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In Bertie Sees it Through, Bertie Wooster's moustache is subjected to a series of withering criticisms before finally getting praise from Florence Craye, prompting Bertie to observe that:

I mean, while one lives for one's Art, so to speak, and cares little for the public's praise or blame and all that sort of thing, one can always do with something to paste into one's scrap-book, can one not?

Apropos of which, while your humble editor is unruffled at having been left off the list of nominees for 25 Best Business Law Blogs by whatever bunch of Philistines assembled said list, he could do with something to paste in his scrapbook. So be a pal and go nominate yours truly. Cheerio.

Freedom to swim in Holland

In at least one small way, our friends at The Defining Tension corporate law blog live in a freer country than I do.

On a serious note, the Economist blog post to which I linked has a nice discussion of the difference between sensible and nonsensical regulation:

I am perfectly capable of assessing for myself the risks of swimming across a small pond in Massachusetts, or the risks of swimming in the Amstel when lots of boat traffic is around. I don't need regulations to protect me; I have common sense. What I can't assess for myself is the risk that the water is contaminated by raw sewage. For that, I need a regulatory agency that stops households and businesses from polluting the river. To generalise: for risks I can assess myself, I don't want regulations that prevent me from doing as I please just because I might end up suing the government. For risks I can't assess myself, I do want regulations that give me the confidence to do as I please. One kind of regulation stops me from swimming in a pond in Massachusetts. The other kind lets me swim in a river in the Netherlands. One kind of regulation makes me less free. The other kind makes me freer.

I'm not saying the Netherlands has struck the right balance, overall, between freedom and regulation. On the commercial side, the Dutch feel themselves to be heavily over-regulated. But I do think the comparison helps to identify how regulation and freedom interact.

I would put the difference between the two types of regulation slightly differently. I believe the case for regulation is strong only when there is a demonstrable market failure that cannot be fixed through private ordering. Pollution is a good example. We have an extenality problem, because the polluter is able to reduce its costs by externalizing part of them onto society by dumping pollutants into the environment. We have a collective action problem, which makes the cost of private ordering very high. We have a commons problem, which also raises the cost of private ordering. It's hard to see how deciding to swim a particular pond raises those sort of issues.

The Ever Stranger Saga of Delaware's Tea Party Candidate

From Hotline (HT: Mataconis):

O'Donnell, a perennial conservative candidate in Delaware, is challenging moderate Rep. Mike Castle (R), the clear favorite of the GOP establishment. But she has come under fire recently for her personal financial problems. Reports have surfaced that she owed $10K in back taxes, defaulted on her mortgage and holds outstanding campaign debt.

Levi Russell, a spokesman for the group, told Hotline On Call that the group was not aware of O'Donnell's personal financial problems before it endorsed her.

"We don't know the exact situation," he said.

When asked if the group discussed the issues with O'Donnell, Russell responded: "No we haven't. We don't really have any contact with the campaign or the candidate."

We have blogged before reasons why we support Mike Castle over O'Donnell. But this report raises even more questions, such as:

1. If the Tea Party really stands for fiscal conservatism, why would they endorse somebody who can't even manage her personal finances?
2. Does it give you confidence in the Tea Party that they go around endorsing people without having any contact with the candidate? How do they know that this female version of Harold Stassen is really worthy of such an endorsement?
3. Christine O'Donnell has run for office 4 times. Her sole victory was an uncontested Republican primary.
4. In 2008, O'Donnell lost the Delaware senate race to Joe Biden by 65-35. She later falsely claimed to have won two counties in that race. Biden's percentage of the vote in 2008 was the largest of any of his senatorial campaigns.
5. In 2008, one of the great Democratic landslides, Mike Castle beat his Democratic challenger for Delaware's sole Congressional seat by 23 points. Castle has won 13 consecutive state-wide races as a candidate either for Governor or Congressman. He's way ahead of the Democrat in the polls while O'Donnell trails the Democrat by 10 points.

As a student of Delaware corporate governance, I am firmly convinced that Delaware needs quality representation in Congress if it is to fend off the creeping federalization of corporate law. As a big tent Republican, I'm inclined to support smart, electable, centrists like Mike Castle over someone like O'Donnell. The perfect must not be allowed to become the enemy of the good. Especially when the supposed perfect candidate is pretty seriously flawed and probably unelectable.

More on the Dodd-Frank CEO/Worker Ratio Disclosure

We blogged the other day on the new Dodd-Frank requirement that companies disclose the ratio between their CEO's pay and that if the median worker.

Now Marc Hodak blogs on the NY Times' editorial on that requirement, concluding:

I always love it when someone who is horribly missing the point says “that misses the point.”

Me too.

The Coming GOP Wave Takes an Odd Casualty

I guess Law Professor Gerard Magliocca has been reading the latest polls:

So I’ve been drafting an article on “The Obama Generation and the Supreme Court.”  (I posted the Abstract here in July). The premise of that paper was that the 2008 election was an electoral realignment, and I was then going to assess the likelihood that the Court would strike down the individual health insurance mandate.  I knew that the GOP would win seats this fall, but I figured that the victory would be within historical norms for a first midterm.

Er . . . now I’m thinking that I was wrong.  The Republican wave is looking big–really big.  Of course, things could change in the next two months.  One thing, though, is clear.  If the Democrats lose both houses of Congress after going into the election with such large majorities, then calling 2008 a realignment would be absurd.  (You might say that this is the academic version of “You’re gonna need a bigger boat.”).

Suppose November is a train wreck for Democrats.  That opens up another possibility that I’ve posted about. Perhaps the President is the second coming of William Jennings Bryan.  In other words, his chief achievement will be the backlash that he generates.  Granted, that thought is fresh in my mind because I have a book coming out about that period, but you could make the case on other grounds.  That too, though, runs into a problem.  It assumes that the GOP will win in 2012. If not, then that analogy doesn’t work either.

I guess one advantage of being a corporate law professor is that the Tea Party's unlikely to ever derail one of my law review articles.

Context matters

Overlawyered:

“Second Circuit: Repeated Use of ‘Bitch’ May Be Enough to Create Hostile Work Environment”

But what if you work in a veterinarian's office? Or a radio station that decides to have a 24 hour marathon of Elton John's "The Bitch is Back"?

Climate Change Disclosures

James McRitchie comments on recent trends in climate change disclosures, citing this piece of creative writing from Molson Coors' latest 10-Q:

While warmer weather has historically been associated with increased sales of beer, changing weather patterns could result in decreased agricultural productivity in certain regions which may limit availability or increase the cost of key agricultural commodities, such as hops, barley and other cereal grains … Increased frequency or duration of extreme weather conditions could also impair production capabilities, disrupt our supply chain or impact demand for our products. Climate change may also cause water scarcity…

If you were a Molson Coors investor, would you feel better informed after reading that?

We discussed climate change disclosure here at PB.com a while back when the SEC announced a new initiative in this area. We recommend going over and reading that whole post. For those that want to stay here, however, suffice it to say that I see the Molson Coors 10-Q as confirmation that SEC Commissioner Troy Paredes was right when he opined that:

There is a notable risk that the interpretive release will encourage disclosures that are unlikely to improve investor decision making and may actually distract investors from focusing on more important information. Here, it is worth recalling that, in rejecting the view that a fact is "material" if an investor "might" find it important, Justice Marshall, writing for the Supreme Court in TSC Industries, warned that "management's fear of exposing itself to substantial liability may cause it simply to bury the shareholders in an avalanche of trivial information — a result that is hardly conducive to informed decisionmaking."

I also take it as confirmation that I was right when I opined that:

Investors don't get much of value from disclosures as they were being made before this announcement and the most likely scenario is that the disclosures will become less rather than more valuable.

Quack Corporate Governance: Dodd-Frank's Executive Comp Disclosure Rule

Roberta Romano famously referred to Sarbanes-Oxley as "quack corporate governance." Much the same can be said of the new Dodd-Frank bill, as well.

Case in point: Section 953 requires that each reporting company’s annual proxy statement must contain a clear exposition of the relationship between executive compensation and the issuer’s financial performance. It further requires disclosure of “the median of the annual total compensation of all employees of the issuer,” except the CEO, the CEO’s annual total compensation, and the ratio of the two amounts.

The cognoscenti have known for some time that this requirement will be hugely burdensome:

[It] means that for every employee, the company would have to calculate his or her salary, bonus, stock awards, option awards, nonequity incentive plan compensation, change in pension value and nonqualified deferred compensation earnings, and all other compensation (e.g., perquisites). This information would undoubtedly be extremely time-consuming to collect and analyze, making it virtually impossible for a company with thousands of employees to comply with this section of the Act.

Now the word is getting out more generally. Today's Financial Times relates that:

US companies face a “logistical nightmare” from a new rule forcing them to disclose the ratio between their chief executive’s pay package and that of the typical employee, lawyers have warned.

The mandatory disclosure will provide ammunition for activists seeking to target perceived examples of excessive pay and perks. The law taps into public anger at the increasing disparity between the faltering incomes of middle America and the largely recession-proof multimillion-dollar remuneration of the typical corporate chief. ...

The rules’ complexity means multinationals face a “logistical nightmare” in calculating the ratio, which has to be based on the median annual total compensation for all employees, warned Richard Susko, partner at law firm Cleary Gottlieb. “It’s just not do-able for a large company with tens of thousands of employees worldwide.”

Disclosure is not free. The question always must be whether a dollar of corporate expense in generating the disclosure produces more than a dollar in value to investors. Section 953's costs will be enormous. The benefits to investors seem slight. Instead, as with so much of Dodd-Frank, the many benefits will flow to anti-corporate social activists who want to use the data for their own purposes.

Update: Usha Rodrigues comments:

Brandeis' sunlight works best when it's pretty clear that the darkness is hiding something. The classic example is related party transactions: if a company has to disclose whenever it engages in a transaction with its executives, the market will either punish it for engaging in management-enriching activity at the expense of the shareholders, or it will be less likely to engage in that activity in the first instance.

It's not at all clear that disclosure of CEO/average employee pay ratios will trigger the same reaction. On the contrary, the history of executive comp regulation by disclosure has taught us that disclosure can result in an arms race as executives demand pay packages at least as good or better than that of their peers. Even the most populist of shareholders will generally agree that you have to pay CEOs more than the average employee, and the intrafirm ratio seems like an odd metric for determining how much is too much. If a company has low-wage employees (e.g., Wal-Mart) the ratio will be higher than if it's a company with high-wage employees (a bio tech firm); does that mean the Wal-Mart CEO is being paid "too much"? Even more problematic for populist reformers, the FT article points out an unintended consequence of the new regulation: it favors companies that outsource or even off-shore jobs, since those low-wage earners won't be counted in the median employee pay numbers. Ooops.

Is there gold in Fort Knox? Do we care?

Ron Paul thinks there needs to be an audit to see if there's really any gold in Fort Knox. The utility of gold as a store of value has always puzzled me, although I must confess to having done less well in Econ 102 than I did in Econ 101, so there you have it.

In any case, I am reminded here of Terry Pratchett's wonderful Discworld novel Making Money, in which Lord Vetinari maneuvers reformed criminal and current Ankh-Morpork Postmaster General Moist von Lipwig into taking on the job of running the Bank of Ankh-Morpock and the Royal Mint. Lipwig eventually discovers that the 10 tons of gold supposedly in the bank's vaults is now longer there. Panic almost ensues. Naturally, however, Lipwig saves the day, gets the girl, and persuades the citizens of Ankh-Morpock to abandon the gold standard.

In doing so, Lipwig is interviewed by The Ankh-Morpork Times' crack reporter Sacharissa Cripslock, in the course of which Lipwig comes up with what I have always regarded as a compelling argument against the gold standard:

"The world is full of things worth more than gold. But we dig the damn stuff up and then bury it in a different hole. Where's the sense in that? What are we, magpies? Is it all about the gleam? Good heavens, potatoes are worth more than gold!"

"Surely not!," [said Ms. Cripslock]

"If you were shipwrecked on a desert island, what would you prefer, a bag of potatoes or a bag of gold?," [replied Moist]

"Yes, but a desert island isn't Ankh-Morpork!"

"And that proves gold is only valuable because we agree it is, right? It's just a dream. But a potato is always worth a potato, anywhere. A knob of butter and a pinch of salt and you've got a meal, anywhere . Bury gold in the ground and you'll be worrying about thieves for ever. Bury a potato and in due season you could be looking at a dividend of a thousand per cent."

"Can I assume for a moment that you don't intend to put us on the potato standard?" said Sacharissa sharply.

QED. Game. Set. Match.

When I was a kid, we didn't get any stinking $150 cab rides

Conor Friedersdorf is a guest blogger at Andrew Sullivan's place. He opines that:

The details of how elite law and business consulting firms recruit astonish me every time I hear them. Even getting an interview often requires attending an Ivy League professional school or a very few top tier equivalents. Folks who succeed in that round are invited to spend a summer working at the firm, the most sane aspect of the process.

But subsequently, they participate in sell events where they're plied with food and alcohol in the most lavish settings imaginable: five star resort hotels, fine cigar bars, the priciest restaurants. A fancy dinner will be scheduled in a faraway city. Summer associates will fly there that evening, spend several hundred dollars on the meal, spend the night in a hotel, and fly back the next morning in time for a 10 am client meeting. They'll expense steak dinners or $150 cab rides without a second thought. The whole process is designed to appeal to their status conscious side, to accustom them to a kind of luxury that requires them to retain highly paying jobs, and to keep them busy enough during their summer tryout that anyone unable to commit their whole lives to the firm won't stick around.

It wasn't that way when I was a summer associate or a practicing lawyer, but then again those were back in the days when the world was still in black-and-white. We actually used things called Wang workstations instead of PCs and phones were plausible instruments of homicide instead of minicomputers. Plus, we had to walk to work in the snow. Uphill. Both ways.

But maybe I just worked at the wrong firms. Or maybe the world has changed. Because over at Above the Law we learn that for some folks the 2010 summer associate program was pretty plush:

• Summer associates at this litigation powerhouse brag that their “workload is super light,” completing one to five assignments over the course of the 12-week summer program, and typically spending about five hours a day on billable work.  Just don’t expect to be making the lunch rounds at the city’s trendiest restaurants.  Summers eat in at the firm’s dining room, which serves free but “excellent” lunch daily.
• It certainly pays to have high-profile clients at this firm, which treats its summer associates to unique social events like the Tony Awards and the NBA Draft.
• The line between summer and full-time associates is blurred at this firm, with summers “put[ting] in well over 80 hours” during some weeks to complete 15 or more assignments during the eight-week summer program.  Despite their high work demands, these summer associates still find the time to be do-gooders by volunteering to cook at the Ronald McDonald House for kids and their families.
• The good old days never left this firm.  Summer associates typically bill about four hours a day on assignments, leave at 5:30 p.m., play softball at Fenway Park, and still get 100% offers. But you might want to think about taking an extended post-bar trip, since you might not start work on time as a first-year associate.
• No complaints at this firm, which gives summer associates “exactly the work that they want” and still provides a “very generous” $65 lunch budget in New York.  Be sure to brush up on your foreign language skills; one-third of the summer class gets to spend up to three weeks working in one of the firm’s overseas offices

WTF? Why didn't White & Case send me to the NBA draft? Arnold & Porter never let us play softball at RFK stadium either. I wuz robbed.

On a serious note, I find it puzzling that some summer associate programs were so plush in this job market. One would think things are so tight that firms could feed associates bread and water and still have the associates walk on hot coals to get an offer.

Thoughts? Comments? (Trolls from the O'Donnell post will be banished.)

How this year's fantasy playoffs could be affected by next year's lockout

I hadn't considered this issue, but now it seems obvious:

With players and coaches facing future financial uncertainty given the threat of a lockout in 2011, the product on the field could suffer late this season, Dungy said. Players without long-term financial security will have less incentive to play through minor injuries and coaches could be distracted as they look to the college ranks for a financial safety net.

"I do think it's going to have a great effect coming down the home stretch," Dungy said Monday on an NBC conference call. "If this thing is not settled, you're going to have players who are saying, 'Hey, what about me? What's going to happen to me in 2011? I'm a little bit nicked up. Should I go out there, I don't have a contract for next year.'

"You're going to have assistant coaches who are saying, 'Hey, we might not have a job next year. Maybe I should get on the phone and start calling these different colleges as these openings come up.' "

Fellow NBC analyst Rodney Harrison agreed.

"If they're in a situation where their contract is up and they've managed to get through 14, 15 weeks or 13 weeks and all of a sudden, they have a little contusion on their knee or a sprained ankle or bruised ribs, they're not going out there if they don't have their money,'' Harrison said.'

And those are precisely the weeks when those of us who play fantasy football will be fighting for our league championships.

Obama versus Reagan

Marc Hodak compares Obama to Reagan, much to the former's disadvantage.

5 Things Tom Coburn Said that I Liked

I'd love to see a transcript or video of Senator Tom Coburn's town hall meeting from last Friday. As reported, he blasted both left and right, saying some things with which I find myself in near complete agreement:

• "If the conservatives in Congress gain control and don't live up to expectations," he said, "the Republican Party will be dead." 

And deservedly so.

• The problem is, we have allowed the military-industrial complex to make things unaffordable. ... When the cost of an F-35 triples during development, something's wrong." 

I don't know how much money it takes to defend America, but surely there's got to be ways of doing so more efficiently

• Newt Gingrich is "the last person I'd vote for for president of the United States. His life indicates he does not have a commitment to the character traits necessary to be a great president." 

Damn straight. Of course, in my book, the same thing can be said -- albeit in each case for various reasons -- of Barack Obama, Joe Biden, Sarah Palin, and Mitt Romney, just to name a few.

• He said schools "are no longer about kids, they are about teachers' unions,"

Yep.

• Coburn also repeated what has become a popular line among conservatives - that "no one has ever been hired by a poor person" - to support tax breaks for the wealthy and corporations.

I guess it ill-behooves me, as someone who has suckled at the government's teat for most of his working life, to concur. But I'll concur anyway.