ProfessorBainbridge.com

Dry Creek Vineyard Fum� Blanc (Sonoma County) 2002

A moderately priced and perfectly correct Sauvignon Blanc. It leans hard towards the vegetal end of the Sauvignon Blanc spectrum, suggesting newly mown grass, bell and jalapeno peppers, although there's a touch of lemon-lime in the finish. Grade: C+

J. Lohr Estates Riverstone Chardonnay (Monterey) 2002

This Lohr Chardonnay is more about oak than fruit. Toasty oak and concomitant vanilla flavors and aromas dominate the wine, although there is a decent amount of citrus and stone fruit under all the wood. Grade: C

Group Decision Making

The cubicle culture column in today's WSJ($) has a great take on group decision making:

Some Ideas Are So Bad That Only Team Efforts Can Account for Them Years ago, when a civilian worker at one of the nation's largest Air Force bases was working for a general, she watched as a team was formed to come up with a better system to handle the mail.

Mail to the base included letters from multi-starred generals and directives that had deadlines. The "process improvement team," also known as a PIT, had a roster of middle managers, mostly civilians, who spent the better part of a month coming up with a plan.

But instead of streamlining the process, they complicated it. "I was horrified," says the woman. "There used to be eight steps; now there were 19." Each piece of official mail was viewed by a greater number of managers before getting to its intended recipient, she says, enabling the mail to be lost at home or in the bathroom, or covered with spills from someone's breakfast. And ponies could have delivered it faster. The lag between the first manager who saw a piece of mail and the person who had to act on it was two weeks, she says.

Questioning the team would have amounted to heresy, so she kept quiet until a year later, when her general emerged from his office and bellowed, "What the hell is happening to my mail?" Once enlightened, he changed everything on the spot.

The columnist's mostly negative view of team production is a salutary reminder that teams are not the panacea many managers believe them to be. Yet, I think it overstates the disadvantages of team production.

I spent a tremendous amount of time working through the literature on team decision making for my article Why a Board? Group Decisionmaking in Corporate Governance:

ABSTRACT The default statutory model of corporate governance contemplates not a single hierarch but rather a multi-member body that acts collegially. Why? This article reviews evidence that group decisionmaking is often preferable to that of individuals, focusing on evidence that groups are particularly likely to be more effective decisionmakers in settings analogous to those in which boards operate. Most of this evidence comes not from neo-classical economics, but from the behavioral sciences. In particular, cognitive psychology has a long-standing tradition of studying individual versus group decisionmaking. This article contends that behavioral research, taken together with various strands of new institutional economics, sheds considerable light on the role of the board of directors. In addition, the analysis has implications for several sub-regimes within corporate law. Are those sub-regimes well-designed to encourage optimal board behavior? Two such sub-regimes are surveyed here: First, the seemingly formalistic rules governing board decisionmaking processes turn out to make considerable sense in light of the experimental data on group decisionmaking. Second, the adverse consequences of judicial review for effective team functioning turns out to be a partial explanation for the business judgment rule.

In brief, the old joke about the camel being a horse designed by a committee captures the valid empirical observation that individuals are often superior to groups when it comes to matters requiring creativity. In addition, teams are subject to unique cognitive biases, such as groupthink, and unique sources of agency costs, such as social loafing. Even so, however, the empirical evidence I review in my article shows that groups are better at tasks requiring the exercise of critical evaluative judgment. Not only do groups clearly outperform average individuals at such tasks, there is considerable (albeit contested) evidence that the process of group interaction has synergistic effects allowing groups to outperform even the best decision makers in the given sample.

Hence, I would never ask a committee to design a new mail system. I would, however, ask a committee to evaluate whether the new mail system is working properly.

Group Decision Making

The cubicle culture column in today's WSJ($) has a great take on group decision making:

Some Ideas Are So Bad That Only Team Efforts Can Account for Them Years ago, when a civilian worker at one of the nation's largest Air Force bases was working for a general, she watched as a team was formed to come up with a better system to handle the mail.

Mail to the base included letters from multi-starred generals and directives that had deadlines. The "process improvement team," also known as a PIT, had a roster of middle managers, mostly civilians, who spent the better part of a month coming up with a plan.

But instead of streamlining the process, they complicated it. "I was horrified," says the woman. "There used to be eight steps; now there were 19." Each piece of official mail was viewed by a greater number of managers before getting to its intended recipient, she says, enabling the mail to be lost at home or in the bathroom, or covered with spills from someone's breakfast. And ponies could have delivered it faster. The lag between the first manager who saw a piece of mail and the person who had to act on it was two weeks, she says.

Questioning the team would have amounted to heresy, so she kept quiet until a year later, when her general emerged from his office and bellowed, "What the hell is happening to my mail?" Once enlightened, he changed everything on the spot.

The columnist's mostly negative view of team production is a salutary reminder that teams are not the panacea many managers believe them to be. Yet, I think it overstates the disadvantages of team production.

I spent a tremendous amount of time working through the literature on team decision making for my article Why a Board? Group Decisionmaking in Corporate Governance:

ABSTRACT The default statutory model of corporate governance contemplates not a single hierarch but rather a multi-member body that acts collegially. Why? This article reviews evidence that group decisionmaking is often preferable to that of individuals, focusing on evidence that groups are particularly likely to be more effective decisionmakers in settings analogous to those in which boards operate. Most of this evidence comes not from neo- classical economics, but from the behavioral sciences. In particular, cognitive psychology has a long-standing tradition of studying individual versus group decisionmaking. This article contends that behavioral research, taken together with various strands of new institutional economics, sheds considerable light on the role of the board of directors. In addition, the analysis has implications for several sub-regimes within corporate law. Are those sub-regimes well- designed to encourage optimal board behavior? Two such sub-regimes are surveyed here: First, the seemingly formalistic rules governing board decisionmaking processes turn out to make considerable sense in light of the experimental data on group decisionmaking. Second, the adverse consequences of judicial review for effective team functioning turns out to be a partial explanation for the business judgment rule.

In brief, the old joke about the camel being a horse designed by a committee captures the valid empirical observation that individuals are often superior to groups when it comes to matters requiring creativity. In addition, teams are subject to unique cognitive biases, such as groupthink, and unique sources of agency costs, such as social loafing. Even so, however, the empirical evidence I review in my article shows that groups are better at tasks requiring the exercise of critical evaluative judgment. Not only do groups clearly outperform average individuals at such tasks, there is considerable (albeit contested) evidence that the process of group interaction has synergistic effects allowing groups to outperform even the best decision makers in the given sample.

Hence, I would never ask a committee to design a new mail system. I would, however, ask a committee to evaluate whether the new mail system is working properly.

The Nose versus The Algorithm

Over at the Cyberlibris blog, Eric has a very nice post comparing economist Orley Ashenfelter's econometric approach to evaluating wine and the gustatory approach of former lawyer Robert Parker.

Ashenfelter decries what he perceives to be a sense of elitism in the wine industry: "Writers whose palates we respect act as if they were able to pick out the qualities in young wines that will emerge a decade or more from now,". Parker Jr., an influential wine critic, calls the professor's methods "Neanderthal," not to mention "ludicrous and absurd". ...

According to [University of Maryland Law Professor Garret Power], the conflict between the two men is obviously tense. However, he thinks that the disagreement between the two men is in fact a profound professional disagreement between a judge (Parker was a law student at the University of Maryland) and an economist. For Power, Robert Parker is a wine judge: "He employs the method of the common law. He sniffs, sops, and spits his way through a number of cases each week." New evidence will make him change his mind. Ashenfelter is undoubtedly a wine economist. To put it again in Power's words, "he simplifies the world of wine and gauges the quality of a vintage on the basis of variables that are subject to objective measurement."

I used to subscribe to both Ashenfelter and Parker's newsletter; I still subscribe to Parker's pay web site. As between the two, I found Parker's tasting notes far more useful; if I were collecting wine for investment purposes, however, Ashenfelter's price data and econometric analysis would be very useful. In any event, my all time tasting triumph came in a seminar given by Ashenfelter: I correctly identified the vintage and appellation of a wine that turned out to be a 1973 Latour.

Disney, Ovitz's Compensation, and the Business Judgment Rule

In my Business Associations class today, I'm teaching Brehm v. Eisner, the principal shareholder suit challenging the comepnsation Michael Ovitz received from Disney (one of the key moments in Michael Eisner's fall from investor grace). Almost a year ago, I posted Substantive due care and the business judgment rule in corporate fiduciary duty law, which explores the relevant legal doctrines in some depth. It concludes that the Disney litigation can be squared with existing doctrine:

The Disney board made a decision that, on its face, is almost impossible to defend. As the Delaware Suprme Court put it in Brehm v. Eisner, “the sheer size of the payout to Ovitz, as alleged, pushes the envelope of judicial respect for the business judgment of directors in making compensation decisions.” The board gave Ovitz cash payments of $39 million and stock options worth over $101 million for just 14 months work. The facts suggest that Eisner hired his buddy Ovitz, fell out with Ovitz and wanted him gone, cut very lucrative deals for his friend Ovitz both on the way in and on the way out, all the while railroading the deals past a complacent and compliant board. The story that emerges is one of cronyism and backroom deals in which preservation of face was put ahead of the corporation's best interests. As such, the case does not necessarily presage the emergence of what Allen called "'"objective' evaluation of the decision" made by a board. Instead, this looks like another case in which "we have reason to disbelieve the protestations of good faith by directors who reach 'irrational' conclusions?" Michael P. Dooley, Fundamentals of Corporation Law 263 (1995). Once again, a seeming inquiry into the rationality of the decision arguably masks an underlying search for conflicted interests and self-dealing.

Mark Noll on the Evangelical Mind

Mark Noll's book The Scandal of the Evangelical Mind thoughfully critiqued Protestant evangelicals for having abandoned the life of the mind. Over at Mirror of Justice, Rob Vischer reports on Noll's current thinking, which is much more optomistic. Interestingly, Noll credits the ecumenical bridges being built between evangelicals and Catholics with having revived interest in intellectual rigor among the former:

"Because evangelicals tend to disregard tradition," Noll explains, "we are liable to miss the rich contributions that other strands of faithful believers have made to interpreting and applying the multitudinous biblical words that are so potent for the life of the mind. But this can change." The first "source of hope" Noll points to in this regard is "the increasing engagement between evangelicals and Roman Catholics," which has "contributed dramatically to improved evangelical use of the mind."

Baron Herzog Sauvignon Blanc (Central Coast) 2003

Baron Herzog is generally regarded as one of the better kosher wineries producing vinifera grapes. If so, and if this sample is typical, that part of the industry has a ways to go. This 2003 Sauvignon Blanc is inoffensive, but quite one-dimensional. There is almost no nose; just a vague suggestion of something white (albeit clean). On the palate, there is little varietal character or no sense of terroir. Instead, as with the nose, the impression is a rather simple generic white wine. There's also a sweetness that suggests they left some residual sugar in the wine. Grade: C-

Mark Noll on the Evangelical Mind

Mark Noll's book The Scandal of the Evangelical Mind thoughfully critiqued Protestant evangelicals for having abandoned the life of the mind. Over at Mirror of Justice, Rob Vischer reports on Noll's current thinking, which is much more optomistic. Interestingly, Noll credits the ecumenical bridges being built between evangelicals and Catholics with having revived interest in intellectual rigor among the former:

"Because evangelicals tend to disregard tradition," Noll explains, "we are liable to miss the rich contributions that other strands of faithful believers have made to interpreting and applying the multitudinous biblical words that are so potent for the life of the mind. But this can change." The first "source of hope" Noll points to in this regard is "the increasing engagement between evangelicals and Roman Catholics," which has "contributed dramatically to improved evangelical use of the mind."

Sonoma-Cutrer Russian River Ranches Chardonnay (Sonoma Coast)

A clean and tasty Chardonnay suggesting apple, melon, and pineapple. Good acidity and moderate oak makes it quite refreshing. Ideal for mid- week dinners. Grade: B

Ca' del Solo Big House Red (California) 2002

Bonny Doon puts everything but the kitchen sink into this wine: Syrah, Petite Sirah, Zinfandel, Barbera, Carignane, Mourvedre, Malbec, Dolcetto, and Negrette. Like any mutt with such a wildly mixed pedigree, it lacks any discernible varietal character; instead, it offers a tasty but rather generic red wine profile. If it reminds one a little of a basic Ch�teauneuf-du-Pape, one suspects that is Randall Grahm's intent. Good acidity and modest tannins make it a wine for short term drinking, although I always lay a couple of bottles down for a year or two of aging to see what happens (usually nothing especially noteworthy, I'm afraid). Soy sauce, violets, berries, and pepper. Pleasant for inexpensive mid-week drinking, but it's nothing special. Grade: C (When last noted in July 2004, I liked it a little better; I gave it a C+ that time.)

Chateau Gruaud Larose (St. Julien) 1986

Gruaud-Larose has a special place in my heart, as it was the first classed growth Bordeaux that I drank on a regular basis. In most vintages, Gruaud-Larose rivals the first growths for power and longevity, yet it can be had at a fraction of their price. Until recently, it tended to be a very powerful wine with gobs of fruit and tons of tannin, which typically required -- but also rewarded -- long cellaring. Lately, however, the new owners seem to be striving for a less intense style. Personally, I liked the old style a lot better.

At 18 years of age, this wine is still a deep, inky ruby. The nose is clean and powerful, offering leather, dried fruits, and more than a minor suggestion of a humidor. On the palate, there is still a prominent core of tannins and bright acids. Although it has developed many of the traits of a mature wine, it retains an incredibly impressive youthful vitality. As for the flavor profile, this 1986 Gruaud-Larose suggests olives, prunes, cassis, and pencil shavings. Grade: A

Mondavi for sale?

A while back, I posted Passing the Family Business On: The Sad Example of the Mondavi Family, in which I used the famed Mondavi Winery as a business case to illustrate the difficulties of inter-generational transfers of a large publicly-held but family-controlled firm. As we discussed therein, Mondavi's current business model appeared unsustainable over the long-haul. We may be approaching a denouement. Mondavi's most recent 10-K annual report announced a major restructuring of the brand structure:

The Company has historically operated in one business segment. On August 20, 2004, the Company announced that it would create two separate operating units within the Company, one focused on the Company's "lifestyle" brands, and the other on its "luxury" brands. The Company's "lifestyle" brands are brands which generally sell for up to $15 per bottle at retail (including Woodbridge and Robert Mondavi Private Selection), while the Company's "luxury" brands generally sell for over $15 per bottle at retail (including Robert Mondavi Winery, Arrowood, Byron and many of the Company's joint venture brands). The board and management are considering various strategic alternatives, some of which would involve layoffs and significant restructuring charges including write-downs which could materially impair future earnings.

Apparently they've settled on selling off the luxury brands. James Laube reports:

Amid a flurry of activity at Robert Mondavi Corp. today, Michael Mondavi resigned from the publicly traded company, which then announced that it would explore divesting itself of its luxury brands, such as Robert Mondavi Winery, Opus One and Ornellaia.

That would leave Robert Mondavi Corp. to focus entirely on lower-priced, large-production brands such as Woodbridge, Robert Mondavi Private Selection and La Famiglia from California, as well as Kirralaa from Australia and new brands, for which the company sees greater growth potential and higher financial returns.

But the company's announcement late this evening left many questions unanswered, including whether the Mondavi family members might try to acquire their original Robert Mondavi Winery in Napa Valley. In its statement, the company declined to speculate if the luxury brands might be sold to family members -- who are the company's most powerful shareholders -- or in some instances sold back to the joint-venture partners. One source said a "strategic review" is underway, with all options being considered. Other sources indicated that some family members and partners were scrambling to come up with funds to make the acquisitions.

A solution in which the volume brands are retained by the public corporation, while the prestige luxury brands return to private ownership makes eminent sense. My sense of the wine industry is that the really big bucks - the kind public corporations need to keep investors happy - are in the high volume/low price sector. In contrast, even though Mondavi's luxury brands command high prices (Opus One and Private Reserve going for well over $100 per bottle at retail), they are also enormously expensive to produce. They are made from low yielding vines planted on very expensive land and handcrafted in the wineries. Indeed, high quality and high profitability seem to be incompatible. Economists Morton and Podolny report :

Many industries are characterized by heterogeneous objectives on the part of firm owners. Owners of private firms, in particular, are likely to maximize utility, rather than profits. In this paper, we model and measure motivations of owners in on particular industry, the California wine industry. In both a formal model and an empirical analysis, we examine the implications of these motivations for market behavior. We find evidence that owners with strong non- financial motivations choose higher prices for their wines, controlling for quality; owners with strong profit-maximizing motives choose lower prices for their wines, controlling for quality. We also find that utility-maximizers are more likely to locate at the higher end of the quality spectrum, whereas profit-maximizers are more likely to locate at the lower end.

Since many observers believe quality has slumped at Mondavi's luxury brands lately, returning them to private ownership thus may be the best hope for a resurgence of quality.

Behrens & Hitchcock Winery Claret (Napa Valley) 2000

Wow! I've been hearing about B&H for years, but somehow had never gotten around to trying one of their wines. I'm clearly going to have to make up for lost time. This is a delicious blend of Cabernet (both Sauvignon and Franc) and Merlot. Black cherries, blackberries, and mocha java, with a hint of black olives on the finish. Given its solid core of tannins and acids, it will continue to improve for a number of years, but it also is quite delicious right now. I'm going to buy more if I can find some. Grade: A-

Need a hobby?

Retiree James Brickman needed a hobby. His choice?

On a Yahoo chat board, messages bashing a company called Allied Capital Corp. flood in from someone styling himself "tellmeitsnottopsecret." The postings, more than 2,000 of them over the past two years, can pop up at any hour of day or night. They delve into company operations in minute detail, pointing out weaknesses and assailing management.

A hedge fund that's betting against the stock? No, "tellmeitsnottopsecret" is James Brickman, a retired Dallas real-estate developer who says he got bored playing golf. Now the 52-year-old spends hours digging through court and other filings related to Allied. "It's a game for me," he says, "like playing bridge."

It's a serious one, though. Like some hedge funds, or investment pools for the rich, Mr. Brickman sometimes sells Allied stock short, selling borrowed shares in hopes of replacing them when they're cheaper. Moreover, he has provided information to two securities analysts who turned negative on the stock. And, claiming that Allied overvalues some of its investments, he visited the Securities and Exchange Commission and urged it to take a look. Although Allied says it values investments properly, word of an informal SEC probe this spring knocked its stock for a loop, as did the two analysts' moves. ...

Mr. Brickman didn't start this run on Allied -- hedge funds did. But he's been in the forefront of digging up and publicizing reams of negative information on the company. His voluminous postings and research show how much clout one investor, working from home, can have by taking advantage of the Internet's vast research and broadcasting power. "Retired and bored," Mr. Brickman says, he took up investing four years ago after winding up a 20-year career as a residential developer. His focus on Allied has since become a near-obsession, what he jokingly calls a "sad illness." He declines to say how much he has earned from shorting the stock. He estimates he has dug up more than 14,000 pages of court filings related to the company.

I occasionally ponder the question of what I'll do in retirement. I could see taking up Brickman's hobby. But which company? If I started today, it'd be a touch choice between, say, Viacom and Disney.