Larry Cunningham discusses. BTW, have you ordered his book yet? If not, why not? After all, I have.
Larry Cunningham discusses. BTW, have you ordered his book yet? If not, why not? After all, I have.
Marcia Narine is a rising star in corporate law academia and the blawgosphere who I've been following with interest for some time. In her latest post at Business Law Professor Blog she poses the following questions as Dodd-Frank turns 4. So I thought I'd try my hand at offering some answers:
1) When Dodd-Frank turns five next year, how far behind will we still be, and will we have suffered another financial blip/setback/recession/crisis that supporters say could have been prevented by Dodd-Frank?
I'm not a macro economist, so I have no idea whether the economy will tank in the next year (but if forced to guess with a gun to my head, I'd say no). As for being behind, she is referring to the fact that the regulatory agencies have only adopted about half of the rules Congress mandated in the Dodd Frank statute. My prediction: In July 2015, about 65% of the required Dodd Frank rulemaking proceedings will have resulted in a final rule but at least 15% will still not have even resulted in a proposed rule.
2) How will the results of the mid-term elections affect the funding of the agencies charged with implementing the law?
Obviously, the big question here is whether the GOP takes control of the Senate. My current guess is that we end up with a 50-50 Senate, with Biden throwing control to the Democracts (and thereby being so busy that he has no chance of beating Hillary for the 2016 Democrat nod). If so, we're looking at high odds of a budgetary train wreck.
3) What will the SEC do to address the Dodd-Frank rules that have already been invalidated or rendered otherwise less effective after litigation from business groups such as §1502, Conflict Minerals Rule (see here for SEC response) or §1504, the Resource Extraction Rule (see here for court decision)?
Both of those rules are pet favorites of the left, so I see the SEC's three Democrat members facing enormous political pressure to get them into law by 2016.
4) Given the SEC's failure to appeal after the proxy access litigation and the success of the lawsuits mentioned above, will other Dodd-Frank mandates be vulnerable to legal challenge?
I think the SEC has finally figured out that it has to throw a lot of resources into doing cost/benefit analysis of its rules and that it has to stick to the limits of its statutory authority. If I'm right, their new rules should be less vulnerable to challenge. In addition, given that Obama's finally been able to tilt the DC Circuit to the Democrat side (7-4), the odds are much better that any challenge will be decided by a pro-SEC panel.
5) Will the whistleblower provision that provides 10-30% of any recovery over $1 million to qualified persons prevent the next Bernie Madoff scandal? I met with the SEC, members of Congress and testified about some of my concerns about that provision before entering academia, and I hope to be proved wrong.
I have no idea. But I did read an interesting article on health care fraud whistleblowers in today's WSJ. Does that count for anything?
This blend of 90% Cabernet Sauvignon, 10% Petit Verdot is drinking very well right now despite its youth. Deep purple to ruby color. Big bouquet of black and red berries, cherry, casis, and spice. On the palate, it's a surprisingly spicy wine with notes of pepper, cloves, vanilla, allspice, and bay. Currants, black cherry, plum, and blackberry. Slight suggestion of tobacco and cedar. Perfect with grilled steak and roasted new potatoes. Grade: A-
Mistake # 1 of many in the article:
"The idea of 'corporations as persons' though, all started because of a headnote mistake in the 1886 case of Santa Clara County v. Pacific Railroad Co, 113, U.S. 394
While it is true that Santa Clara is the first time the Supreme Court reports mention corporate personality, the idea of corporate personhood is much older. Blackstone's Commentaries described corporations as "articial [i.e., artificial] persons" and relied on even earlier sources in doing so. Canon law, for example, likewise treated corporations as persons--fictional to be sure, but still persons.
Mistake # 2:
... other nations don't employ this "fiction", yet they've found ways to cope with these challenges.
In fact, corporate personhood is widely recognized in legal systems around the world. "The 20th century has witnessed the evolving role of the corporation as an artificial legal person under international law...." Cynthia Day, 84 Am. J. Int'l L. 799 (1990). "International human rights law provides a basis for corporate legal personality." Lucien J. Dhooge, Human Rights for Transnational Corporations, 16 J. Transnat'l L. & Pol'y 197, 208 (2007).
Corporate legal personality is well-established in national legal systems outside of the United States. For example, corporate personality is accepted throughout common law systems. Corporate personality dates back to the late nineteenth century in the United Kingdom. In Salomon v. Salomon & Company, the House of Lords established the principle that a company was a separate legal person from its creator and controlling shareholder and was not merely such person's agent. ... Other common law jurisdictions have followed the holding in Salomon in their legislation and judicial precedents.
Recognition of separate corporate personality is not restricted to the common law tradition. European law also recognizes separate corporate personality. ...
Separate personality is also a principal feature of Asian legal systems. Corporations have separate legal personality and resultant rights in the People's Republic of China and the Republic of China. ...
Latin and South American legal systems also recognize corporate personality....
Lucien J. Dhooge, Human Rights for Transnational Corporations, 16 J. Transnat'l L. & Pol'y 197 (2007).
Back to Dvorsky for another misstatement:
By living in a world of make-believe, courts have extended other rights to corporations beyond those necessary.
Says who? That's opinion, not fact.
Mistake # 3:
Here's what Judge O'Dell-Seneca said last year in the Hallowich v Range case:
Corporations, companies and partnership have no spiritual nature, feelings, intellect, beliefs, thoughts, emotions or sensations because they do not exist in the manner that humankind exists...They cannot be 'let alone' by government because businesses are but grapes, ripe upon the vine of the law, that the people of this Commonwealth raise, tend and prune at their pleasure and need.
Sigh. Once again the concession theory raises its damnably ugly head. The concession theory is commonly traced to Chief Justice Marshall’s opinion in Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518 (1819), which held that “[a] corporation is an artificial being, invisible, intangible, and existing only in contemplation of law.” Id. at 636. Subsequent commentators understood Dartmouth College as establishing “the idea that corporations are created and empowered as a ‘concession’ from the state political authority.” Eric W. Orts, Beyond Shareholders: Interpreting Corporate Constituency Statutes, 61 Geo. Wash. L. Rev. 14, 68 (1992). But it has been over half-a-century since corporate legal theory, of any political or economic stripe, took the concession theory seriously. William W. Bratton, Jr., The “Nexus of Contracts” Corporation: A Critical Appraisal, 74 Cornell L. Rev. 407, 433-36 (1989).
Back to Dvorsky for a sleight of hand:
Similarly, solicitor general Elena Kagan has warned against expanding the notion of corporate personhood. In 2009 she said: "Few of us are only our economic interests. We have beliefs. We have convictions. [Corporations] engage the political process in an entirely different way, and this is what makes them so much more damaging."
But we know that what has Dvorsky up in arms is the Hobby Lobby decision, in which the Court recognized a corporation's personhood in order to vindicate the rights of its owners to believe the way they choose rather than as the government tells them. So he's invoking Kagan to justify punishing people for exercising their beliefs, which seems odd at best.
Back to Dvorsky for another oddity:
I asked MacDonald Glenn if the concept of corporate personhood is demeaning or damaging to bona fide persons, particularly women.
"It's about sentience — the ability to feel pleasure and pain," she responded. "Corporate personhood emphasizes profits, property, assets. It should be noted that corporations were given legal status as persons before women were."
You will have guessed where he's going with that move. Right, to say that women should have the right to abort unborn persons (he dismissed fetal personhood as "crazy").
In sum, this is a series of factual misrepresentations, misstatements, sleights of hand, and so on deployed to advance a political cause. And a pretty awful one at that, as it's a political world view that is statist, secularist, and anti-life.
Interesting new paper by Albert Choi:
Abstract: This paper examines how post-closing contingent payment (PCP) mechanisms (such as earnouts and purchase price adjustments) can facilitate mergers and acquisitions transactions. By relying on verifiable information that is obtained after closing, PCPs can mitigate the problems of asymmetric information over valuation and, in contrast to the conventional understanding, this benefit applies to both earnouts and purchase price adjustments. When both the acquirer and the target are aware that there is a positive (but uncertain) surplus from the transaction, PCPs function more as an imperfect verification, rather than a signaling, mechanism and a pooling equilibrium is possible, in which all parties adopt a PCP. When the parties are uncertain as to whether a positive surplus exists, on the other hand, PCPs function as a separating device, in which the seller with a positive surplus successfully signals its valuation with a PCP. The paper also addresses the problems of post-closing incentives to maximize (or minimize) the PCP payments. When such a moral hazard is a concern, the paper shows that (1) the PCPs will be structured so as to minimize the deadweight loss and a separating equilibrium is more likely to result; and (2) when the deadweight loss is sufficiently large, the parties will forego using a PCP mechanism altogether.
Facilitating Mergers and Acquisitions with Earnouts and Purchase Price Adjustments (June 30, 2014). Virginia Law and Economics Research Paper No. 2014-10. Available at SSRN:http://ssrn.com/abstract=2460777
One of the semi-annual highlights of the corporate law year is Francis Pileggi's roundup of the most significant Delaware corporate (and commercial) decisions in the prior six months. He's announced that:
Ten decisions with the most far-reaching application and importance during the first half of 2014 will be highlighted and discussed during an audio conference led by an Eckert Seamans’ team of corporate and commercial attorneys. Participants can dial-in on Thursday, July 24, 2014 at 3:00 p.m. EST.
Register and obtain a dial-in number by sending an email to: firstname.lastname@example.org
Sadly, I have a conflict, but I hope he'll post notes.
Peter Wallison commemorates the sad day:
Dodd-Frank has already overwhelmed the regulatory system, stifled the financial industry and impaired economic growth.
According to the law firm Davis, Polk & Wardell's progress report, Dodd-Frank is severely taxing the regulatory agencies that are supposed to implement it. As of July 18, only 208 of the 398 regulations required by the act have been finalized, and more than 45% of congressional deadlines have been missed.
The effect on the economy has been worse. A 2013 Federal Reserve Bank of Dallas study showed that the GDP recovery from the recession that ended in 2009 has been the slowest on record, 11% below the average for recoveries since 1960. ...
[Dodd Frank-caused regulatory] uncertainties, costs and restrictions have sapped the willingness or ability of the financial industry to take the prudent risks that economic growth requires. With many more regulations still to come, Dodd-Frank is likely to be an economic drag for many years.
I called Dodd Frank "quack corporate governance." It's a conclusion I stand by despite the naysaying of numerous nattering nabobs of negativity.
Steve Bradford asks the perennial question: Why do we need law reviews?
... in a world where articles are publicly available and read long before they appear in law reviews, what exactly is the value of law reviews? Most of their content is stale by the time it’s published.
He then explores some possible answers before concluding (correctly IMHO) that none of them are very satisfying.
This was a question I took up a while back, arguing that:
Unlike professional academic presses, which have multiple levels of grown-up editors that must be persuaded and make use of peer reviews, law reviews mostly are staffed by twenty-something second-and third-year law students whose knowledge of the law, legal profession, business, and so on is typically modest at best. If the Harvard Law Review turns down an article that Chapman's law review accepts, all it really tells you is that kids who on average scored higher on the LSAT liked your article less than did kids who on average scored lower. Why their choices send signals worth paying attention to is unclear, at least to me, which is not to say that I'd turn down any offer of publication the Harvard Law Review would care to make. I may think that the market is absurd, but I'm still an economically rational actor.
The signaling effect doubtless matters for junior scholars of whom no one has ever heard. It's particularly important when tenure rolls around. In my years in the academy, I've seen very few tenure discussions in which book and article placement did not serve as a proxy for quality. It's not the only quality measure, of course, but it is a factor.
For a more established scholar, however, the signaling effect may not matter all that much. Indeed, I suspect that "Professor Bainbridge" is a more potent brand name than, say, the UCLA Law Review.
Suppose I had taken that last law review article and self-published it as an e-book entitled "Professor Bainbridge on Insider Trading Inside the Beltway" and priced it at, say, $4.99. Could I have sold a couple of hundred copies? How about a whole "Professor Bainbridge on ____" short e-books?
Having said all that, why should the State of California pay me to write self-published books? Isn't part of the deal I make as an academic that I will do scholarship that is publicly accessible to all? Advance mankind's knowledge and all that? This actually strikes me as the biggest and most valid objection to self-publishing scholarship. OTOH, however, if it were a fatal objection the university ought not let me do any writing that produces royalties or, at least, ought to force me to turn my royalties over to the university. As things stand, however, I'm free to decide how to allocate my time between writing law review articles for free, academic press books for modest royalties, and case books for ... well, that's between me and my Mercedes dealer.
But I'm equivocating. It's not obvious to me that self-publishing legal scholarship is intrinsically silly or an idea waiting to happen.
In a subsequent post, I noted Roger Alford's argument that "e-publishing would actually increase the availability of one's scholarship is especially worth consideration."
In a final post on the subject, I explained why it was the Minnesota Law Review that was prompting these thoughts.
As I ponder the question now, however, it seems to me that the decisive question is figuring out what impact self-publishing would have on citation rankings. They are, after all, the currency of the trade in many respects (see, e.g., the old quip that "deans can't read but they can count").
Few people have done a better job of chronicling Warren Buffett's illustrious career than Law Professor Lawrence Cunningham. Larry's forthcoming book Berkshire Beyond Buffett: The Enduring Value of Values tackles a critical question; namely, what happens after Warren goes to his eternal home. Cunningham argues that Berkshire Hathaway can not just survive but even thrive once Warren is off the scene:
In a comprehensive portrait of the distinct corporate culture that unites and sustains Berkshire's fifty direct subsidiaries, Lawrence A. Cunningham unearths the traits that assure the conglomerate's perpetual prosperity. Riveting stories recount each subsidiary's origins, triumphs, and journey to Berkshire and reveal the strategies managers use to generate economic value from intangible values, such as thrift, integrity, entrepreneurship, autonomy, and a sense of permanence.
I've read all of Larry's other Buffett books and have found each to be highly entertaining and informative. So I confidently recommend this one sight unseen.
Update: There is an interesting interview of Cunningham by Joan Heminway over at Business Law Prof Blawg. Highlight:
Q: Care to give us a thumbnail sketch of the book’s outline?
A: Sure. The opening chapters cover Berkshire’s origins and foundations, with surprises even for those most familiar with this terrain, including rich connections between Berkshire’s early acquisitions and the conglomerate today. While Berkshire appears vast, diverse, and sprawling, this synthesis of corporate culture shows instead a close-knit organization linked by discrete values.
The middle chapters, the heart of the book, take a series of deep dives into fifty Berkshire subsidiaries to illuminate each of the traits and how they give Berkshire its identity and destiny. I was delighted that, when circulating the manuscript for comment among Berkshire devotees, even the most avid readers found new facts, fresh insights, and a whole new way of thinking not only about Berkshire but about Buffett.
The closing chapters reflect on what Berkshire’s corporate culture means for Buffett’s legacy. They explore the elaborate succession plan at Berkshire, which most people misunderstand, and identify challenges Berkshire will face. I also draw specific lessons for investors, managers, and entrepreneurs who can benefit from Berkshire’s distinctive approach—lessons that business lawyers and policymakers will want to learn as well.
We write this together, all of us, as a community. Our friend Dan Markel has been taken from us, suddenly and terribly. His law school, the Florida State University College of Law, will issue an announcement in due time. We do not have all the details, but our understanding is that Dan was shot and killed. Painful as it is to say that, and as little as we know, the early news reports left enough room for speculation that it seemed necessary to say that much. The terrible, senseless nature of his loss makes it all the harder to bear.
All of us here on Prawfsblawg live in different places and come from different backgrounds. What we have in common, with many others, is Dan. His network of friends and loved ones--and he had a great deal of love for all his many friends, as we did and do for him--is enormous. His boundless energy was at the center of this community; it made it run, it gave it life. We are stunned and bereaved by his loss, and our thoughts go to his two little boys, who were precious to him, and to his family. Many, many people loved him and are grieving today. Baruch dayan emet.
I did not know Dan, but everyone who did seems to have loved him. My thoughts and prayers go out to his family and friends.
For dinner tonight I made all three recipes from the Steakhouse at Home episode of Bobby Flay's Barbecue Addiction show. For once I followed the recipes exactly, except for cutting them in half for 2 instead of 4 servings and using NY strip instead of ribeye. They turned out great, without being a ton of work. Two thumbs up.