ProfessorBainbridge.com

I, for one, do not welcome our new shareholder overlords ... but here's a guide for those of you who do

Ed Rock has a very interesting new article out, entitled Adapting to the New Shareholder-Centric Reality:

After more than eighty years of sustained attention, the master problem of U.S. corporate law — the separation of ownership and control — has mostly been brought under control. This resolution has occurred more through changes in market and corporate practices than through changes in the law. This Article explores how corporate law and practice are adapting to the new shareholder-centric reality that has emerged.

Because solving the shareholder–manager agency cost problem aggravates shareholder–creditor agency costs, I focus on implications for creditors. After considering how debt contracts, compensation arrangements, and governance structures can work together to limit shareholder–creditor agency costs, I turn to available legal doctrines that can respond to opportunistic behavior that slips through the cracks: fraudulent conveyance law, restrictions on distributions to shareholders, and fiduciary duties. To sharpen the analysis, I analyze two controversies that pit shareholders against creditors: a hypothetical failed LBO, and the attempts by shareholders of Dynegy Inc. to divert value from creditors through the manipulation of a complex group structure. I then consider some legal implications of a shareholder-centric system, including the importance of comparative corporate law, the challenges to the development of fiduciary duties posed by the awkward divided architecture of U.S. corporate law, the challenges for Delaware in adjudicating shareholder-creditor disputes, and the potential value of reinvigorating the traditional "entity" conception of the corporation in orienting managers and directors.

I'm going to have to read Greve's Upside Down Constitution

Michael Greve's got a new book out, The Upside-Down Constitution, and Sandy Levinson's review makes it sound highly relevant to my debates with the crowd that wants to federalize corporate law:

[Greve] is primarily interested in what might be termed the "political economy" of federalism, by which I mean its essential role, for Greve, in liberating business from oppressive regulation by generating competition among the states to attract business (and by eliminating the ability of states that might well be reflecting the views of local communities to freeze out goods produced by companies in business-friendly states).  This requires vigorous enforcement of the dormant commerce clause, on the one hand, and limitations on congressional power, on the other hand, to impose "cartelization" by a coalition of dominant states who wish to limit the autonomy of outliers.  The key examples of the latter, of course, are Hammer v. Dagenhart and its overruling case of Darby Lumber.  He would also happily constrain the power of states to impose punitive damages on vulnerable business.  He is unabashed and admirably candid in articulating what might ne termed a "Coolidgean view" of the constitutional enterprise, by which the business of Constitutionalism is protecting business. 

It sounds as though Greve's theory will provide a frame for enshrining Delaware's corporate law dominance in the Constitution, which would be useful.

Do law firms really want "practice ready" law school graduates?

You'd think so, but Deborah Jones Merritt has some evidence that they don't:

Pedagogically and professionally, it makes sense for law schools to teach practical skills along with theory and doctrine. New lawyers should know how to interview clients, file simple legal documents, and analyze real-world problems, just as new doctors should know how to interview patients, use a stethoscope, and offer a diagnosis. Hands-on work can also deepen knowledge received in the classroom. Law students who apply classroom theories to real or simulated clients develop stronger intellectual skills, as well as new practical ones.

Employers say they are eager to hire these better-trained, more rounded, more “practice ready” lawyers–and they should be. That’s why the employment results for Washington & Lee’s School of Law are so troubling. Washington & Lee pioneered an experiential third-year program that has won accolades from many observers. Bill Hendersoncalled Washington & Lee’s program the “biggest legal education story of 2013.” The National Jurist named the school’s faculty as among the twenty-five most influential people in legal education. Surely graduates of this widely praised program are reaping success in the job market?

Sadly, the statistics say otherwise. Washington & Lee’s recent employment outcomes are worse than those of similarly ranked schools. The results are troubling for advocates of experiential learning. They should also force employers to reflect on their own behavior: Does the rhetoric of “practice ready” graduates align with the reality of legal hiring?

After crunching the numbers, Merritt asks:

Washington & Lee’s outcomes are puzzling given both the prominence of its third-year program and the stridency of practitioner calls for more practical training. Just last week, California’s Task Force on Admissions Regulation Reform suggested: “If, in the future, new lawyers come into the profession more practice-ready than they are today, more jobs will be available and new lawyers will be better equipped to compete for those jobs.” (p. 14) If that’s true, why isn’t the formula working for Washington & Lee?

She then explores some possible explanations and implications. My own take away lesson is that nobody has figured out how to educate 21st Century lawyers. My best guess is that a combination of MOOCs and some sort of apprenticeship would be ideal. And I still think law should be an undergraduate major instead of a graduate school. But who knows? The trouble, of course, is that market pressures and the ABA's absurdly detailed accrediation and state bar admission rules severely limit schools' willingness to undertake radical experimentation.

Task management

I've been looking for a very simple, no frills, easy to use task management program for a while. I've been using iProcrastinate for Mac and iPhone/iPad for a few weeks and it is exactly what I needed. It's doesn't have a lot of bells and whistles, but it does basic task management very very well. Recommended.

Nuking the filibuster: Can mutually assured destruction save it?

A report at TPM claims that:

Senate Minority Leader Mitch McConnell (R-KY) on Tuesday starkly warned Majority Leader Harry Reid (D-NV) not to eliminate the filibuster on presidential nominations, threatening to end the 60-vote threshold for everything, including bills, if he becomes the majority leader.

“There not a doubt in my mind that if the majority breaks the rules of the Senate to change the rules of the Senate with regard to nominations, the next majority will do it for everything,” McConnell said on the floor.

With at least half a dozen key judicial and cabinet nominees pending, all of whom Republicans have problems with, Reid has threatened to invoke the so-called nuclear option to change the rules of the Senate and eliminate the filibuster on nominations — but not anything else.

Backed up by Sen. Lamar Alexander (R-TN), who echoed his warnings in a floor colloquy Tuesday, McConnell said his hypothetical majority would take it a step further.

And so the Senate is now so dysfunctional that only mutually assured destruction prevents the parties from going nuclear. Of course, this isn't the first time such a threat has been issued. To the contrary, when their roles were reversed, then Minority Leader Reid made precisely the same threat, as David Law and Larry Solum explained back in 2006 (15 J. Contemp. Legal Issues 51):

Yet another possible external cost of the nuclear option for individual Senators could result if the nuclear option were to trigger the senatorial equivalent of “mutually assured destruction.” Senate Minority Leader Reid has already vowed to make the GOP “rue the day” that it tampers with the filibuster, and to “screw things up” throughout the Senate in retaliation. If Senator Reid makes good on his word, Republican senators may find themselves in a Never-Never Land of unending quorum calls, refusal to consent to limits upon debate or amendment, extended debate on whether bills should be debated at all, inexhaustible streams of non-germane amendments, committee paralysis, and whatever other parliamentary mayhem the party of Robert Byrd can muster.

This prospect is a very real one. As I noted back when the Gang of 14 deal saved the filibuster:

Proponents of the nuclear option claim to believe that abolishing the filibuster could be limited to judicial nominations. It's a coin flip as to whether this is naive or disingenuous. It's a slippery slope to abolishing the filibuster as to Presidential nominations or even legislation. Would the GOP be tempted to abolish the filibuster if necessary to put John Bolton at the UN? Or to ram through Social Security reform? Even if the GOP resisted that temptation, what happens the next time the Democrats control the Senate? A GOP-established legislative and institutional precedent for abolishing the filibuster as to judicial nominations would make it all that much easier for the Democrats to do the same as to nominations or legislation. 

Today, of course, it is the Democrats who need to take that same prospect into account.

One good thing (for those of us who are fans of the filibuster, as I am) is that the question may not be resolved by the leadership. As Law and Solum explain, going nuclear could have very bad consequences for back benchers:

[Minority party disruptions] might, in turn, trigger even harsher procedural countermeasures by the majority, which could employ the nuclear option to pass rules that would eliminate the need for unanimous consent and centralize power in the Senate leadership, along the present lines of the House of Representatives. But such structural changes might curtail the rewards associated with non-leadership positions in the Senate--including, for example, various powers of patronage currently associated with membership in the Senate. Republican and Democratic senators alike may balk at the erosion of the prized prerogatives that render individual members of the Senate so much more powerful than their counterparts in the House.

Memo to the UC brass

I'd like you to loan me $1 million to buy a summer home in Santa Barbara and then forgive it. After all, if NYU can do it, why can't you?

Follow one of Fire Island’s quaint footpaths away from the ferry dock, past modest cottages and better-appointed vacation homes, to an elegant modern beach house that extends across three lots. A composition in bold, unadorned planes, it has a perimeter of green and two separate entrances, each outfitted with the long ramps that are the local custom.

ts most interesting feature, however, is not architectural, but financial. The house, which is owned by John Sexton, the president of New York University, was bought with a $600,000 loan from an N.Y.U. foundation that eventually grew to be $1 million, according to Suffolk County land records. It is one of a number of loans that N.Y.U. has made to executives and star professors for expensive vacation homes in areas like East Hampton, Fire Island and Litchfield County, Conn., in what educational experts call a bold new frontier for lavish university compensation. ...

Mortgage loans to Jacob Lew, a former N.Y.U. executive vice president, part of which was eventually forgiven, became an issue during Mr. Lew’s confirmation hearings as treasury secretary this year.

Memo to aspiring academics--legal and otherwise--us Boomer old farts aren't going to go away quietly

UCLA FA blog reports:

Inside Higher Ed today carries an article about surveys of faculty who say they don't plan to retire at the "normal" age or maybe ever.  The work-til-you-drop response is attributed to such motivations as wanting to be intellectually active but also importantly to concerns about having sufficient funds and health insurance to retire.  When UC was considering changing its retirement plan - it created a two-tier program - it retained the defined benefit approach rather than switch to a defined contribution approach.  Many faculty in the U.S. are under TIAA-CREF or some similar defined contribution program which means that they face the danger of outliving their savings.  Retiree health care is also not necessarily provided.

UC retained its basic defined benefit model in part to encourage faculty renewal.  Many years ago, before federal law changed, universities - including UC - had mandatory retirement ages.  Once that policy was made illegal, only the defined benefit system provides an incentive to retire.  Under defined benefit, the retiree can't outlive his or her savings.  And long service employees essentially end up working for nothing if they continue so the system incentivizes "on time" retirement.

Before you assume that the UC will be an exception to the rule, in which us boomer faculty will gracefully step aside to allow the younger generations to take our place, notice that defined benefit only incentivizes "on time" retirement for folks who started in the UC system. This is so, because your UC retirement is based, in part, on the number of years of service credit you have accrued. Those of us who joined the UC system mid-career simply will not have enough service credit to fund a decent retirement at normal retirement ages. So I, for one, plan to cling to my job no matter how many young whippersnappers are clamoring for it.

Speaking of whistle blowers, can your attorney not only blow the whistle on you but also collect an SEC bounty for doing so?

Very interesting post by Lawrence West on "attorneys as award-seeking SEC whistleblowers":

This is a primer on attorneys as award-seeking SEC whistleblowers. It digests the relevant law and explains how it applies in real situations. That law includes the SEC attorney conduct and whistleblower award rules and each state’s ethics rules applicable to attorney disclosure. Fully assessing a particular situation will often require referring to the relevant rules for each state that might come into play for a particular lawyer in a particular situation. We therefore include information about choice of law and a chart summarizing the relevant rules in each of 51 US jurisdictions.

Blowing the whistle: Why the smear campaign against Snowden matters

In the prior post, I noted that former SEC inspector general David Weber who was fired for blowing the whistle on corruption and sexual shenanigans at the agency has been vindicated by a very favorable settlement of his claims. Which is a good thing. we want people to blow the whistle on illegal and ethical conduct. Which brings me to WW's post on the campaign to smear NSA whistle blower Edward Snowden:

One need not believe that Mr Snowden is a hero to see that the campaign to smear him is in large part a campaign of pre-emption against future leakers. The prestige and infamy that ultimately attach to Mr Snowden will surely affect the supply of future leaks. The rush to lionise and belittle Mr Snowden is a rush to get the jump in the fight to determine the level of status that whistle-blowers will enjoy, or suffer, in our culture.

The outcome of this fight matters, because, as economists like to say, incentives matter. But few incentives are pecuniary. Humanity operates primarily within an economy of esteem, and one basic function of any human society is to assign status, to distribute honour and shame. That pundits hustled to pass judgment on Mr Snowden is no surprise, but the way it has been done is illuminating, and depressing. Another, better, society might heap socially fatal shame upon David Brooks for his reckless, smug psychologising of Mr Snowden. Sadly, this sort of inane, moralising, diagnostic speculation falls well within the bounds of accepted American discourse, which reflects rather poorly on us. That we do not readily see that it reflects poorly on us also reflects poorly on us. The questions Americans do and do not find sensible to raise also provide grounds for sorrow. It makes sense to Americans to ask, "What kind of person would defy authority in this way?" But somehow it does not make sense to ask, "What kind of person seeks to join the special forces of a country known to conduct unjust wars?" or "What kind of person helps the state conduct its business outside the scope of public deliberation and democratic authority, and does not seek to expose it?" ...

The attack on Mr Snowden's reputation is in no small part a rearguard action to keep America's spies and generals beyond the reach of suspicion, to maintain their relative immunity from serious democratic scrutiny so that that the public will continue complacently to trust them when they say, in so many words, "Trust us...or else". But it is democratic affirmation, not uniforms and security clearances, that makes state power legitimate. When the state acts without proper democratic authority, it acts as a rogue operation—as just another band of thugs with money and guns and a dangerous sense of self-righteousness. Whether the NSA's monitoring programmes are actually legal and effective may be morepressing questions than whether Mr Snowden deserves our esteem. But it became possible to address those questions openly only because Mr Snowden chose to speak up. If we wish to keep similarly pressing policy questions available for public examination, we must defend the honour of whistleblowers like Edward Snowden.     

Hear, hear.

David Weber vindicated

Last fall we reported on the travails of former SEC inspector general David Weber who was allegedly fired after blowing the whistle on sexual shenanigans at the SEC. Broc Romanek now reports that:

As I blogged six months ago, SEC Assistant Inspector General David Weber filed a $20 million lawsuit alleging he was fired for being a whistleblower (you may recall the complaint was full of juicy details, which may - or may not - be true). Last week, it was reported that Weber received a settlement of $580k for the lawsuit - as well as his job back and his record cleansed. That is pretty big number for a government settlement. Learn more in "Sex, Lies, Stupidity, Oh My!!: SEC Whistleblower David Weber Vindicated, Receives Huge $ettlement" (and this Reuters article and Washington Post article).

Supreme Court to tackle disparate impact

The US Supreme Court has granted cert in Mount Holly v. Mt. Holly Gardens Citizens in Action, Inc. (SCOTUSblog file of pleadings here).

As Roger Clegg observes:

The Center for Equal Opportunity and the Pacific Legal Foundation had urged the Court to grant review in this case, as discussed here, and we’re glad that the Court did so today. It presents the issue — never resolved by the Court — whether a “disparate impact” cause of action may be filed under the Fair Housing Act. 

Such a cause of action alleges “discrimination” based on statistical imbalances, notwithstanding the fact that the challenged practice is nondiscriminatory by its terms, in its intent, and in its application. So, for example, the refusal to rent to convicted felons, or to sell homes to people with poor work histories, or to rent or sell to people with bad credit ratings all can be challenged if there is a disproportionate effect on this or that group, and then the defendant must prove some degree of “necessity” for the practice.

The narrow issue presented is whether disparate impact claims are cognizable under the Fair Housing Act. Unlike employment discrimination, for example, federal housing statutes do not explicitly embrace disparate impact. Even so, this is going to be a very closely watched case by business, as the disparate impact theory significantly increases their liability exposure under the various civil rights laws.

Interesting Pentagon fact of the day

Who are the 3 highest paid officials on the Pentagon budget? The Football Coaches http://t.co/LabFdmTFeB via @TylerCowen

— Erik Brynjolfsson (@erikbryn) June 17, 2013

I wonder if the sequester would have affected the academy football programs? #LastToCut?