After the financial crisis in 2008, Americans’ confidence in banks dipped to an all-time low and has remained low ever since. However, the crisis also opened an opportunity window for newfangled technological innovation businesses to enter the financial services industry and gain more customer trust. Companies like Square (SQ), founded in 2009, seized the opportunity to offer payment services at a lower price and faster speed than traditional banks could. Less than a decade later, Square is used by millions of small businesses to provide a seamless transactions system that accepts credit cards for payment, tracks sales and inventory, and allows customers to obtain financing. Traditional banks are keenly aware of this phenomenon and eager to stay competitive.

The fintech boom has disrupted the entire core of the banking business and has been reshaping the financial industry for the last two decades. As of 2021, there are 8,775 fintech startups in the U.S., with its most significant segment—digital payment—being valued at over $1.2 trillion in 2021. Quoting JPMorgan Chase CEO Jamie Dimon, “Fintech is an ‘enormously competitive’ threat to banks.” By developing narrowly defined but easy-to-use, intuitive, and highly effective solutions, fintech has managed to step into and take over segments neglected by traditional banks.

What can the traditional banks do to survive this challenge? One strategy is to acquire fintech firms to enhance the efficiency and speed of banking. JPMorgan pursued this strategy when it acquired wealth management startup Nutmeg and 55ip, a provider of automated tax-smart investment strategies. Another strategy is to make investments in fintech through venture capital (VC) investment. For example, Goldman Sachs, JPMorgan, Citi, Capital One, and others have acquired equity stakes in several startups in wealth management, capital markets, and cryptocurrency through VC funding rounds. Finally, the third strategy is to enter into a strategic partnership with a tech firm to leverage the expertise of both companies. Goldman Sachs’ partnership with Apple to issue a new credit card seems like a good template for such a model: Goldman brings in its financial and regulatory expertise, whereas Apple brings its technological prowess.

Ironically, while bank-fintech partnerships have become more common, some fintech lenders are in the process of bankification. Several notable digital lending companies that began with some form of partnership, wholesale funding or marketplace model are in some stage of shifting into a banking model. Square, SoFi, and Lending Club may be seen as pioneers in this movement, but we can expect to see more “chartering” activity as online lending overtakes brick & mortar lending originations.

Square now has its own lending license that it can use to issue business loans. The company obtained the Industrial Loan Company license from Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions. In contrast to Square, to obtain a national bank charter, Sofi Technologies sealed the deal to acquire Golden Pacific Bancorp, Inc. Similarly, Lending Club announced the completion of its acquisition of Radius Bancorp, Inc. and its digital bank subsidiary, Radius Bank (“Radius”) earlier this year.

Strategic corporate acquisitions of banks and fintech lending companies will undoubtedly expand the bank’s loan business by channeling the low-cost fund deposits to their fintech company. Although the loan growth might be higher, the yield might be lower as credit costs creep back up to normal levels and  become less attractive to the investor. Similarly, even though Fintechs will get a cheaper source of funds backed by strong institutional financial institutions, their return might also be lower.

Further, after acquiring a national bank, fintechs no longer need to apply for the fintech charter, the controversial charter that the Office of the Comptroller of the Currency (OCC) proposed back in 2017. With a national bank charter, fintechs can bypass states’ usury laws by applying the rate exportation rules, permitting them to “export” to out-of-state borrowers the interest rates that are permissible in their home states.

Regardless of the advantages of these acquisitions, there are some regulatory factors to look out for, such as any changes to “true lender” rules that might make it harder to originate loans via a partner. The true lender doctrine generally disregards the form of a lending arrangement and examines the substance to determine which entity is the actual, rather than the nominal, lender. On top of that, the fintech-bank acquisition trend might change the regulator’s perspective on future charter grants to fintech companies, and it might impose detailed financial requirements such as capital reserves.

While fintech has reshaped the financial services industry for the past decade and poses a substantial challenge to the traditional banks, the fintech-bank acquisition trend will continue to pressure the traditional players to embrace new strategies to reshape their business.

Despite corporate law firms’ calls for their commitment to diversity, the data on diversity at these firms paint a different picture. According to the National Association for Law Placement, a 2020 survey of 882 law offices showed that 10.2% of partners were people of color. In fact, the data showed 4.08% were Asian American, 2.10% were African American, 2.80% were Latinx, 0.18% were Native American/Alaska Native, 0.06% were Native Hawaiian/Pacific Islander, and 1.02% were multi-racial. The low numbers are also reflected on the partnership level, as big law firms’ share of women grew marginally from 24.2% in 2019 to 25.1% in 2020. Overall, the growth in diversity for people of color grew 0.65% from 2019 to 2020. Are corporate law firms’ recruitment and attrition methods for diverse talent working? Or are they failing due to a myriad of systemic issues that must also be addressed in its recruiting strategies?

Answering this question, Rufus Cormier, a retired Baker & Bots partner, found pursuing a specific legal career path was “a question of exposure and lack of knowledge.” Cormier asserted that most black lawyers were not viewing the transactional side of the law, but rather, identified law with litigation, especially criminal law. The scarcity of black lawyers can also be linked to trepidation with joining a work environment where they are the minority. Jill Louis, a managing partner of Perkins Coie’s Dallas office, faced this problem when she would be in the conference room full of white men, where she was the only one asked, “where did you attend law school?” These types of microaggressions illustrate why some underrepresented lawyers are not entering the big law space.

Nevertheless, there are ways for corporate law firms to achieve their mission of creating a more diverse and inclusive environment. As noted by Bloomberg Law, corporate firms can “put their money where their values are.” Some corporate firms have included diversity and inclusion goals within their annual performance review, while others have tied a component of their partners’ compensation to their diversity efforts. Bloomberg Law’s own Diversity Equity, & Inclusion Framework members utilized these methods, including Kirkland & Ellis LLP, Akin Gump Strauss Hauer & Feld LLP, and Covington & Burling LLP. Additionally, corporate firms can achieve diversity by “altering their traditional recruitment approaches.”

Recruiters from corporate firms should not only identify the historical roots for the lack of retention for diverse associates but also adapt their efforts accordingly. To address these systemic issues, recruitment should be looking to the beginning of the pipeline before diverse talent reaches law school. For example, the SEO Law Fellowship Program offers entering 1Ls a chance to work at a big law firm by including fellows in the summer associate program. While these efforts provide a meaningful opportunity that addresses the exposure problem Cormier raises, the data on diversity in big law illustrates that more must be done.

Further recruitment alterations include firms diversifying away from just the top law schools. This approach is supported by Lloyd Freeman, the chief diversity and inclusion officer of Buchanan Ingersoll & Rooney. Freeman stated recruiters should expand their focus by recruiting from underrepresented schools and historically black colleges. Such tactics allow firms to focus more on the “ability” of candidates, rather than their “credentials” or industry connections. To further address this exposure problem while in law school, it is crucial that firm recruiting collaborates with law school affinity organizations. In an industry where networking is crucial, firms can directly reach diverse applicants at law schools by working with these campus organizations.

Following the aftermath of the death of George Floyd and racial protests around the world, some firms including Dorsey & Whitney and Paul Weiss Rifkind Wharton & Garrison have taken measures to further foster diversity and inclusion. In a study done by the NALP and the National Business Institute, 73% of respondent firms stated they’ve created new programs to address racial injustice and civil unrest. These efforts are coupled with the overarching pushback from corporate clients. For example, Facebook has recently warned their big law firms that they will take their “work elsewhere or cut fees unless they see more racial and gender diversity within the law firms they work with.”

As an industry that has historically lacked diversity, corporate firms must identify ways to improve exposure and modify their recruiting strategies. These modifications include expanding their talent pool and providing earlier exposure to underrepresented groups. By doing so, firms can ensure their mission to a sustainable diverse workforce is fulfilled.

The Silicon Valley tech startup world is constantly evolving. The latest evolution, particularly during and post the pandemic, is the number of CEOs getting massive paydays in the form of special stock awards as these tech companies prepare to go public. Gone are the days when Silicon Valley leaders like Jeff Bezos and Mark Zuckerberg took little or nothing in salaries or stock options during an IPO and put their efforts solely into creating value-generating companies that helped benefit them eventually from the rising value of the stock. One would imagine that the highest-paid CEOs of public companies would be heading traditional giants of corporate America such as Pepsi or Microsoft, but in 2020, seven out of the top ten most valuable compensation packages of 2020 were given to CEOs of startups that listed in 2020.

Granted that most of this compensation is tied to performance and growth targets, it is essential that there remains transparency from the beginning and that these startups find a balance. Under California Law, executives of any company including founders have two basic fiduciary duties: the duty to take actions that are in the best interests of the corporation and the duty of taking such actions with care after carrying out reasonable inquiry. In addition to these fiduciary duties, managing organizational structures, strategy, and communication with all stakeholders across the board, founder CEOs are the brains behind these startups and are responsible for the overall success of their businesses. But the chaos caused by the founders of startups such as WeWork Cos Inc and Theranos Inc. should be a reminder that it is essential that legislation provide a more detailed roadmap apart from these two duties to keep founders accountable for their actions to protect the interest of the shareholders. With the monetary benefits usually skewed heavily in the favor of the founders, there must be boundaries and some form of cap to prevent such situations from occurring again. At the same time, it is also pertinent for the legislation to attempt to control the growing divide that hefty pay packages are creating between such CEOS, executives, and regular employees.

Obnoxious pay packages are a red flag, but investors and key backers believe that these pay packages are one of the most common methods to motivate founders, who commonly are the brains behind the show, to remain at the helm and to sustain rapid growth. Proponents of this argument claim that since these founders only receive most of their pay packages if the company grows substantially in terms of value, the benefit in fact is received by all stakeholders and shareholders. It is also beneficial to tie down key executives in the technology world, where employee turnover rate is the highest and the median tenure can be as little as one year. A number of investors also believe that since the tech companies rise under the leadership of their founders, it is worth holding onto the founder even if remuneration amounts go through the roof.

Former WeWork CEO, Adam Neumann, is a perfect example of rich pay packages that frustrated investors, venture capital funds, and destroyed standards of U.S. corporate governance that is expected of high-level executives of billion-dollar corporations. Elizabeth Holmes, disgraced founder of the now defunct startup, Theranos Inc., is another example of a high-flying CEO who violated all possible standards of ethics and corporate responsibility leading to numerous lawsuits and an eventual collapse of her startup.  With founders already having a significant amount of power, the large compensation packages tend to transfer payout costs to future public or non-public investors who have little or no say in such costs. They also lead to the growing pay divide between the executives and regular employees. In 2020, Alex Karp, co-founder of Palantir, received the highest compensation package of any U.S. public company on record since 2007. While his company has never posted a profit, Mr. Karp took home $1.1 billion, roughly 8,943 times the compensation received by his average employee.

In today’s free-market, direct policy changes made by the legislation to safeguard the actions of such CEOs, like lowering CEO salaries to ensure that their incentives remain aligned with the entire company might be labeled as draconian or an act of governmental overreach. But with tech stocks flying high during the pandemic and more money being poured into the industry, it is important to not forget the disasters of Neumann or Holmes. It is crucial that founders are constantly incentivized to keep their personal goals aligned with those of their investors and employees. When compensation is through a time-based or a milestone-based equity vested program, policy could be introduced to provide a system of checks and balances to ensure that prioritization of the milestone itself does not undercut securities regulations, fair trade practices, or violate standards of corporate governance. To tackle the growing imbalance of executive compensation, Kets de Vries, Dutch management scholar and founder of INSEAD’s Global Leadership Centre, has previously suggested the implementation of higher marginal income tax rates at the very top and high corporate tax rates for firms that have very high CEO-to-worker compensation ratios. The Economic Policy Institute even went as far as suggesting that firm’s shareholders should have a greater ‘say on pay’, a right to vote on top executives’ compensation.

Whether any of these policy changes will ever see the light of day is something that only time shall tell. But with the global economy becoming more and more transparent, it is time to focus the debate on the ever-burgeoning startup founder compensation packages and whether they contribute to a sustainable business.

After gaining enormous success with their video game Fortnite, Epic Games placed a heavy bet by initiating a lawsuit against Apple last August. Specifically, Epic challenged Apple’s iOS policy where Apple requires developers to bill customers through the App Store and charges a 30% fee on all purchase. Epic and other developers could either bypass Apple’s platform, lobby Apple to take a smaller cut, or give in to their high fees.

Before litigation, Epic created a “battle plan” codenamed “Project Liberty.” Their strategy was to compel platform owners—namely, Apple and Google—to amend their iOS and Play Store policy to eliminate the 30% commission fees. Epic proceeded to introduce a standard patch—a “hotfix”—into Fortnite to allow users to purchase in-game currency at Epic’s Games Store. Although the patch needed approval from Apple, Epic did not disclose this update and the new feature was approved.

But Epic didn’t stop there. The gaming company incentivized its customers to bypass the App Store and pay them directly by offering steep discounts. Because it was able to bypass Apple’s 30% sales fee, Epic could justify offering steep discounts for users that purchased directly through the Epic Games Store. Within a few hours, Apple removed Fortnite from its app store on the pretext that Epic had violated Apple’s terms of the service by proving its own payment option.  As a result, Epic resorted to legal action.

In their complaint, Epic claimed that Apple engaged in anticompetitive behavior by using its monopoly in the mobile device market to charge exorbitant fees and restrict alternative payment systems. Epic sought injunctive relief to allow fair competition in mobile app distribution.

After hearing arguments, Judge Yvonne Gonzalez Rogers ruled against Apple on the anti-steering provision which prohibits developers from directing users to third-party payment systems. The court issued a permanent injunction — in 90 days, “Apple will no longer be allowed to prohibit developers from providing links or other communications that direct users away from Apple in-app purchasing.” Additionally, Judge Rodgers held that although Epic had not provided sufficient evidence to prove that Apple has violated federal or state antitrust laws, Apple had violated the California Unfair Competition Law.

This ruling leaves the door open for future antitrust complaints against mobile app platforms. Hinting at such possibility, Judge Rodgers concluded that “[t]he evidence does suggest that Apple is near the precipice of substantial market power, or monopoly power, with its considerable market share.” If Apple’s market share was higher, or if Epic narrowed in on this issue in its complaint, the ruling may have caused Apple more trouble than it currently has.

So far, the aftermath of this ruling has seriously impacted Apple’s Store sales, which grossed an estimated $64 billion in 2020. After the court’s decision, Apple stock suffered a 3% drop in intraday trading. The data shows that Fornite players generated an estimated $700 million of total revenue on iOS devices before the game was removed from the App Store. Epic paid Apple $237 million in total commissions for Fortnite between January 2017 and October 2020. Now, Fortnite is still not available on iOS and both the parties are hustling in appeal courts to seek their respective remedies. Will Apple reassess how its relationship with developers and how it monetizes the App Store? Or will Epic’s potential demise serve as a warning to other challengers?

Special Purpose Acquisition Companies (SPACs) have been making headlines for two years straight. While enthusiasm for blank-check companies has notably cooled off, regulators have zoomed in on SPACs which are benefitting from a regulatory loophole. When SPACs take a start-up public, securities law treats these deals as mergers rather than initial public offerings (IPO). As a result, SPACs are taking advantage of lax rules that allow them to overstate their profitability. The loophole might be closing soon, though.

Currently, SPACs benefit from what is known as a “safe harbor” regulation. The Private Securities Litigation Reform Act (PSLRA) introduced a protection from liability for forward-looking projections made by publicly listed companies for certain events of interest to the public markets. These include, among others, business combinations such as mergers. The safe harbor for forward-looking projections was introduced to encourage established publicly-traded companies to communicate business developments to the public markets without fearing unwarranted lawsuits. Disclosure has traditionally been a pillar of securities regulation, and encouraging disclosure and communication is usually deemed good regulatory practice. IPOs, however, are explicitly excluded from the safe harbor under the PSLRA. Lawmakers deemed initial public offerings too risky to exempt companies making forward-looking statements from liability.

The safe harbor does not exempt SPACs from liability altogether. Companies are still liable for false or misleading statements. The safe harbor rule only protects companies from liability for forward-looking projections (as opposed to statements on current facts) that are made in good faith and that are not false or misleading. For example, if a company announces a new business combination, it can publish its projections on why it thinks this will increase profits. If these projections later turn out to be too optimistic, the company cannot be held liable—unless the numbers were falsified to begin with.

In contrast, companies and underwriters going public via an IPO need to be diligent about their communications. If a company communicates profit expectations too optimistically during an IPO process, it might find itself becoming a target of securities class action suits.

Going public via a SPAC provides a clear advantage. For a SPAC, the actual IPO is the listing of the blank-check company. When a SPAC takes a start-up public, the start-up will subsequently be listed as a public company. The process of getting there, though, is technically a merger. Companies and underwriters do not need to fear lawsuits as much as in an IPO. They have more leeway to make optimistic predictions about the future. This is especially beneficial for start-ups that go public before they reach profitability. In the absence of a profitable business model, optimistic projections might be the only information that investors can base their decisions on.

However, companies going public via an IPO and companies going public via a SPAC get treated differently based on a technicality. There is no reason to assume that lawmakers who explicitly excluded IPOs from the safe harbor knowingly left the safe harbor open for SPACs. Apart from a short boom phase around 2008, SPACs are a relatively new phenomenon that simply was not on any regulator’s mind.

This is changing, though. John Coates, Acting Director of the Division of Corporate Finance at the SEC, issued a statement earlier this year, addressing whether SPAC mergers and IPOs should be treated differently. Subsequently, the U.S. House Committee on Financial Services introduced draft legislation that would change the PSLRA to exclude SPACs from the safe harbor.

Meanwhile, many SPACs discovered that the safe harbor did not protect them from lawsuits altogether the hard way. Securities class actions against SPACs are on the rise. Since the safe harbor still requires forward-looking projections to be made in good faith, there is ample room for judges to protect investors that rely on such information.

Even with the safe harbor still open, the climate is changing. Companies going public via a SPAC will need to be a lot more cautious in the future. The time for overly optimistic projections might be over for good.

On September 27^th, General Counsel at the National Labor Relations Board (NLRB) released a memo asserting that college athletes at private universities should be classified as employees under federal labor law and allowed to collectively bargain. To enforce this, the NLRB intends to pursue legal action against private universities that misclassify colleges athletes as mere student-athletes. The NLRB’s memo follows this year’s wave of legal challenges to the NCAA’s classification of college athletes. From NCAA v. Alston to “name, image, and likeness” (NIL) policy changes, the traditional stance on college athletics and labor has significantly changed for good.

In June 2021, the Supreme Court unanimously held in NCAA v. Alston that it was a violation of antitrust law for college sports to prohibit education-related payments and benefits like scholarships for graduate school and paid post-eligibility internships. The court rejected the NCAA’s defense that they were not subject to antitrust law based on the amateur status of their athletes. The court unquestionably held that the NCAA is a profit-making enterprise. But the court did not take this case as an opportunity to rule more broadly on the employment status of athletes. However in his concurring opinion, Justice Kavanaugh indicated further interest in this issue, writing, “nowhere else in America can businesses get away with agreeing not to pay their workers a fair market rate on the theory that their product is defined by not paying their workers a fair market rate.”

Following the unanimous court’s decision, several states planned to enact legislation that would allow college athletes to profit off their NIL on July 1, 2021. Pressured by these approaching laws, the NCAA preemptively announced approval of a new policy prohibiting penalty to all Division I athletes who choose to profit off their NIL. As a result, college athletes will be able to use state legislation or the NCAA waiver to profit off their NIL, such as through endorsements, sponsorships, personal appearances, and autograph signings.

This is a monumental change for college athletes. Prior, top athletes who garnered name brand recognition often had to choose whether to continue their collegiate career and education or to “go pro” to pursue lucrative opportunities. Allowing athletes to profit from NIL effectively eliminates this problem for high-profile athletes. Yet, many would argue that this is not enough.

The change in NIL policy does not have an effect on larger systemic problems within college sports. College athletics is a billion-dollar industry and the athletes who are generating this enormous wealth are not allowed to share in it. The traditional argument that they are being compensated through their education no longer holds up. Most college athletes are told that school comes second to sports – they are getting a scholarship to play sports, not to go to school. And this can have devasting effects on those who do not end up playing professionally. While graduation rates in 2018 for all undergrade students rests at 76%, the graduation rate for black male college athletes sits at 55%. But it’s not only the low, disproportionate graduation rates at issue. In the recent HBO documentary Level Playing Field, Professor Ekow Yankah at Cardozo School of Law called the quality of athlete’s education “shallow and empty . . . to make them available for the next football or basketball game.” Regardless of the division or sport, when college athletes have such time-consuming commitments to their sports, they do not have the time nor ability to fully participate in their education.

Additionally, without employment status, athletes are not guaranteed sports-related medical coverage, nor are they receiving adequate long-term medical care. Many injuries that college athletes sustain worsen or do not appear until after they’ve completed their athletic careers. According to Level Playing Field, the injury rate among Division 1 athletes across all sports is 66%, and 50% go on to suffer chronic injury. Long-term medical care of these injuries is another burden that college athletes must shoulder on their own.

The NLRB memo shows promise in addressing these problems. Jennifer Abruzzo, the newly appointed general counsel, argues that under common law rules, scholarship college athletes, specifically those at private universities, perform the kinds of activities that any employee would do, and that consideration via payment is a strong indicator of employee status. Further, the NCAA controls players’ terms and conditions of employment through a specific number of practices, including competition hours, minimum GPA, and restrictions on gifts and benefits. The compliance and enforcement of these policies and rules again demonstrate the level of control that the NCAA exercises over these athletes. Abruzzo declares the NLRB’s intention to pursue appropriate cases where an employer misclassifies employees as student-athletes.

Employment status is the next step in ensuring that college athletes are fairly compensated and protected. As Abruzzo noted, college athletes should be able to collectively bargain over the terms and conditions of their work without fear of retaliation. The NCAA profits handsomely from the work of their athletes. Now it’s time to pay them.

Regulatory law, in the context of banking and insurance regulation, is naturally complex. Much is at stake since banks and insurance companies are centerpieces of our modern economies. At the same time, however, various stakeholder interests’ clash. On one hand, regulators work towards crucially important goals, such as overall financial stability and robustness, or policyholder protection (for a European perspective see here). On the other hand, the financial industry (i.e., banks and insurance companies) generally strive for profits and growth while having to comply with rigid regulations. This is complemented by the particular interests of customers and consumers.

In the aftermath of the Global Financial Crisis (GFC), the overall regulatory environment tightened. For instance, in the US, the Dodd-Frank Act vastly introduced new rules affecting both banks and insurance companies. The EU banking legislation likewise moved into that direction. With respect to the insurance sector, a new EU directive came into force in 2009 and established extensively novel rules regarding solvency and capital (pillar 1), governance (pillar 2), and reporting and disclosure (pillar 3) requirements. However, they were not a reaction to the crisis and the legislative process that already started years before the GFC. Eventually, it was amended in 2014 in response to the crisis. Since then, the overall trend was more sophisticated and detailed regulation that has not stopped, and it is unlikely to do so amidst pressing changes and developments (e.g., pandemic recovery and resilience, digitalization and sustainability).

Generally speaking, banks and insurance companies must carefully monitor and follow not only regulatory law de lege lata but also have to anticipate regulatory changes de lege ferenda. Otherwise, they face the risk of fines and reputational losses (E.g., in 2020 global banks paid billions of fines because of regulatory non-compliance). Additionally, the board of a bank or an insurance company may bear professional and liability risks for non-compliance with regulatory rules and standards. Both are particularly delicate since it can take time to actually implement and enforce the law internally, depending on the complexity and the dimension of the change of the legal environment. Regulatory compliance is of utmost importance and requires adequate and effective steps. Given the tightening regulatory landscape, compliance efforts, and costs increase, this trend will presumably not stop.

Insofar, voices championing the use of modern technologies promising more effective and efficient regulatory compliance grow louder in the broader frame of RegTech. One argument is that AI-based software, (e.g., legal document management systems), achieves “preparedness, adaptability, and resilience,” and ultimately, supports the overall capability to adapt and comply with challenging legal requirements. Additionally, AI-based applications conceptually may favor customers and consumers in the course of more tailor-made financial and insurance products. This may lead to the conclusion that a bank or insurance companies’ board is not only allowed, but also legally compelled to actually apply AI-based applications. This is a discussion which already takes place in the corporate law context and may well be transferred into the regulatory context.

This all sounds like an easy and quick fix to the dilemma of increasingly complex and costly regulatory compliance efforts; in fact, under certain circumstances and from a more abstract point of view, one cannot deny that AI-based or supported solutions — leaving aside what AI precisely means outside and inside the regulatory context — may have positive impacts. This appears to be especially the case for AI-based legal document management systems. However, in trying to fit this into the broader regulatory context, the picture is more complex. Apart from the quite narrow example of document management systems, there are a lot of complicated applications such as credit scoring, credit and rate making, or anti money laundering. In other words, AI in the field of regulatory compliance touches various areas with likewise unsolved problems. These problems include transparency, explain-ability, data protection, liability, board responsibility, fit and proper requirements, the role of third-party AI vendors, anti-discrimination, and so on and so forth.

There is an urgent need for further AI research in potential fields of applications, and its complications with regulatory goals and stakeholder interests. AI can bring relief to the regulatory compliance dilemma and can probably already do so in narrowly defined fields such as document management systems. However, this should not automatically lead to a general legal rule for the board of a bank or insurance company to apply AI-based systems. Notwithstanding, where the benefits and risks of certain applications are sufficiently identified, it seems reasonable to think about it and fathom the details. In the meantime, there remains much to discuss from a rather restrained setup.

We have seen a steady change in the business world over the last few years, away from the shareholder-focused approach of the last decades. Many investors now consider more than just a company’s bottom line and take into account environmental, social, and governance (ESG) issues.  In 2020 alone, over $51 billion was invested in funds focusing on ESG, and some think that such assets could account for over a third of all assets under management by 2025.

Now it seems like the Labor Department is joining in. A new proposal forwards changes to the laws governing retirement funds, especially the Employee Retirement Income Security Act (ERISA). The proposed changes would make it easier for their managers to consider ESG issues in their investment decisions. But these changes, while undoubtedly a step in the right direction, are not as revolutionary as they might seem.

For starters, the Labor Department’s position is clear: the proposed changes are nothing new. Rather, they merely undo changes made by the previous administration and clarify preexisting standards for fund managers’ fiduciary duties. These managers had, have, and, under the new rule, will continue to have a duty to maximize long-term returns for the programs’ beneficiaries. They have never been and will not be permitted to sacrifice monetary returns for non-financial goals. While some, especially in the wake of the current pandemic, advocate for a stronger focus on other stakeholders, the Labor Department’s reaffirmation of this fundamental principle drives home the fact that fund managers are agents, investing money entrusted to them for the beneficiaries’ retirement.

However, what is new is the explicit language regarding the importance of ESG factors. The Trump administration changed the rules to require that the evaluation of any investment be based on “pecuniary factors.” This language made it unclear to what degree, if any, fund managers could consider ESG factors and had, in the words of the Labor Department, a “chilling effect” on integrating those factors into risk assessments. In contrast, last week’s proposal includes a section explicitly stating that evaluating the risks and returns of an investment often requires considering the potential economic effects of climate change and other ESG factors. The underlying idea is that ESG effects can be material risks, especially for the kind of long-term investment that characterizes retirement funds. Take, for example, the issue of climate change: part of maximizing investors’ value for payout in 30 years is making sure that the planet and a functioning society are around in 30 years, so the retirees can actually benefit from their investment. Higher short-term returns from environmentally damaging investments mean nothing if there’s nowhere to spend the money. The Labor Department has adopted the view that considering ESG factors is part of prudent risk assessment, management, and mitigation, and that considering those factors is in the long-term interest of the funds’ investors. In other words, the labor department wants fund managers to make informed investment decisions to guarantee lasting profitability, not to engage into ESG goals for their own sake.

While this might be a significant change for ERISA, in recent years this approach has already been gaining popularity within the academic world, but also with investors and corporations. In contrast to traditional, shareholder-focused, Milton-Friedman-inspired theories that encourage companies to ignore “externalities” like worker welfare and environmental issues, voices from all sides now demand that companies not ignore the needs of the world around them. In 2018, Larry Fink, CEO of Blackrock, the world’s largest asset manager, wrote in his annual letter to CEOs that companies should make “a positive contribution to society.” Similarly, in 2019, the Business Roundtable, an association of the CEOs of leading US-companies, published a statement saying that the purpose of a corporation is to benefit all stakeholders. While some argue that much of this is merely greenwashing, a PR effort to make the same investments look environmentally friendly and socially responsible, the broader trend towards the incorporation of ESG issues into business decisions is undeniable. Meanwhile, large investor initiatives like Climate Action 100+ and regulators around the globe keep increasing the pressure on companies, especially regarding environmental issues. Finally, consumers and employees are also increasingly interested in whether the companies they interact with or work for care about more than their bottom-line.

What the Labor Department is doing is, therefore, not bravely leading the way, but rather implementing something that is becoming common knowledge: that companies cannot ignore the world they are operating in any longer. Caring about ESG issues is good business practice, but, maybe even more importantly, ignoring them would be clearly shortsighted. However, while allowing fund managers to take those factors into account might not be revolutionary, it is nevertheless important, as it keeps the governing rules up to date with the emerging market standard. Only when fund managers can factor ESG issues in are they truly in a position to comprehensively assess potential investments and generate long-term profits for the coming decades.

Among many actors influencing social, economic, and political life, corporations are increasingly gaining power. Society is divided into two categories: those demanding more social activism from corporations, and those fearing corporations may grow too powerful. In their pioneering work, The Modern Corporation and Private Property, written in 1932, Adolf Berle and Gardiner Means predicted that corporations will eventually grow so powerful that they will be competing with the government for the dominant form of social organization. Has that day come?

Recent examples of corporate social advocacy on LGBT rights and Gun Control Movement by companies like Salesforce and DELTA exemplify how corporations use their economic leverage to push their political agendas– demonstrating both the potential of corporate activism and the vulnerability of the policymakers. Even more vociferous are the evolutions on voter suppression issues, where it becomes harder and harder to draw the line between pure social activism and partisan political championing.

The 2020 presidential elections exposed a longstanding problem: the fragile balance of voting rights. After his defeat, former President Trump incited an overly zealous movement which resulted in hundreds of bills and policy proposals all over the country, most of them limiting voting rights in one way or another. Opponents of these laws, including voting rights activists and community leaders, urged businesses to stand up for democracy. And many stood.

An impressive business alliance soon emerged opposing the former President’s movement, led initially by black leaders, such as Kenneth Chenault (a former American Express CEO) and Kenneth Frazier (CEO of Merck). It grew steadily, coopting notable brands, such as JP Morgan, Apple, PayPal, Amazon, Airbnb, Google, Pepsi, and many more. Some of them went even further than simple statements. For example, Major League Baseball decided to move its All-Star Game from Atlanta after Georgia legislators passed a highly controversial voting rights bill. Other big names, like Coca-Cola, announced their decision to pause political donations.

But what repercussions can corporate activism have on political processes? Will it be the balancing element between people’s needs and interests of politicians or a trojan horse driven by pure profit?

Some community leaders say corporations gain their power directly from communities and people, thus it is natural that companies should use their leverage to speak up and stand for those communities. The idea that companies should increasingly utilize this leverage is seemingly reinforced by local leaders who have come to expect this kind of advocacy on their behalf from influential companies. For example, in Georgia, Governor Brian Kemp signed a bill restricting voting rights by limiting volunteers from serving water or food to voters in line, along with imposing voter ID requirements and limiting drop boxes. As a result, Black communities publicly demanded action from big companies based in Georgia. And when that action didn’t come, some religious and community leaders, such as Bishop Reginald T. Jackson of the Sixth Episcopal District of the African Methodist Episcopal (AME) Church—representing over 500 churches in Georgia—announced an economic boycott of Coca-Cola, Delta, and Home Depot on April 1, 2021. Notably, Bishop Jackson asserted, “We cannot and will not support companies that do not support us in our struggle to cast our ballots and exercise our freedom.”

Opponents of corporate social advocacy warn about the perils of such ventures. The Senate minority leader Mitch McConnell claims that businesses ought to “stay out of politics.” Mr. McConnell blamed corporate leaders for “dabbling in behaving like a woke parallel government.” He went further, threatening that companies’ actions “will invite serious consequences if they become a vehicle for far-left mobs to hijack our country from outside the constitutional order.”

As an old saying says, the truth must be somewhere in the middle. Mr. McConnell’s allegations do bear some rationale and there are troublingly powerful corporations indeed. But it can hardly be argued that any of them have done too much social activism if too much social activism is even possible at all. Business leaders standing for religious, racial, or sexual minorities or corporate engagement on climate crisis is barely a sign of “hijacking the country.” If there is something to be apprehensive about, it is the other side of corporate advocacy: suspicious funding of political agenda and all shades of influence peddling. And this, unlike corporate social activism, is not new at all.

But there is another angle to look at this problem. The growing need for corporate interference on social issues is proportional to the increasing inefficiency of policymakers. Politicians are so absorbed by political battles and games, struggling to keep their power and undermine their opponents, that in the process they become simply ineffective. Good laws are repealed, laws of compromise are passed, and those policies that people need the most are subjected to infinite debate with no foreseeable outcome.

In absence of efficient political power, people and communities are turning to the next able actor in line. As it happens, it is corporations.

The massive migrant caravan making its way to the United States from Latin America is another symptom of the economic ills that currently plague the region. Prior to the COVID-19 pandemic, the region’s gross domestic product was expected to grow at a rate of 1.8%. However, the pandemic caused Latin America’s GDP to contract by 7%, even as global GDP contracted by 3%. While the U.S. and Western Europe are witnessing a significant economic recovery, the picture in Latin America seems bleaker, as the region continues to struggle with job recovery and economic revitalization.

There appears to be a ray of hope breaking through the austere economic panorama that COVID-19 brought to Latin America: startups. The internet boom that was beginning to take shape in the region was accelerated by pandemic lockdowns as Latin Americans, like most of the world, became more reliant on technology for basic needs. This increased reliance is creating an ideal ecosystem for Latin American unicorns to flourish and catch the eye of some of the most renowned names in private equity and venture capital. According to preliminary data from the Association for Private Capital Investment in Latin America, the region saw a grand total of $6.2 billion in incoming venture capital in the first half of 2021. This figure dwarves the $2.6 billion invested in the same period last year and easily surpasses the $4.1 billion invested across all of 2020.

Kavak, a Mexican startup that runs a pre-owned car marketplace in Latin America, exemplifies the burgeoning startup ecosystem that COVID-19 has helped nourish. With the pandemic making it more challenging to use public transportation, Latin Americans turned to pre-owned cars for their needs. The increased demand seems to be paying off. Last month, the company announced that it had raised a staggering $700 million in a Series E round, doubling its valuation to $8.7 billion. Kavak is just one example of Latin American startups benefiting from the startup boom rocking the region.

While it would be naïve to assume that startups alone will address Latin America’s many economic challenges, they have the potential to be a channel for economic development in the region. Kavak, for example, recently announced that it plans to create over 16,000 jobs in Brazil. Currently, the startup employs about 5,000 people, up from 300 employees a year ago.

While data on startup-led job creation is hard to measure in Latin America, startups in the United States have proven to be powerful economic engines. According to a recently released analysis by the Congressional Research Service (CRS), startups account for 5-6% of all businesses with employees, but account for “almost all [net] job creation in the economy.”

Although these numbers are impressive, it is important to note that many of the startups generating these jobs are what the CRS’s study calls “high impact” startups. These are companies that have doubled their sales over the most recent four-year period and have substantially increased their number of employees. Typically, these startups have been around for over five years and have surpassed the 20-employee mark.

Of course, few startups end up becoming “high impact” startups. In Latin America, where the lack of access to substantial capital and political instability can hinder startups’ success, the likelihood of a startup becoming “high impact” is even slimmer. It is also no secret that the vast majority of startups will die in their infancy and that their job creation will be negligible. However, as Latin America continues to reel from the economic devastation brought by the COVID-19 pandemic, any glimmer of hope, as minute and remote as it may seem, is a welcomed sight.