many reasons, the Orange County State Superior Court in California and the Oklahoma Supreme Court both ruled against the plaintiffs’ arguments.

Specifically, the decisions held that there is not a direct enough connection between false or misleading advertisements made by the defendant pharmaceutical companies. It did not find a strong correlation between resulting issues with opioid addiction and abuse for medically appropriate prescriptions to sufficiently establish liability for public nuisance offenses. These decisions cause concern for other lawsuits across the country based on similar legal theories.

Public nuisance complaints against opioid manufacturers and distributors became a widely adopted legal strategy across the country because of the prevalence of state public nuisance statutes, thus making precedent in one state transferable to others. Additionally, most state public nuisance statutes do not have statutes of limitations. The remedy available to plaintiffs who succeed in proving a public nuisance is abatement; this requires the liable defendants to take corrective action and financially subsidize efforts to avoid future harm.

While these factors make successful public nuisance cases an attractive prospect, they do not solve the problem created by the California and Oklahoma judgments. Each state has its own public nuisance statute, judges, and rules of procedure that will govern the other lawsuits. Still, this result will likely signal to other justices a general skepticism that must be overcome in a successful prescription opioid public nuisance cause of action. Just as the success of the strategy in one case could lead to the success of similar lawsuits around the country, so too could these rejections of the argument ripple across other states.

Further, these victories for pharmaceutical companies will likely strengthen their bargaining power in settlement negotiations as plaintiffs will be more inclined to settle than risk a likely loss in court. Currently, four large pharmaceutical companies are offering a $26 billion settlement if most states agree to the settlement terms. It will be essential to watch different states’ responses to the California and Oklahoma decisions and the four drug companies’ positions as they work towards finalizing the agreement.

Plaintiffs’ lawyers may find alternative strategies and amend their complaints to survive these decisions. Alternatively, there is a chance that other state courts, facing slightly different facts, statutes, and interpretations, may find that the connection between the advertising tactics of the pharmaceutical companies and any resulting drug abuse is less tenuous. Regardless, the necessity for plaintiffs’ attorneys to develop unconventional legal strategies highlights the reality that U.S. legislatures might be better situated to effect substantial change on the opioid epidemic.

This is potentially accomplished by a legislative act that provides more stringent regulation of pharmaceutical advertisements and more visibility of, and accountability for, the prescribing doctors. The theoretical act could limit the positive claims that drug companies can make when selling opioids and require a percentage of the commercials or advertisements to be devoted to a complete disclosure related to the severity of side effects. Such requirements would limit the persuasive power of prescription opioid advertisements and disincentivize pharmaceutical companies from running the ads in the first place. Additionally, the act could establish a civil cause of action that expands the FDA’s “Bad Ad Program.” This would allow consumers who can demonstrate injury because of a false or misleading advertisement to not only stop the ad from running in the future but also receive damages from the company that caused the harm.

The recent court decisions in California and Oklahoma signal a difficult road ahead for the civil litigation movement aimed at more effective prescription opioid regulation.


What Is Cryptocurrency Good For?

Cryptocurrencies are digital units of value tracked on encrypted, networked digital ledgers known as blockchains. The first cryptocurrency, Bitcoin, appeared for public use in 2009. It offered a currency that required no centralized validating institution, such as a bank or government. Then, in 2015, the Ethereum blockchain appeared. Rather than merely tracking tokens, this ledger can host applications, known as decentralized apps or dapps. The most significant use of this technology so far has been the development of decentralized finance, which decouples complex financial operations and instruments from traditional banking infrastructure. If Bitcoin suggests the possibility of unmediated value, decentralized finance suggests the possibility of unmediated credit. Whether it can be realized or not, for social good or otherwise, the basic possibility of these simple concepts is revolutionary.

2021 brought the first high-profile debate on American public policy and cryptocurrency. A provision of the Senate’s infrastructure bill sought to increase transparency around crypto transactions by raising reporting requirements for “brokers.” Experts, however, objected that the definition of broker was so broad as to include blockchain developers and “miners,” (people who create and maintain cryptocurrencies through the expenditure of processing power). People working in these areas are often uninvolved in the commercial exchange of cryptocurrencies, and in many cases, it would be impossible for them to obtain the information the new statute requires they report.

This is only the highest profile episode in a growing American debate about cryptocurrency regulation. Because an essential part of the technology is its independence from governmental authority, cryptocurrency sees a great deal of use in criminal ventures such as money laundering, drug trafficking, and ransomware attacks. Many cryptocurrencies may really be securities, requiring the application of a federal regulatory framework that currently does not reach them in any practical sense. But this debate also risks obscuring the substance of the issue. Opponents and proponents often characterize the matter in vague, moralistic terms—either cryptocurrency is the irredeemable tool of criminals, speculators, and polluters, or it is a vital technology that America must control as part of its economic development and competition with foreign powers. While there are plenty of clues as to which side of the debate Democrats, Republicans, liberals, conservatives, socialists, or libertarians should pick, there has been little specificity about what cryptocurrency actually is, does, or can do.

For wealthy Americans, which in the global perspective is almost all Americans, the practical advantages of a currency free from direct government control seem nonexistent or unnecessary. These are voters and donors the US government benefits from keeping happy, aggressively pursued as customers by major banks and investment firms; for them, the American currency regime works well. Why shouldn’t it? The United States is still the most powerful political and economic country on Earth, and its entire socio-political order rests on the stable and reasonably prosperous continuation of shareholder democracy.

The same cannot be said of the currency regimes under which many other people in the world live, however. Many populations remain, by virtue of poverty or politics, unappealing or unavailable as customers to the banking state. These people face poor or non-existent access to even basic banking services, crippling inflation in their local currency, and draconian capital controls aimed at protecting plutocratic elites or maintaining political repression. In Argentina, for example, inflation ran upwards of 25% annually for a decade, and the purchase of foreign currencies has been strictly limited and heavily taxed. This is a pervasive, day-to-day economic reality that borders on unimaginable for almost all Americans—and it is one in which the potential benefits of an unmediated, apolitical currency such as Bitcoin are easier to conceptualize.

In Nigeria, the utility of cryptocurrency was recently shown by activists leading major demonstrations against police brutality. Nigerians were protesting the country’s notorious Special Anti-Robbery Squad (SARS) accused of a variety of human rights abuses. These protests reached a high point in 2020, prompting the government to freeze the bank accounts of individuals and activist organizations involved. But the government could not interdict donations in cryptocurrency, which sustained the protests and contributed to their ultimate success in achieving the dissolution of SARS. As a result, Nigeria, one of the most populous and fastest-growing countries in the world, is now home to rapid, broad-based cryptocurrency adoption.

Many more examples of countries where cryptocurrency could meet or already is meeting immediate, practical popular needs could be provided. Americans, living and working in the global economic metropole, have not had to worry about many financial challenges that for billions of people around the world are crucial, daily facts of life. To the rapidly growing number of such people who have already adopted various cryptocurrencies to address these problems, the question “what is cryptocurrency good for” has already been answered.

Green Bonds: How Ford’s Electric Cars Won the Race Against SEC Regulation

The automotive industry has accelerated its transition to sustainable energy. Last week, an electric vehicle company completed one of the largest IPOs on Wall Street. One day later, six carmakers and thirty governments announced that they will only sell zero-emission vehicles by 2040. This shift to clean transportation requires substantial investments, and green bonds could be part of the solution. Ford notably intends to spend $30 billion on electric vehicles and issued $2.5 billion of green bonds on November 8 to finance the project. This is the biggest green bonds issuance ever completed by a US corporation.

Currently, there is no definition of green bonds under US law. As a result, issuers can self-label their bonds as green or provide a third-party opinion certifying their compliance with nonbinding international guidelines, such as the Green Bonds Principles (GBP). Under the GBP, green bonds’ proceeds must be used for eligible green projects (clean transportation, renewable energy, etc.) and respect some core principles related to the use of proceeds and reporting, such as transparency in the selection and management of the green projects and annual reporting. It is this third-party certification option in compliance with the GBP’s standards that Ford chose.

A significant benefit of third-party certification is that it allows investors to externalize their due diligence costs more easily. Instead of spending time and money to assess the sustainability of bonds and determine whether the security is compatible with their investment policies, the investors might simply rely on the third party’s opinion. This is especially relevant because an increasing number of institutional investors, such as BlackRock, integrate sustainability into their investment decisions to reduce systemic risk and attract or retain investors.

This trend creates considerable demand for green bonds. Since 2015, the average market growth of green bonds has been 60%. This high level of demand is also boosted by the current enthusiasm for sustainability-linked projects. For example, Ford’s stock price surged by 5% following the announcement that the company would spend $11 billion on factories dedicated to electric batteries and electric trucks. This positive attitude towards sustainability improves the liquidity of green bonds and encourages some investors to pay a “greenium.” In other words, some investors will be willing to accept lower yields for green bonds as opposed to traditional bonds.

Ford’s offering exemplifies this “greenium” because the green bondholders will not benefit from tax exemptions or higher priority in cases of insolvency but have accepted to receive lower interest rates.

Green bonds are also an opportunity for issuers with credit risk to access low-priced debt. For example, Ford’s credit rating was downgraded from investment-grade (the highest status) to speculative investment at the beginning of the pandemic. The downgrade was justified by the incertitude related to the impact of COVID-19 on the company’s operations. When Ford issued “Covid bonds” to face the financial consequences of its factories’ shutdown, it was only able to borrow with interest rates around 9% versus 3% for its green bonds.

In response, Ford’s CFO John Lawler announced that the company would buy back the “Covid bonds” to reduce its debt-to-equity ratio and issue green bonds to “improve our balance sheet, lower our debt, and lower the cost of our debt considerably.” While Ford remains rated as a speculative investment, it was able to issue $2.5 billion in green bonds due 2032 at an interest rate of 3.250%. The foregoing demonstrates how companies, including those with poor credit ratings, could take advantage of green bonds to improve their balance sheet by accessing debt at lower costs.

But one major issue surrounding green bonds is transparency­­ – that is, some investors have questioned how “green” these bonds really are. Green bonds ostensibly encourage sustainable projects by decreasing the borrowing costs of companies. At the same time, they can reallocate the capital of investors towards green projects. This sounds too good to be true, doesn’t it? Indeed, the lack of binding standards on the meaning of “green” permits “greenwashing” through the issuance of self-labeled green bonds. Green junk-bonds, which do not necessarily deliver green results, are already on the market and might disappoint investors. Moreover, the possibility to obtain a certification from several third parties could create a race to the bottom where each expert would apply lower standards to retain clients and certify their bonds as green.

Improving the transparency of green bonds will require the introduction of specific disclosure requirements. Indeed, SEC Commissioner Allison Herren Lee clarified that there is no general obligation to “reveal all material information.” SEC’s Chair Gary Gensler, therefore, wants to reform the existing guidance on climate risk disclosure by developing mandatory disclosures on climate risks before the end of the year. The SEC should take this opportunity to also provide a single and binding definition of “green bonds.” This would preserve the market’s confidence in the ability of green bonds to fight climate change by creating enforceable minimum standards.

The SEC historically “deferred to the private accounting industry to set standards for financial statements.” It could thus benefit from the creation of the International Sustainability Standards Board, which will develop sustainability disclosure standards. But this might be a lengthy process. For example, the EU is preparing a European Green Bonds Regulation building upon its Taxonomy Regulation. While the Taxonomy Regulation intends to define green investments and entered into force in July 2020, the concrete standards have not been adopted yet. Although the SEC did not win the race against Ford’s electric cars, it could at least provide a safe track for future issuers and investors.

The Fate of Festivals in Light of Astroworld

During the insurgence of positive COVID-19 cases, major festivals were put on hold as health officials grappled with the breadth of the virus. Almost immediately, it became apparent that it would be a major health concern to continue hosting large events during the pandemic. One by one, the concert business began to announce cancellations until further notice.

As the world opened up, many festival promotion companies began relying heavily on large outdoor events to rebuild business. This reliance has proven to be successful as a number of major festivals are selling out in record time and ticket sales have increased 10% from 2019. Certainly, people are eager to gather once again after a year of restrictions, but the wave of festivals invites questions around whether there are adequate safety systems in place.

In the wake of the tragedy at Travis Scott’s sold out Astroworld festival in Houston, Texas, promoters must ask what can be done to avoid another incident like this. One lawsuit describes Astroworld as one of the “deadliest crowd-control disasters at a concert in the United States in decades.” With almost 50,000 people in attendance, Astroworld was tightly packed with fans eager to see their favorite performers. As Scott made his way to the stage, a countdown began and the crowd began to push towards the stage, trapping many people to the point where attendees found it hard to breathe, difficult to move their hands, and impossible to escape. Many attendees suffered cardiac arrest from the stampede and had to be “crowd surfed” to safety. The concert ended in tragedy with nine dead, about 300 people treated for injuries, and 11 hospitalized for cardiac arrest.

Live Nation believes that an occurrence like Astroworld is rare enough that it will likely not adversely affect the festival business at large. However, for a tragedy like this to have taken place, something had to have gone wrong in a fundamental way. Live Nation believes that the demand for festivals will continue to grow even though they saw their share price fall by over 5% on November 8, a few days after Astroworld. Nevertheless, even if Live Nation is unconcerned about their future profits, a larger question remains surrounding where Astroworld promoters went wrong. Many are rightly calling the tragedy “preventable and predictable,” which prompts the question of what the concert business can learn from Astroworld.  Furthermore, while numerous lawsuits have been filed against Scott and Live Nation, we need to assess the role that Travis Scott’s rage culture played in the tragedy.

Assessing where Astroworld went wrong is the first step to moving forward. It is apparent that Astroworld’s problem was not overcrowding because other similar events like Outside Lands, which attracted a crowd of 75,000 concertgoers on the first day, did not see any fatal casualties. The problem appears to have resulted from inadequately trained security detail and a flawed festival design.

Astroworld’s security details included 528 Houston police officers and 755 private security officers provided by Live Nation. While Astroworld’s quantity of security appeared sufficient, these individuals were severely under-trained to administer effective crowd control. Video footage reveals a security officer pushing a festival attendee over a barricade in a manner that could have resulted in broken bones. Additional video footage reveals ticket-less attendees breaking down a metal fence to get past security. Higher quality security officers could have factored in mitigating the safety concerns that resulted in the casualties.

Furthermore, most major festivals are designed to provide barricades to separate attendees and avoid suffocating crowds, but Live Nation did not include this safety measure for Astroworld revealing a lack of adequate preparation for the crowd. The order of the show also made it very easy for the crowds to anticipate when the main headliner, Travis Scott, was preparing to go on using a countdown clock, which inadvertently encouraged many to push towards him and crush attendees that were already closer to the stage. The insurgence of live festivals means a heightened need for preparation. This includes safety concerns and smart festival design to avoid mass crowding— Live Nation failed to provide both.

While the tragedies that occurred at Astroworld were preventable and it’s likely that this was not solely a Travis Scott specific problem, it’s imperative to also acknowledge how Scott’s encouragement of rage culture influenced the events. Vulture quotes an attorney who stated that “Travis Scott has a history of inciting violence and creating dangerous conditions for concertgoers” citing an incident during Lollapalooza in 2015 where Scott “start[ed] a chant of, “We want rage!” which led to his show being cut short. HipHopDX editor-in-chief Trent Clark stated, “[Scott’s] whole aesthetic is about rebellion.” Scott himself is quoted on Twitter encouraging fans to sneak into Astroworld where he also expressed his desire to “[sneak] the wild ones in.” These tweets have since been deleted.

There is no doubt that Scott’s encouragement of rage, culture, and chaos had an influence on the events that unfolded, but we must be careful about the media carelessly creating a narrative portraying black men as violent thugs without objectively considering the role of Live Nation. Scott’s attorney shared that, “Travis didn’t really understand the full effect of everything until the next morning. Truly, he did not know what was going on.” We have to take this into consideration and take a neutral, solutions-based approach in response to these events. With the resurgence of festivals, the concert business must respond with better safety protocols to prevent what happened at Astroworld.


The Next Era of Tech Accountability? Maybe.

The last two months have been devastating for Facebook. In September, its stock price soared to the highest it has ever been. Since then, the price has fallen nearly 20%, in large part over revelations of how the company balances its commercial interests with user safety — both on and off the platform.

The Facebook Files, The Facebook Papers and subsequent hearings on the Hill suggest that a lack of transparency and accountability in how social media platforms in general, and Facebook in particular, operate has led to a wide variety of negative social outcomes. And what’s worse is that, while many platforms may be aware of their part in amplifying existing social turmoil, they do not seem particularly incentivized to change their commercial practices. But have these revelations been a watershed moment?

Facebook recognizes social networks need regulation. While the platform has been a boon for global commerce, providing a voice to the voiceless, and connecting communities across the globe, the fact remains that it cannot reasonably be left to mitigate the negative social experiences that result from this uninhibited, amplified engagement.

Facebook, of course, is not the only platform that should be scrutinized. For example, Snapchat is embroiled in litigation over its role in the death of three young people by encouraging (and rewarding) users for snapping while driving at dangerous speeds. Grindr, the dating app, has also been implicated in harming its users ever since it decided not to remove an ex-lover’s impersonation attempts which enabled harassment, stalking, and the fear of real world violence.

The recent Facebook revelations are a brick, but not the wall. Congress has known about the real world consequencesof social media platforms for some time. Whether or not these revelations are a watershed moment depends on lawmakers’ ability to re-imagine platform liability in the 21st century and learn from its mistakes in the past. Yet, reforming platform liability is no simple feat. Congress is stymied by two roadblocks: 1) prior legislation and 2) lack of subject-matter expertise.

Section 230 of the Communications Decency Act (CDA 230) governs liability for platform companies. CDA 230 provides that no “interactive computer service” shall be held liable as the speaker or publisher of third-party content posted on its platform. Under this law, courts have generally provided broad liability protections for platform companies against lawsuits that might seek to hold them liable for the content that users post on their platforms. However, in the wake of the Trump presidency, the insurrection at the Capitol, and the testimony from tech whistleblowers, lawmakers have proposed measures to reform this legislation in light of its undesirable outcomes.

Proposals to reform 230 range from well-meaning, but misguided to disingenuous and dangerous. The Platform Accountability and Consumer Transparency Act (PACT) is in the well-meaning camp. It attempts to address the issues where platforms have safe harbor for claims arising out of alleged civil rights violations by pegging liability and remediation efforts to the size and scope of the company. Yet this proposal, like so many others, fails to address the harms of hateful speech and mis/disinformation.

Efforts by lawmakers under the Protect Speech Act—a separate proposal—would simply force platforms’ internal operational guidelines into the eye of public scrutiny. This would enable violators to come up to the line of policy enforcement, but not be removed from the platform. Here, almost purposefully missing the issue, we see Congress’ efforts to regulate platforms as a backlash against the false notion of censoring conservatives; they say nothing about speech that incites violence and, in fact, potentially make platforms liable for good faith efforts to remove that speech.

Moreover, beyond the gaffes of misunderstanding Facebook’s business model or the harms of a finsta, Congress has a gap in its technological subject-matter expertise. Though Congressional members need not be data scientists, software engineers, or product managers, when those experts raise issues of technological governance it is troubling to hear members say “I can understand about 50 percent of the things you say.” A lack of investment in understanding the implications of viral media, the real world effects of dangerous speech, and now the metaverse will continue to have lawmakers playing catch-up to where technology is today.

To mitigate these challenges, Congress should approach platform regulation with a set of principles that optimize for open access, smart transparency, and harm reduction.

  • Open Access: The uninhibited connections between Americans and the global community is a mainstay of social media platforms. The ability to share cat videos, new music, and personal triumphs with billions is what makes the social web so unique at this moment in history. Regulating out the harmful effects of social media while maintaining avenues for people to connect globally is a delicate act. Lawmakers should consider both how proposed legislation expands and contracts this principle and what effects it might have on freedom of expression.
  • Smart Transparency: Calling for transparency into platform companies’ content policies and user reports is a good first step. However, to maximize transparency, lawmakers need to understand how data scientists, engineers, and product managers think about the real-world effects of social media to better regulate it. Commissioning a task force of experts who have worked in Online Trust & Safety is a more targeted approach to transparency and will ensure Congress’ desired outcomes for platform regulation.

  • Harm Reduction: As a general rule, platform companies should not profit from hate speech, disinformation, or otherwise illegal content. But even further, rewarding this behavior through algorithmic boosts makes it all the more likely that harm will occur off-platform and generally lessen the ability for people to share openly online. Congress should consider penalties that go beyond a slap on the wrist and devise effective enforcement mechanisms and penalties in connection with the FTC and FCC to hold platform companies accountable for maintaining a healthy social ecosphere on their platforms.

Are tech platforms finally heading for a reckoning? Maybe. But if lawmakers are looking for a solution to the negative externalities of social media, they will need more than just policies. They need expertise to guide them.


Chairman Xi, Winnie the Pooh, and China’s Rapidly Changing Economy

The Chinese Communist Party’s (CCP) recent reforms are creating uncertainty in the world’s second largest economy. For the last two decades, the CCP stuck to politics and left business to businesses. This hands-off approach led to the rise of China’s multi-billion-dollar giants like Alibaba and Didi. In big tech, the CCP nurtured the growth of its national champions, like Weibo and Baidu, by blocking foreign competitors—specifically, Facebook and Google. For tech firms, it was the Wild West within an authoritarian system. But recent reforms under Chairman Xi Jinping show the CCP abandoning its old approach and meddling in business. Xi appears to have ushered in what many are calling the end of China’s “Gilded Age” and a bringing of big business to heel.

The CCP’s recent reforms stem from concerns about national debt, inequality, and desire for greater state control. This month, for instance, China unveiled its Personal Information Protection (PIP) law. The CCP claims that the PIP law is meant to protect the personal data of Chinese citizens. While Europe instituted its own data protection laws in 2018, China’s reaches much farther—placing particular emphasis on data that flows beyond China’s borders. Like many of China’s laws, it is as opaque as it is far-reaching. While targeting foreign firms, the law appears to still allow China to collect information on its own citizens. That creates uncertainty for foreign firms and investors who rely on the collection of consumer data. It is also a reminder to foreign companies that, in China, they may never compete on a level playing field.

Consolidating state power is nothing new under Chairman Xi.  Over the past decade, his anti-corruption purges led to the arrest or political exile of hundreds of his political rivals. In recent years, however, Xi has extended his purges to Chinese film stars, business leaders, and even the sagely cartoon bear Winnie the Pooh. More recently, Alibaba’s owner, Jack Ma, was set to become China’s richest billionaire, but he mysteriously disappeared for several months. Before Ma’s disappearance, his company, Ant Group, was ready to launch the world’s largest IPO. However, the CCP blocked the IPO, eliminating $76 billion from Ant’s value. That shock rippled through global markets and left business leaders, Chinese and foreign, scratching their heads.

The CCP’s crackdown on big tech has had a chilling effect on the industry. Since February, investors have erased more than $1 trillion from the market value of China’s largest listed tech firms. Most Chinese companies now host Communist Party cells, which have authority to dictate decision-making. China’s Cyberspace Regulator has taken stake in TikTok’s parent company ByteDance, and the social media firm, Weibo. Why has the CCP instituted such drastic reforms?

The Party line is that it has a genuine interest in encouraging companies to focus on “common prosperity.”That aligns with the CCP’s long-term goal of closing the wealth gap between China’s billionaires and its poor majority. However, another explanation is hard to ignore. Chairman Xi has taken great pains to maximize his authority and to extend his tenure beyond traditionally appropriate term limits. Perhaps the recent reforms have less to do with China than they do with Xi’s insecurity amongst rivals and distaste for sharing power. That may, at least, help to explain Xi’s aversion to Winnie the Pooh.