ADR News from Jim Reiman
Friends and colleagues
Given the demands on all of our time as we wrap-up 2015 and prepare for the coming year, this months newsletter will be for both November and December. Ill also include an extra article or two since Im covering two months worth of material rather than just one.
For those who are new to this newsletter, each month I compile a collection of one or two articles, court decisions or news items that Ive come across that I hope readers will find of interest concerning the subjects that occupy my time and thoughts. I focus on three principal topics: i) corporate governance; ii) legal and business issues concerning alternative dispute resolution, primarily mediation and arbitration, and iii) eDocuments, or more specifically, corporate governance policies regarding their management and security, and litigation issues regarding their discovery. I also look for and try to include a case or matter of general interest which is either amusing or thought-provoking my Interesting Case of the Month.
This months corporate governance pieces include two New York Stock Exchange video interviews: one of futurist Edie Wiener and another regarding research demonstrating that linking pay and performance does not drive better performance. Also included is a very brief update regarding the 2016 proxy advisory firms 2016 guidelines, and report on the NACDs non-profit governance survey and dissatisfaction of non-profit directors with the information that they are receiving.
In the ADR arena, a University of London survey of cross-border dispute resolution is presented, noting that Hong Kong and Singapore are now among the top 5 most preferred seats for international arbitration and, significantly, more preferred than Geneva. Also presented is a description of the Chartered Institute of Arbitrators new arbitration rules, and an article by Paul Lurie and Sharon Press which addresses mediators duty (is there one?) to memorialize the agreement struck during the mediation.
Regarding eDiscovery, I present an article and discussion of the law dictating when a foreign company must begin to preserve evidence pursuant to US law.
Finally, for this months Interesting Case of the Month, I explore the issues facing businesses and employers over the conflicting law regarding marijuana: legal in several states, but illegal under Federal law.
More specifically, this months articles and cases are:
- The Future: Edie Wiener, a prognosticator of future trends and social changes who has been honored as a keynote speaker at the National Association of Corporate Directors annual conference and this past October at the New York Stock Exchanges annual Boardroom Summit conference summarizes her NYSE keynote address in an eInterview presented by the NYSE Governance Series.
- Incentive Compensation: It doesnt drive performance. Ryan Harvey, a partner at Meridian Compensation, discusses research which demonstrates that using compensation as a means to drive personal performance is ineffective.
- ISS and Glass Lewis 2016 guidelines: Proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis each updated their proxy guidelines for 2016. Three governance issues are highlighted in the updates.
- Governance issues that concern non-profit directors: The National Association of Corporate Directors issued their annual Nonprofit Governance Survey. Highlights (or more accurately, lowlights) of the Survey reveal deep director dissatisfaction with IT and cybersecurity, as well as other matters.
Alternative Dispute Resolution
- Mediators’ Obligation to Memorialize the Agreement: What is the mediators duty, and what law and facts dictate the result.
- Chartered Institute of Arbitrators 2015 Arbitration Rules: A description of the new Rules and why/how they are materially different from other institutions rules.
- The University of Londons School of International Arbitrations 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration: A description of several of the Surveys significant findings.
- When must a foreign company begin to preserve evidence?
Interesting Case of the Month
- If you’re in a state that permits the use of marijuana for medical or recreational uses and one of your employees, complying with State law, legally uses marijuana, may you lawfully discharge that employee for violating Federal law or your Zero Drug Use policy? Per a June, 2015 Colorado court decision: yes.
I hope you find the below discussion and linked articles of interest.
Warm regards and best wishes for a joyous holiday season and healthy and profitable new year.
Articles / Corporate Governance
Those who know me well (and especially my family) know that Im a cynic and not a fan of fortune-telling or futurists. I make an exception with Edie Wiener. I first heard Ms. Wiener speak at a National Association of Corporate Directors (NACD) conference in Washington DC where she was a keynote speaker. Like me, most of the audience was grumbling about having their time wasted with her presentation. . . . . .until they heard her. Suffice it to say, Im now a fan and find her insights and commentary both worthy of hearing and thought-provoking.
Apparently the NACD conference planners and I are not alone in being fans. Ms. Wiener was a keynote speaker this past October at the New York Stock Exchanges (NYSE) Boardroom Summit, and the NYSE thought her comments and insights worthy of being summarized in an eInterview which they’ve posted on their website. I commend it to you.
In the NYSE eInterview, Ms. Wiener discusses unemployment and the hollowing out of the middle class and how this will affect corporate strategy. She also discusses cyber security, or as she puts it cyber insecurity, and trends in HR including aging and the impact of millennials not just on markets, but on boards and management. For me, her most thought provoking comments concerned virtual reality, and how these new technologies will impact brands and to some degree manufacturing.
Ms Wieners NYSE eInterview (How Future Trends Will Impact Boards and Their Organizations).
Ms Wieners NACD keynote which first attracted me is still worthy of hearing (seeing?) and may be viewed on her website. Of particular interest is her analysis of the development of robotics, and how/why the aging and shrinking population of Japan will drive that industry.
For reasons that I cant explain, some of the more interesting articles and pieces that Ive come across in the past couple of weeks are video interviews. Those of the NYSE Governance Series usually proved especially interesting. In addition to Ms. Wieners piece described above, the NYSE did a piece with Ryan Harvey, a partner at Meridian Compensation. Mr. Harvey looks at and describes research regarding compensation and performance, and the counterintuitive findings that they are not necessarily linked. This is a discussion of philosophy and research, not the usual comp issues discussion. His conclusions: i) align compensation with actual company performance dont try to drive personal performance through compensation; ii) keep it simple, and; iii) dont use compensation as a means of delivering a performance message have a conversation about individual performance and keep the compensation issue separate.
The Harvey eInterview (Can Compensation Drive Performance or Is it Simply Along for the Ride?)
On November 20, Institutional Shareholder Services (ISS) issued its final updates to its 2016 proxy voting policies. Glass Lewis has also issued updates. The updates of both organizations address three major areas or subjects: director overboarding (a director sitting on an excessive number of boards), unilateral board actions, and proxy access. Discussion of these updates is beyond the scope of this newsletter, but several articles and update summaries exist and I urge directors and prospective directors to review the policies and be familiar with them.
Summaries Ive reviewed and recommend:
Harvard Law School Forum on Corporate Governance and Financial Regulation, ISS and Glass Lewis Updated 2016 Voting Policies, Posted by Ellen Odoner & Lyuba Goltser, Weil, Gotshal & Manges LLP
Meridian Client Update, ISS Issues Final Policy Updates for 2016 and Provides Guidance on Equity Plan Proposals
Cleary M&A and Corporate Governance Watch, ISS Gearing Up for the 2016 Proxy Season: Revisions to the Equity Plan Scorecard, Soliciting Updates to Peer Groups, and Delayed Guidance on Proxy Access, By Mary E. Alcock and Leah LaPorte Malone
Since many of us serve on non-profit boards, I thought it appropriate to highlight the National Association of Corporate Directors Nonprofit Governance Survey. The annual survey strives to highlight the governance practices and trends of non-profit organizations, and when appropriate compare the issues faced by non-profits to those of for-profit entities. The 2015 Survey is of note for the dissatisfaction of non-profit directors that it reported: 22% of nonprofit directors are dissatisfied with the quality of information provided by management concerning issues of strategy; 43% are dissatisfied with the quality of information they receive regarding cybersecurity and IT risk, and 59% are dissatisfied with the quantity of information they receive.
The full Survey may be purchased from the NACD
A complimentary executive summary of the Survey may be downloaded
An article in the NACDs directorship magazine summarizing the Survey
Articles / Alternative Dispute Resolution
The School of International Arbitration, Queen Mary, University of London, conducts an annual survey titled Improvements and Innovations in International Arbitration. The 2015 Survey comprised 80 questions and was completed by 763 respondents between March and June 2015, followed by 105 face-to-face or telephone interviews conducted between April and July, 2015. Respondents were from every continent save Antarctica. The full survey is worthy of a read by all engaged in international arbitration.
Results of note:
- The five most preferred and widely used seats are London, Paris, Hong Kong, Singapore and Geneva, the primary factor driving the selection of a seat being its reputation and recognition.
- Enforceability of awards is seen as arbitrations most valuable characteristic, followed by avoiding specific legal systems, flexibility and selection of arbitrators.
- 90% of respondents indicate that international arbitration is their preferred cross-border dispute resolution mechanism, either as a stand-alone method (56%) or together with other forms of ADR (34%).
The Chartered Institute of Arbitrators (CIArb), a London based global professional membership organization representing the interests of alternative dispute practitioners worldwide, introduced effective December 1 a new set of arbitration rules that provide a material alternative to the rules and administrative processes of most other institutional arbitration organizations such as the International Chamber of Commerce (ICC), London Court of International Arbitration (LCIA), Singapore International Arbitration Centre (SIAC), or Hong Kong International Arbitration Centre (HKIAC).
Full disclosure: I am an active member of the CIArb and am both a Fellow and an officer of its North America Branch.
The new CIArb Rules are based on the 2010 UNCITRAL Arbitration Rules, one of the most frequently used rules in ad hoc arbitrations. However, as described in the Institutes quarterly magazine The Resolver:
[T]he new Rules are very different from most other institutional rules. They provide an alternative option for users who do not want an institutional arbitration with large administrative expenses or an ad hoc arbitration in which disputes over the appointment of, or challenges to, arbitrators involve an expensive application to court.
The only role of the Institute under the new Rules is simply as appointing authority and not as administrator, or secretariat or court that vets awards, save that it is establishing a court to deal with challenges. The Institute simply assists the parties get through the appointment process quickly, avoiding the obfuscation and delay that can blight the process.
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Difference between CIArb Rules 2015 and the 2010 UNCITRAL Rules:
The Institute decided there was no point in drafting another set of rules that would effectively just be reproducing what other institutions have already done. It was recognized that the UNCITRAL Rules, which are well known and respected, were entirely suitable and designed with the express purpose of being adopted by arbitral institutions that wish to act as the appointing authority. Accordingly, we chose to use them as the foundation for the CIArb 2015 Rules.
However, . . . we also introduced two new aspects that are not in the UNCITRAL standard form. These are provisions for the appointment of emergency arbitrators and a checklist of suggested matters to be considered at the first case management conference.
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The role of the CIArb under the Rules includes:
a. the appointment of arbitrators, including emergency arbitrators;
b. decisions on challenges to arbitrators;
c. replacement of arbitrators; and
d. fund-holding services.
A description of the Rules and other matters
A full downloadable copy of the new Rules
At the close of a successful mediation, does the mediator have an obligation to produce a written document setting forth the terms of the agreement? This question is addressed by Paul Lurie and Sharon Press in an article appearing in the Fall issue of Dispute Resolution Magazine. While Paul and Sharon give that utterly annoying legal answer: it depends, they also provide the law and fact issues that one must consider in order to correctly answer the question. Additionally, they set forth three themes that emerge from their review of the law in multiple jurisdictions: i) most jurisdictions permit mediators to memorialize, or document the terms of the parties agreement (some mandate it); ii) a mediator should not go beyond memorializing or documenting the parties terms of agreement (it is not acceptable for a mediator to draft or create new terms for the parties), and; iii) mediators and attorn[ies] representing clients in mediation must review the rules of the jurisdiction.
The article is a worthy read for mediators who thought the issue straight-forward, or were never clear as to how to arrive at the correct answer.
Paul Luie, Sharon Press, A Mediators Obligation to Memorialize the Agreement, Dispute Resolution Magazine, Fall, 2015
Articles / e-Documents
US litigation hold and evidence preservation law is the subject of intense litigation, with a rapidly evolving and ever increasing body of case law as well the emergence of new State, Federal and even arbitration rules attempting to circumscribe and clarify the issues and responsibilities of all participants in a dispute. The rule put forth in the seminal Zubulake decision (once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a litigation hold) sets forth the general US standard. As global commerce continues to shrink the world and more and more non-US companies become involved in disputes in US courts, the question of when the US litigation hold requirements apply to foreign companies becomes both more common and more significant.
This past February, an Ohio court considered the matter in Lunkenheimer Co v Tyco Flow Control Pac. Party, Ltd. The Lunkenheimer court resolved the decision by relying on a 1979 US Federal Court decision (Northern District of Illinois) that held [t]he power of a U.S. Court to require compliance with U.S. discovery obligations does not arise until and unless the Court has jurisdiction. Since jurisdiction does not arise until a party is served, the Lunkenheimer court concluded that the foreign companys duty to preserve documents does not begin until it is served with the US complaint. This is significant because that result is markedly different than the rule imposed upon US companies (preservation obligations begin when a party reasonably anticipates litigation) and because in the Lunkenheimer case the foreign company was served nearly 10 years after the dispute arose.
Natasha Saggar Sheth, in an excellent article in this summers American Bar Associations Litigation News explores the Lunkenheimer case and the issues that it raises in an article: When Must A Foreign Company Begin To Preserve Evidence. Bottom line: the Lunkenheimer decision is fact specific and fact driven. As such, Ms. Sheth concludes, quoting Zachary Newman (co-chair of the Litigation Management Subcommittee of the ABAs Corporate Counsel Committee), [C]ounsel should be very cautious about relying on the decision to justify the destruction of data prospectively or to explain its destruction afterwards. Thats a risky proposition.
The full text of the Lunkenheimer decision
Natasha Saggar Sheth, When Must a Foreign Company Begin to Preserve Evidence, Litigation News, Summer 2015, Volume 40, Number 4
Articles / Interesting Case of the Month
23 states have legalized the use of marijuana in some form, and four states and the District of Columbia have legalized marijuana for recreational use. While legalized at the state level, the Federal law making cannabis illegal remains in force and effect. Thus, a myriad of legal issues has evolved regarding the conflict.
Example (true story): a taxi driver in Seattle, on his off day, used marijuana. 48 hours after his use and unimpaired in any way, hes involved in a very minor fender bender accident. The taxi driver is found not to have been at fault in any way with respect to the accident, and is further found to be unimpaired and not under the influence of any drug at the time of the accident. Nonetheless, under his companys rule he must submit to a drug test, and the test comes back showing that he had recently used marijuana. He is fired. Why? He violated his companys zero tolerance policy and the conditions of his companys insurance policy, which prohibits the use of all Controlled Substances as defined by Federal law. Marijuana is a Controlled Substance.
Example: this past June the Colorado Supreme Court, in the case Coats v Dish Network, considered the case of worker who claimed that he had been wrongfully discharged for his state-licensed use of medical marijuana at home during nonworking hours.
The facts of the Coats case, and that it arose in Colorado perhaps the most permissive of all States, make it especially noteworthy. G.M. Filisko, in an article I commend to all titled Weed-Whacked, appearing in the American Bar Associations December ABA Journal, summarizes the facts succinctly:
Coats [a wheelchair bound quadriplegic] was hired by Dish in 2007 and ranked among the top 5% of Dishs telephone customer service representatives. In 2009, after the painkiller Coats had been using since he was 16 to treat muscle spasms triggered by his condition had lost its effectiveness, his doctor recommended marijuana. Coats got a medical marijuana license and began consuming at home after work. When Dish conducted a random drug test in May, 2010, Coats informed the tester that he would fail but that he had a medical marijuana license.
Coats [failed the test and] was terminated in June, 2010 for violating the companys drug policy.
The Coats case presented a question of Colorado law, hence there is debate within the legal community regarding its national impact. Nonetheless, the decision is especially noteworthy because it was a Colorado court that issued the decision and, as noted above, Colorado is perhaps the most open of all cannabis-legal states.
The specific legal question presented by Coats to the Colorado court was whether the use of medical marijuana in compliance with Colorados Medical Marijuana Act, but in violation of federal law, was a lawful activity as that term is defined in Colorados lawful activities statute. Per the Supreme Court, Colorados lawful activities statute generally makes it an unfair and discriminatory labor practice to discharge an employee based on the employees lawful outside-of-work activities. The lawful activities statue does not define lawful activity, hence the Colorado court had to define the term by answering the question: lawful under whose law?
The Colorado Supreme Courts answer: Federal law. Therefore, Coats discharge was proper.
Readers may recall that in the second Iowa presidential debate the candidates were asked their position on the issue of whether the Federal government should conform its law to the law of 23 States. Several candidates said On day #1 I will order the government to vigorously enforce the Federal law. Rand Paul responded by reminding the candidates and the audience that a key underpinning of the Republican party is less government, Federalism, and States rights as set forth in the 10th Amendment, which states: The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people. Whether one supports Rand Paul or not, one must admit that his 10th Amendment and Federalism arguments, at least as applied to this issue, hit the mark.
The full Coats v Dish Network opinion
G.M. Filisko, Weed-Whacked, ABA Journal, December, 2015
For an insightful article regarding the impact of the conflicting Federal and State laws on the financial industry and banking regulations, see Chris Cumming, Legal Clash Exposes Contradictions in Feds Pot-Banking Rules, American Banker, November 1, 2015