ProfessorBainbridge.com

The essential foundation for an ownership society

President Bush has been talking a lot lately about creating and fostering an "Ownership Society." George Melloan recently wrote an excellent WSJ ($) column on the political advantages of this policy program for the Republicans. In the course of doing so, Melloan makes a very important point about the essential foundation without which such a society would founder:

The promise by politicians to protect the sanctity of private property is not exactly a new idea in American politics. It just got lost somewhere back there when environmental radicals started dictating how private land could be used, municipal authorities started using their eminent domain powers recklessly and lawyers became birds of prey, hunting for deep pockets to pick. That has been a dangerous trend, because the protection of private property has been fundamental to American economic and political development.

Alexis de Tocqueville in "Democracy in America" (published in 1835 and 1840) discovered the social value of property rights: "Why is it that in America, the land par excellence of democracy, no one makes that outcry against property in general that echoes through Europe?" His answer: "It is because there are no proletarians in America. Everyone, having some possession to defend, recognizes the right to property in principle."

Indeed, the Founding Fathers planned it that way. James Madison, perhaps the most influential politician in the design of the American Constitution, wrote: "That alone is a just government which impartially secures to every man whatever he owns."

In The Conservative Mind, Russell Kirk put it somewhat more succinctly: "freedom and property are closely linked: separate property from private possession, and the Leviathan becomes master of all."

The freedom to accumulate property and use it as you wish does more than merely protect economic interests. Economic liberty, of which the rights of private property are the foundation, is a necessary concomitant of personal liberty—the two have almost always marched hand in hand. The pursuit of property has been a major factor in destroying arbitrary class distinctions, moreover, by enhancing personal and social mobility. At the same time, the manifest failure of socialist systems to deliver reasonable standards of living has undermined their viability as an alternative to democratic capitalist societies in which accumulation of property is a paramount societal goal. Accordingly, it seems fair to argue that the economic liberty to pursue and use property is an effective means for achieving a variety of moral ends.

Unfortunately, we live in a society in which neither party is fully committed to protecting private property rights. Both parties routinely infringe on property rights through taxation and regulation. At least since the Reagan Revolution, of course, the GOP has been the lesser of two evils on this score. If Bush is serious about creating an ownership society, however, he must convert the GOP into an affirmative friend of private property-promoting and protecting ownership by all (not just corporate elites).

The SEC's Futile and Misguided Efforts to Clamp Down on Inside Information

A front page article in today's WSJ ($) reports on the SEC's continuing efforts to clamp down on the flow of inside information in the stock markets:

Merrill Lynch & Co. retail analyst Peter Caruso unexpectedly learned one July day two years ago that Home Depot Inc. sales had been weak in the prior two months. He quickly crafted a research report that reversed his bullish projection for the home-improvement chain.

But first, according to a New York Stock Exchange disciplinary proceeding, Mr. Caruso leaked the bad news at a lunch with a few big clients. A Merrill institutional saleswoman attended the lunch and told several people afterward she believed the stock would be downgraded, the document says.

Mr. Caruso also allegedly let his new information about Home Depot slip to more investors in a conference call. By day's end, investors had dumped 3.7 million shares of Home Depot and the stock was down 5.6%, according to the proceeding, which Merrill, Mr. Caruso and the saleswoman recently settled.

The next morning, Billy Williams, a retired highway engineer in Atlanta, woke up more than $2,000 poorer. His original $60,000 investment in Home Depot reached its lowest level in four years, shrinking a nest egg for his retirement and his grandchildren's college. The 66-year-old recalls thinking: "Someone must know something we don't."

Mr. Caruso was censured, fired, and fined.

But so what? They caught one guy and made his life miserable. Big deal. It's just a drop in the bucket.

The SEC's efforts to limit the flow of inside information in the capital markets is both futile and misguised. As to its futility, if money is the mother's milk of politics, information is the mnothers milk of investment markets:

Tips about stocks have always been a hot currency on Wall Street. In the 1980s, financier Ivan Boesky pleaded guilty to insider trading after paying bankers to tell him about pending mergers. But unlike that egregious case, much of the continuing Wall Street information flow to the well-connected either is legal or falls into a gray area. In a regulatory environment that limits what companies can disclose selectively, the supply of corporate insights is more coveted than ever, driving some investors to seek ever-more-creative ways to get them.

The SEC thus is playing whack-a-mole. As soon as they crack down on one channel of inside information, another one pops up:

One venue that has risen in importance: Meetings that corporate executives often hold with small groups of investors -- where useful nonpublic information sometimes slips out, inadvertently or otherwise. Brokerage firms give special treatment to big investors who pay the most commissions, and that includes inviting them to those meetings with corporate executives.

Big clients who pay big commissions are always going to have an informational advantage, just like political candidates will always find a way to get ahold of the money no matter how many campaign finance laws we pass (see, e.g., McCain-Feingold and the 527s). Get over it.

As for being misguided, the SEC seems to assume that people like Billy Williams ought to be investing in individual stocks. With all due deference, however, most folks like Mr. Williams ought to be investing in mutual funds rather than individual stocks (preferably passively managed index funds).

The case against individual investors directly investing in stocks rests on the efficient capital markets hypothesis. First, after you correct for risk, the survivorship bias, and the large number effect, nobody systematically and predictably beats the market. The empirical evidence clearly indicates, for example, that the vast majority of mutual funds that outperform the market in a given year falter in future years. Once adjustment is made for risks, it seems reasonably certain that most mutual funds do not systematically outperform the market over long periods.

Second, the mechanisms by which the market prices stock systematically favor professionalinvestors rather than individuals. The ECMH’s semi-strong form posits that current prices incorporate not only all historical information but also all current public information. This form predicts that investors can not expect to profit from studying publicly available information about particular firms because the market almost instantaneously incorporates information into the price of the firm’s stock.

When new information is released, investors with high estimates of the firm’s new net present value will buy, while those with lower estimates will sell. An equilibrium price quickly results. This process necessarily assumes that investors are engaging in precisely the behavior the ECMH predicts they should eschew, namely searching out new information and seeking to capitalize on the information’s value through stock trading. Accordingly, some suggest that there is a paradox behind the ECMH: markets may be efficient only if large numbers of investors do not believe in market efficiency. If everyone believed the ECMH, no one would engage in securities analysis to find “undervalued” or “overvalued” stocks. Only because a large number of investors engage in precisely this activity are the markets efficient.

More sophisticated analysis eliminates the apparent paradox behind the ECMH. The first analyst to correctly interpret new information can profit by being the first to buy or sell. Full-time professional investors capture enough of the value of new information to make the game one worth playing. It is trading by these investors that moves a stock’s price to a new equilibrium in response to changed information. These investors thus set the price at which other investors trade.

Individual investors almost never get the requisite information before price-setting investors. Hence, the game is simply not worth playing for them. They'd be much better off holding a diversified mutual fund.

The empirical literature supporting this argument is summarized in Chapter 3 of my Corporation Law and Economics text. You might also want to check out Burton Malkiel's classic book A Random Walk Down Wall Street. Finally, Larry Ribstein has some very good posts both on the futility of the SEC's efforts to crack down on the use of inside information and on why the SEC should not be encouraging individual investors to invest directly in stocks.

Liberty Law School

So Jerry Falwell's Liberty University has opened a law school, <a href="http://www.cnn.com/2004/EDUCATION/08/18/falwell.law.school.ap/index.html">promising</a>: "We'll be as far to the right as Harvard is to the left." Not surprisingly, that comment got a lot of (negative) attention. Over at Mirror of Justice, however, Rob Vischer has a <a href="http://www.mirrorofjustice.com/mirrorofjustice/2004/08/in_defense_of_l.html">post</a> quoting a friend of his defending the school:<blockquote>Liberty Law School's mission is less to train an army of warriors who will, upon graduation, immediately try to mount a battle against (fill in a social issue, newly minted fundamental right of your choice here). Rather, it is to train law students in the fullness of the Anglo-American common law tradition. In our climate, that means giving students confidence that there is such a thing as objective truth, and that these truths are publicly accessible, not private religious commitments.</blockquote><blockquote>Bruce is a deacon in the continuing Anglican Church. He is very much an Anglo-Catholic and is not a Baptist. Bruce has and will, I believe, continue to leave his mark on the law school. I'd encourage you to try to look past Falwell and look at the law school itself, as things unfold in Lynchburg in the weeks, months, and years to come.</blockquote>I'm willing to try, provided I first get an answer to the following. On the one hand, the new dean is an Anglo-Catholic. He also has a <a href="http://www.liberty.edu/Academics/Law/index.cfm?PID=5054">blog</a> (does everybody have a blog now?), in which he <a href="http://www.liberty.edu/Academics/Law/index.cfm?PID=5797">reports </a>:<blockquote>Bernard Dobranski, Dean and Professor of Law at Ave Maria School of Law, has agreed to serve as an ABA Consultant to the LU School of Law.</blockquote><blockquote>Dean Dobranski was responsible for selecting the core faculty, establishing educational guidelines, and overseeing the general operation of Ave Maria from inception through the acquisition of provisional approval by the American Bar Association. Ave Maria is now in the process of seeking full approval by the ABA. Dean Dobranski has served on the Accreditation Committee of the American Bar Association Section on Legal Education. He will provide counsel to our law school to ensure compliance with the American Bar Association standards for legal education. ...</blockquote><blockquote>The assistance already provided Liberty University School of Law and me by administration and faculty at Ave Maria School of Law exceeds normal bounds of collegiality. We are particularly encouraged that Dean Dobranski will be providing formal counsel on the process of seeking approval of our program by the American Bar Association.</blockquote>Ave Maria, of course, is a <em>very seriously</em> <a href="http://www.avemarialaw.edu/prospective/curriculum/cur5.cfm">Catholic</a> law school.<BR><BR>

On the other hand, Liberty University's Theological Q&A says:<blockquote>While some think all Catholics will miss Heaven, neither I nor Dr. Falwell feel that way. <strong>We believe that there will be some Roman Catholics that go to Heaven in spite of the Roman Catholic Church</strong>. If a person has simple faith in Jesus Christ they will go to Heaven, “Believe in the Lord Jesus Christ and thou shall be saved” (Acts 16:31). Obviously we are not Roman Catholics, and there are many things that Roman Catholicism has added to the Gospel. <strong>If a person follows everything that the Roman Catholics teach, we do not believe that they will be saved. </strong>However, many Roman Catholics just believe in Jesus Christ; we believe they will go to Heaven because of their faith in Christ, not their Roman Catholic alliance.</blockquote>Frankly, I can't help wondering what's going on here. Has there been a sudden outbreak of Christian unity in <strike>southeast</strike> southwest Virginia? Anyway, I'm glad us Papists can be of help "in spite of the Roman Catholic Church."

California Corporate Constituency Crack-up

California Senate Bill 1528 has passed the Senate and is on its way to the Assembly for action. This bill would incorporate a so-called nonshareholder constituency provision into the statutory duty of care of directors of California corporations. For a nonpartisan analysis of the bill, go here. As the analysis explains, this law provides that:

[I]n performing the duties of a director, a director may, in considering the best interests of the corporation, consider the interests of any or all of the following:

1. The corporation's employees.
2. The corporation's customers.
3. The corporation's suppliers.
4. The corporation's creditors.
5. The economy of the region, state, and nation.
6. The impact on the community.
7. The environment.
8. The long-term, as well as the short-term, interests of the corporation and its shareholders.

These laws are a terrible idea. I don't have time to do an extended analysis right now, so in the meanwhile let me direct you to two of my law review articles: (1) In Defense of the Shareholder Wealth Maximization Norm, which explains why shareholder wealth maximization is the only interest directors should take into account when making corporate decisions; and (2) Interpreting Nonshareholder Constituency Statutes, which discusses the various legal issues and problems these statutes pose.

Classroom eChatter

With specific reference to yours truly and Tung Yin, Scheherazade asks:

Professors, what do you think about the fact that your students are chatting to one another via wi-fi during your lecture, and how do you structure your presentation so that the presence of the backchannel is acknowledged and will add value?

As someone who got kicked out of Corporate Tax for doing a crossword puzzle in class, I lack the moral high ground on which to condemn students who do this! Anyway, I touched on this subject quite a while back in a post called Why instant messaging might kill the socratic method, which oddly enough linked to one of Sherry's posts. As I more or less admitted in that post, I have no idea how to use the backchannel to add value. In very small classes, I have occasionally asked a student to Google something for me and report back. In large classes, however, my style is mostly lecture, so my main concern with the eChatter is to keep students sufficiently engaged that they aren't spending the entire class IMing and emailing and so on. Sorry, Sherry!

Kinsley on Shareholder Democracy

Michael Kinsley notes that Google thumbed "its nose at one of the major pieties of our day: shareholder democracy."

No one is forced to buy Google shares. People do it voluntarily, even downright eagerly. This is so even though what they are buying are so-called Class A shares, which might more accurately be labeled second-class shares. First-class shares, mischievously called Class B, are held by the company's two founders and other executives. In terms of dividends and so on, the two classes are identical. But Class B shares get 10 votes each while Class A shares get only one. This means in effect that the company can raise money, and the founders can get fabulously rich by selling stock to the public, but even with a tiny minority of the shares the founders will control the company. And the public shareholders can't do anything about it.

Kinsley approves, staking out a surprisingly libertarian position:

Democracy is actually a second-best solution. If we're going to McDonald's, and we all have to get the same thing, it should be decided by majority vote. But it's even better if we each can get what we want. And you can be fairly confident that a majority of McDonald's customers prefer hamburgers, while a majority at KFC prefer chicken. You don't have to require a vote.

Advocates of shareholder democracy believe it will lead to companies that care more for the environment, treat their workers better and so on. Well, maybe, maybe not. In a world of perfect corporate democracy, in which large public companies are required to pursue only those goals that can be agreed upon by the owners of a majority of the publicly traded shares at any moment, the most likely result would be companies focused exclusively on maximizing profits.

Requiring shareholder democracy actually stifles it. Why shouldn't shareholder democracy include the right to decide whether or not you want shares in a company that practices shareholder democracy?

And then he slaps paternalistic corporate governance regulation: "unlike Google, you can't free yourself of the SEC by simply calling your broker." Wow. Rarely does one see such common sense in the LA Times. Yet, while I applaud Kinsley, I can't resist pointing out that there is still a subtext of shareholder primacy in his analysis. Why, for example, should shareholders be able to vote on corporate goals? As my director primacy model of corporate governance explains, the corporation is a vehicle by which directors hire equity capital. Shareholders are entitled to use the vote to ensure that directors use their capital to pursue wealth maximization rather than personal self-interest, but shareholders have no right to set corporate policy or otherwise exercise the rights of ownership. As I explained in my article Director v. Shareholder Primacy in the Convergence Debate:

Large-scale investor involvement in corporate decisionmaking seems likely to disrupt the very mechanism that makes the public corporation practicable; namely, the centralization of essentially nonreviewable decisionmaking authority in the board of directors. The chief economic virtue of the public corporation is not that it permits the aggregation of large capital pools, as some have suggested, but rather that it provides a hierarchical decisionmaking structure well-suited to the problem of operating a large business enterprise with numerous employees, managers, shareholders, creditors, and other inputs. In such a firm, someone must be in charge: “Under conditions of widely dispersed information and the need for speed in decisions, authoritative control at the tactical level is essential for success.” While Roe argues that shareholder activism “differs, at least in form, from completely shifting authority from managers to” institutions, it is in fact a difference in form only. Shareholder activism necessarily contemplates that institutions will review management decisions, step in when management performance falters, and exercise voting control to effect a change in policy or personnel. For the reasons identified above, giving institutions this power of review differs little from giving them the power to make management decisions in the first place. Even though institutional investors probably would not micromanage portfolio corporations, vesting them with the power to review major decisions inevitably shifts some portion of the board’s authority to them.

As the paper further explains, corporate law therefore provides a whole host of devices that insulate directors from shareholder influence. The drive for shareholder democracy thus not only interferes with choice (Kinsley's position), it also threatens to undermine the very structures that make corporations work.

Socrates Volokh

My friend and colleague Eugene Volokh opines: "I do think that students' speaking in class tends to help them understand the material better, and get more interested in it. It also helps the professor and the other students, precisely because then class discussions aren't just the usual five or ten talkers." I don't believe it, at least insofar as upperclass law school courses are concerned. And I would very much like somebody to explain to me - with empirical support - how the so-called Socratic method enhances the classroom learning experience (outside of small group seminars, where I think you can get a valuable discussion going). [Of course, I should note that Eugene seems mainly focused on voluntary class participation rather than the traditional Socratic method, but I'm not even sure about the former. In particular, while the student who speaks may benefit from voluntary class participation, I'm not at all sure that the professor and other students derive much benefit.]

Bubbles as Morality Tales?

I just finished reading a very interesting paper by Syracuse law professor Chris Day, which tells a contrarian story of some famous bubbles:

Markets are sometimes accused of "irrational exuberance." Some distrust stock markets because of "predatory" behavior by speculators. Three fantastic bubbles - Tulip mania, the Mississippi Company and the South Sea Company are held out as horrid examples of market excess and malfunction by the public and sophisticated commentators alike.

Tulip mania never occurred and was, instead, a rational attempt to organize markets for rare commodities in a primitive futures market. The Mississippi Company collapse and the loss of liquidity in France are linked to the South Sea Bubble. Both the Mississippi Company and South Sea Company were spectacular investments with major structural flaws. But they were not morality tales.

This paper delves into the economics, finance, psychology, legality and morality of these bubbles. It demonstrates that the markets often worked rationally and efficiently, that the investments were not wildly unsound, and that exogenous factors (the Plague in Holland) and politics and illegality in France may have played major roles in these "disasters." The paper concludes that markets got it right and that popular wisdom has failed to appreciate the market's wisdom.

Fascinating stuff and highly persuasive.

Corporations Reading Blogs

The Guardian reports that corporations are starting to notice how blogs affect their brands:

The sites that started as observational home pages for enthusiasts have become so powerful that they are starting a new industry of blog monitoring in which media companies scour the net to advise brands on how their name is being talked about online, away from the traditional newspaper and broadcast media sites.

Olympus, for example, has devised a new marketing strategy to embrace the medium. Whenever a new camera is approaching its launch, details are passed on to prominent blogs, a spokesman reveals, because the sites are crucial to getting interest ahead of the launch as well as getting early feedback on what the public thinks of the new model. [N.B.: I wish I could get some wineries doing that for me!] ...

The classic case of what can happen if you do not tune in to the blogger came with a flood of bad publicity for Maytag, a top-end washing machine manufacturer in America. Complaints about one of its models not emptying properly, and so smelling out kitchens, had been appearing on many blogs until they finally hit the site of Bob Vila, presenter of a popular property show called This Old House. It resulted in national press coverage of a problem that Clare Hart, CEO of media monitoring agency Factiva, believes could have been nipped in the bud, had the company been alert to the power of the blog.

Shareholder Democracy

My colleagues Lynn Stout and Iman Anabtawi have an op-ed in today's WSJ (subcriber link; nonsubscriber link) on shareholder democracy and the SEC's pending shareholder access rule:

American corporate law gives entrepreneurs seeking to sell stock in the companies they create the freedom to draft their corporate charters almost any way they like. This includes freedom to draft charters that either enhance shareholder voting power, or dilute it. If investors valued strong voting rights, you'd think they would pay more for the shares of companies that granted them. Corporate entrepreneurs would respond by supplying charters that give shareholders greater clout.

Yet in the real world, companies almost never "go public" with enhanced shareholder power. Instead, most IPO charters weaken shareholders' rights. Google is a case in point. Its charter gives its founders shares with multiple votes while the public gets shares with only a single vote. Such "dual class" stock is unusual, but milder forms of shareholder disenfranchisement abound. Most IPO charters these days include "staggered board" provisions making it harder for shareholders to replace incumbent directors. Far from avoiding these IPOs, investors, including sophisticated institutions, snap them up like hotcakes.

... Why, if greater power is such a boon to investors, haven't they already demanded it? Maybe because greater shareholder power isn't so wonderful for investors after all. This argument is being advanced by Google's founders, and it enjoys support from many corporate scholars as well. ...

First, even finance economists increasingly acknowledge what businesspeople have always known: stock prices don't always accurately measure value. (Remember the Internet bubble?) As a result boards can often do a far better job of picking the business strategy best for the firm in the long run than unorganized, uninvolved, and price-obsessed stockholders can.

Second, investors don't always share common interests. The SEC's proposed rule would allow only shareholders with large holdings to push their own board candidates. This invites intra-shareholder conflict, allowing large investors-including financial intermediaries, union-sponsored pension plans, and politically-motivated groups-to nominate directors who will represent only their own special interests.

Third, strong boards can mediate not only conflicts among shareholders, but also conflicts between shareholders and other important corporate constituencies. The "team production" theory of corporate governance teaches that a principal function of board governance is to encourage executives, customers, rank-and-file employees, and others to make long-term commitments to a company by assuring these groups corporate policy will not be set by an anonymous, myopic, return-hungry pack of shareholders. Shareholders go along because, by ceding control to boards, they get greater loyalty and commitment from others. Google's investors may well believe the firm's founders and employees will work harder and better with a dual-class structure that protects them against hostile takeovers or shareholder pressures to raise profits by outsourcing jobs and cutting employee benefits.

Personally, I find only their second argument persuasive. (See my TCS column Does the SEC Know When Enough Is Enough?.) As for reason # 1, I agree that boards have better information than shareholders. But the existence of such an information asymmetry is independent of whether markets accurately price stock. As to the latter question, I still believe in the efficient capital markets hypothesis as the best available theory of how markets behave. As for reason # 3, I remain unpersuaded by my friend and colleague Lynn Stout's team production model of corporation law. Unfortunately, my critique of that model is way too long for a blog post, but you can download the law review article in which I rejected the team production model.

Smith-Madrone Chardonnay (Napa Valley) 1999

Regular readers of my wine notes know that Smith-Madrone is one of my favorite boutique Napa wineries. They produce excellent wines at very fair prices. Although the wines are neither cheap nor inexpensive, they offer excellent value for wines of such exceptional quality. I picked up this 99 Chardonnay at the winery when I was in Napa last May. Unlike most California chards, which are falling apart at age 3, this wine was still going strong at age 5. I suspect it would have continued to improve for several more years. The wine is driven more by its fruit than oak, although there is a pleasing undertone of buttery oak flavors. I get pineapples and bananas on both the nose and palate. A very nice note of ripe apple also shows on the finish. If you can find it, buy it (try the winery). The dominance of the fruit over oak makes this an especially useful wine with food, whereas so many California chards really don't play well with dinner. It would go great with cracked crab, for example. Grade: A-

Smoking in Taverns for Tots

A friend sent along the citation to an amusing new case: Taverns for Tots, Inc. v. City of Toledo, 320 F.Supp.2d 643 (N.D.Ohio 2004):

In summary, Taverns for Tots, ostensibly a nonprofit organization dedicated to raising money for children's charities, was formed on December 20, 2003. Two individuals--one of plaintiff's directors and a bar owner affiliated with plaintiff--testified at the preliminary injunction hearing on February 5, 2004 that Taverns for Tots was formed primarily as a means to enable smoking in bars and restaurants by taking advantage of the exemptions in the Clean Indoor Air Act for membership associations and private social functions. The City argued that plaintiff's charitable purpose--to raise money for needy children--was secondary to that primary goal of avoiding compliance with the anti-smoking ordinance; thus, the City contended, Taverns for Tots could not qualify as a membership association pursuant to the ordinance.

Bars had been holding Taverns for Tots "events" since December 20, 2003, at which smoking was permitted and to which any member of the public could gain admittance on payment of a one dollar lifetime "membership fee." According to plaintiff, because each nightly "event" was held under the aegis of Taverns for Tots and each person present possessed or had purchased a membership card, each of these "events" was sponsored by a "membership association" (namely, Taverns for Tots) under the Clean Indoor Air Act and was thus exempt from the ordinance.

Clever. And I like the name too (query though whether Toys for Tots would have a trademark infringement action). In any event, the court had no sense of humor and issued an injunction banning the organizers of Taverns for Tots events from permitting smoking at such events. Sigh. Personally, I would have liked to see such a clever defense of private property rights rewarded.

SUVs Kill?

This post is for my (former?) friends at XRLQ and Libertarian Jackass:

According to a University of Virginia study, suburbanites are more at risk of being killed by an SUV than someone living in the city is at risk of being mugged in an alley.

Having said that, however, this news report is making me rethink my whole anti-SUV running schtick:

With the streets of the city of lights and love becoming increasingly clogged with Hummers, Cayennes and Ford Explorers, Paris is trying to find ways to drive sport utility vehicles out of the French capital. ... It’s hard to say how many SUVs are on the road, but a number of the city’s politicians are saying there are too many. In early June, the Paris City Council passed a non-binding resolution calling for local residents to keep the gas-guzzling vehicles off the city streets.

Hollinger

In his latest opinion in the ongoing Hollinger litigation, Delaware Vice Chancellor Leo Strine kindly made the following reference to my work:

On its side, International has the virtues that accompany all bright-line tests, which are considerable, in that they provide clear guidance to transactional planners and limit litigation. That approach also adheres to the director-centered nature of our law, which leaves directors with wide managerial freedom subject to the strictures of equity, including entire fairness review of interested transactions. It is through this centralized management that stockholder wealth is largely created, or so much thinking goes. [FN39] ...

FN39. One of the articulate advocates of this view of our law is Stephen Bainbridge. See, e.g., Stephen M. Bainbridge, Director Primacy in Corporate Takeovers: Preliminary Reflections, 55 STAN. L.REV. 791 (2002).

Hollinger Inc. v. Hollinger Intern., Inc., 2004 WL 1728003 (Del.Ch., Jul 29, 2004) (you must have a Westlaw subscription to get the opinion). A working paper version of the article cited by Chancellor Strine is available here. Personally, however, I think my article Director Primacy: The Means and Ends of Corporate Governance does a better job of laying out the "director-centered nature of our law."

SUV Ban

Andy Bowers at Slate:

Unless you drive one of the largest SUVs, such as the Chevy Suburban, the Cadillac Escalade, or the Ford Excursion, I'll bet you've watched them thundering down quiet residential lanes and wondered to yourself: Why is that monster allowed on this little street?

Well, here's a surprising piece of news. It may not be. Cities throughout California—the nation's largest car market—prohibit the heaviest SUVs on many of their residential roads. The problem is, they don't seem to know they've done it.

I discovered this secret ban after noticing the signs at both ends of my narrow Los Angeles-area street (a favorite cut-through route for drivers hoping to avoid tie-ups on bigger roads). The signs clearly prohibit vehicles over 6,000 pounds.

I knew a 6K pound limit ruled out a lot of the larger trucks that routinely rumble by my house, unpursued by traffic cops. But then I got to thinking: Could some of those bigger SUVs exceed 3 tons? So I did some research, and I hit the mother lode.

It turns out every big SUV and pickup is too heavy for my street. Here's just a sampling: The Chevy Suburban and Tahoe, the Range Rover, the GMC Yukon, the Toyota Land Cruiser and Sequoia, the Lincoln Navigator, the Mercedes M Class, the Porsche Cayenne S, and the Dodge Ram 1500 pickup (with optional Hemi). What about the Hummer, you ask? Hasta la vista, baby!

Cool. I say impound 'em all!

Update: If the trackbacks to this post prove anything, it is that the arachno-libertarians (especially the morons at mises.org) have absolutely no sense of humor. But what do you expect from the kind of people who think Bush's Ownership Society program is an American version of fascism?