ProfessorBainbridge.com

More on Happiness

BusinessPundit Rob blogs:

A new study indicates that the link between income and happiness is mainly an illusion.

Perhaps, but these da ta from the Economist suggest that there is a correlation:

The Pew polls show that money does indeed go some way towards buying happiness: nearly half (49%) of Americans with annual incomes of more than $100,000 say they are very happy compared with just 24% of people with incomes of $30,000 or less.

The Limits of Shareholder Power

I've argued for a long time that shareholders should not and cannot effectively wield power in US corporations (see, e.g., The Case for Limited Shareholder Voting Rights, in which the operative word is limited). This post by Dale Oesterle leaves me more convinced that I'm right than ever:

Anyone interesting in evaluating shareholder power in American corporations must study CA Associates.  The company, previously named Computer Associates, has had its executives (The CEO, CFO, and General Counsel) indicted for criminal fraud (they agreed to a Deferred Prosecution Agreement)in accounting manipulations, sued for civil fraud on the same grounds, seen its stock plummet, and is now unable to issue financial reports because of compensation shenanigans (the back-dating of options).  Shareholders want the directors who oversaw the firm during the time of the troubles to be kicked off the board.   The directors best and only defense ("I did not know") is not a defense to the charge that it was their job to know -- they failed as overseers and should be replaced. There are two directors still on the board who were on the board during all the trouble.  They are up for re-election and will probably be re-elected.  A large shareholder submitted a Rule 14a-8 shareholder resolution to have the two directors removed; the SEC staff supported the company's refuse to include the proposal on the company's proxy.  The shareholder has a asked the full commission to review the staff no-action letter.  Technical matters aside, it is a case study on how directors, who should be embarrassed and run off the board, are protected by the the current system of shareholder voting.

CA is the ultimate in low hanging fruit. If the shareholders can't pick off this one, their fecklessness will be roundly confirmed.

Happiness Data

Some interesting polling da ta from the Economist:

43% of Americans who attend religious services once a week or more report being very happy compared with 31% who attend once a month or less and 26% of people who attend seldom or never.

And then there's this data, which confirms some of my suspicions:

Some 45% of Republicans report being ?very happy? compared with just 30% of Democrats. The Democrats may be right to give warning of global warming and other disasters. But are they right to give the impression that they relish all the misery? The people's party will never regain its momentum unless it learns to relate to the guy on the super-sized patio, happily grilling his hamburgers and displaying his American flag.

Au Bon Climat Pinot Gris (Santa Barbara County) 2004

A crisp, food friendly wine that unfortunately offers only generic white wine aromas and flavors rather than anything particularly distinctive. Maybe Meyer lemon and white peaches? An 80-20 blend of Pinot Gris and Pinot Blanc, which suggests neither. Having said that, however, as a wine to serve pre-dinner or with a casual light supper, it will work well enough. Grade: B-

Brooks on Bush

In the LA Times, Rosa Brooks misrepresents the Hamdan holding in order to score political points against Bush. Brooks writes:

... the real blockbuster in the Hamdan decision is the court's holding that Common Article 3 of the Geneva Convention applies to the conflict with Al Qaeda ? a holding that makes high-ranking Bush administration officials potentially subject to prosecution under the federal War Crimes Act.

As Mark Moller points out, however:

Here?s some of what the Court didn?t decide: ... Can civil courts hear claims raising violations of the Geneva Convention? This, too, remains unanswered. The majority, including Justice Kennedy, holds that only the Convention is enforceable under the Uniform Code of Military Justice as part of the ?law or war? that governs military commissions. That ruling has no necessary application to civil courts.

Granted, as Moller acknowledges, Brooks point might be a logical extension of Handan ... but it would be an extension. It's certainly not a holding that opens the door to prosecution. Looks like Patterico was right: "Rosa Brooks consistently writes the weakest and most poorly reasoned columns in the L.A. Times ? quite a feat, to be sure."

Evading Hamdan

U.S. Senators Lindsey Graham (R- SC) and Jon Kyl (R-AZ) today issued the following statement on the U.S. Supreme Court?s ruling on the Hamdan case:

?We are disappointed with the Supreme Court?s decision. However, we believe the problems cited by the Court can and should be fixed.

"It is inappropriate to try terrorists in civilian courts. It threatens our national security and places the safety of jurors in danger. For those reasons and others, we believe terrorists should be tried before military commissions.

"In his opinion, Justice Breyer set forth the path to a solution of this problem. He wrote, ?Nothing prevents the president from returning to Congress to seek the authority he believes necessary.?

"We intend to pursue legislation in the Senate granting the Executive Branch the authority to ensure that terrorists can be tried by competent military commissions. Working together, Congress and the administration can draft a fair, suitable, and constitutionally permissible tribunal statute."

Kyl and Graham presumably have in mind a statute creating military tribunals to try the Gitmo prisoners. But there is a more interesting option open to Congress, which I doubt they have the guts to try; namely, a statute under US Constitution Article III section 2 stripping the courts of their authority to hear cases filed by the Gitmo prisoners. Article III section 2 provides that:

In all cases affecting ambassadors, other public ministers and consuls, and those in which a state shall be party, the Supreme Court shall have original jurisdiction. In all the other cases before mentioned, the Supreme Court shall have appellate jurisdiction, both as to law and fact, with such exceptions, and under such regulations as the Congress shall make.

There's case law suggesting that Congress can exercise this power to strip courts of jurisdiction to hear classes of cases other than those few specified in the Constitution as falling within the original jurisdiction of the Supreme Court. And, looking to the Founders for guidance, Alexander Hamilton wrote in Federalist No. 81 that:

To avoid all inconveniences, it will be safest to declare generally, that the Supreme Court shall possess appellate jurisdiction [that] shall be subject to such exceptions and regulations as the national legislature may prescribe. This will enable the government to modify it in such a manner as will best answer the ends of public justice and security.

To be sure, there's debate over the scope of Congressional power under Article III section 2, as my UCLA law colleagues Gary Rowe and Eugene Volokh have noted. And, to be clear, I'm not suggesting Congress should pursue this course of action. I'm simply noting that it could do so and wondering whether anybody in Congress will have the chutzpah to run it up the legislative flagpole.

Arend on Hamdan

Georgetown University Professor Anthony Arend has been my go to guy on international law since we were in 7th grade together at MacArthur Junior High (well, that's a slight exaggeration, but not by much). He's got two posts on the Supreme Court's Gitmo decision in Hamdan v. Rumsfeld:

• The Ruling in Hamdan: Initial Thoughts
• Hamdan and Common Article 3

Money quote from the former post:

First, it is clear that the Court wanted to reach the merits and send a strong message to the Executive Branch. The Court could have ducked the case a number of ways. It could have ruled that the Detainee Treatment Act had stripped jurisdiction from the Court. It could have also ruled that the Court should have abstained until the military commission had tried Hamdan. But the Court chose to do neither.

Second, the Court rightly rejected the kangaroo-court-like procedures established by the Commission Order. To have criminal proceedings where the defendant could potentially be denied the right to be present at the trial or prevented from having access to evidence seems contrary to the concept of rule by law. While the Court did not rule out the possibility that those rules could be adopted, it made it clear that there would have to be a significant showing of necessity by the Executive Branch.

Third, the Court vindicated the importance of the international law of armed conflict as reflected in the Geneva Conventions, and it established that Common Article 3 applies to the conflict with al Qaeda. This is extraordinarily important. As noted above, the Administration had been arguing that since al Qaeda was not a state,  the provisions of the  Geneva Conventions did not apply in our relations with members of that group. Common Article 3, the Administration argued, only applied to true "internal conflicts." Under the Administration's view, there was essentially a lacuna in the law of war-- and that was where our war with al Qaeda fell. The Court rejected this notion. Because the the US is a state party to the Conventions and the fighting took place in another party state party to the Conventions,  persons captured in that party are entitled to the protections of Common Article 3. For Hamdan, this meant he had to be tried in a "regularly consituted court."

But go read both for full details.

Rodney Strong Pinot Noir (Russian River Valley) 2004

Not a profound Pinot, but a very pleasant one. A base of typical Pinot flavor/aroma characteristics, including cherry cola and that classic grape stems in tea note. But mainly this wine is dominated by a generic light-bodied red wine berries. This wine will work with a wide variety of foods ranging from meaty fish, such as tuna or salmon, to white meats, and on to beef. At $19, it's fairly priced too. Grade: B

Power and the Presidency

On April 6, 1780, the British Parliament famously took up the motion of Mr. Dunning "that the influence of the crown has increased, is increasing, and ought to be diminished." Here, in the United States, our Founding Fathers sought to ensure that the powers of the Chief Executive, while considerable, were hedged and bounded by a series of checks and balances. Yet, since 9/11, the Bush Administration has consistently pushed the edge of the constitutional envelope, repeatedly asserting a broad conception of Presidential power under the so-called unitary executive doctrine.

Few observers have noted the latest exercise of unilateral Presidential authority, but it is one that is fraught with the potential for the same sort of abuses that gave rise to the corporate scandals of 2001-2002.

In May, President Bush quietly signed a "Memorandum for the Director of National Intelligence," which reads in full:

"By virtue of the authority vested in me by the Constitution and laws of the United States, including section 301 of title 3, United States Code, I hereby assign to you the function of the President under section 13(b)(3)(A) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m(b)(3)(A)). In performing such function, you should consult the heads of departments and agencies, as appropriate. You are authorized and directed to publish this memorandum in the Federal Register."

The vague and ambiguous wording of the memorandum wouldn't tell the casual reader that anything significant had happened. Even most securities lawyers (and, I'd bet, securities law professors) likely are unaware Securities Exchange Act § 13(b)(3)(A) provides that "with respect to matters concerning the national security of the United States" the President can exempt public corporations from their obligations under the Sarbanes-Oxley Act to maintain "books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer" and to maintain an effective system of internal controls designed to ensure that such transactions receive proper accounting treatment.

BusinessWeek did pick up the story, but improperly reported that Bush delegated authority to National Intelligence Director John Negroponte "to excuse publicly traded companies from their usual accounting and securities-disclosure obligations." In fact, as just noted, § 13(b)(3)(A) does not grant companies a blanket exemption from disclosure requirements. Instead, it only exempts companies from having to comply with the Sarbanes-Oxley internal controls rules.

The necessity for some exemptions under § 13(b)(3)(A) is obvious. Suppose, for example, that a corporation was hired by the Pentagon to build a military base in Saudi Arabia. To avoid exacerbating Islamist fundamentalists who object to the presence of foreign troops on Saudi soil, the Pentagon wishes to keep the base top secret.

If the contractor were obliged to run such transactions through the usual Sarbanes-Oxley mandated internal controls processes, the transaction necessarily would come to the attention of the company's internal audit employees and, likely, the outside auditor. The risk of a security breach would escalate dramatically.

Conversely, however, the Sarbanes-Oxley rules were put into place precisely because many corporations' internal control processes broke down in the late 1990s. Recall the tale of Enron, for example. Enron CFO Andrew Fastow set up a number of so-called special purpose entities (SPE), typically limited liability companies or partnerships, which entered into complex transactions with Enron. Under arcane accounting rules, as long as someone other than Enron owned at least 3% of the SPE's equity, the assets and debts of the SPE did not have to be disclosed as part of Enron's consolidated financial statements. Hence, these SPE investments were "off balance sheet." By thus concentrating debt in these off balance sheet SPEs, Enron hoped that both its credit rating and stock price would remain high despite its increasingly precarious financial situation.

The SPEs weren't just part of an accounting game, however. CFO Fastow owned an equity stake in the SPEs. Despite the obvious conflict of interest inherent in related party transactions between a corporation and one of its officers or directors, Enron's board routinely waived its ethics rules to allow Fastow to participate in the SPE deals. According to a subsequent internal investigation, Fastow made over $30 million in profit from these deals. Several other Enron executives also participated in these deals and likewise made millions. In most of these transactions, Enron's internal controls proved inadequate, not least because Enron managers did not even bother to follow the accounting controls the firm had established.

The SOX internal control rules adopted in response to the meltdown at Enron have been criticized by many (including yours truly) for being too costly, especially for small business. Yet, while the SOX rules may not be perfect, some system of internal controls is necessary to ensure that the accounting trickery and frauds of the 1990s are not repeated.

The solution is oversight. Negroponte should not be allowed unilaterally to decide what projects implicate national security or we could end up with the proverbial bridges to nowhere being exempted from SOX. Negroponte should not be allowed to go beyond his limited exemptive authority under § 13(b)(3)(A), such as by allowing companies to avoid their disclosure obligations (most national security projects likely would not be sufficiently material to require individual mention in corporate disclosures, so there is little risk of a security breach if such transactions are rolled up into the corporation's overall earnings statement). Instead, there should be Congressional oversight to ensure that Negroponte is using his authority properly. In addition, because there often will need to be a balance struck between investor protection and national security, Congress ought to consider going back and amending § 13(b)(3)(A) to give the SEC some role in deciding whether exemptions under that Section ought to be granted on a case-by-case basis.

Hamdan Decided

SCOTUS opinion available here:

http://www.supremecourtus.gov/opinions/05pdf/05- 184.pdf

CNN ex cerpts:

"The military commission at issue is not expressly authorized by any congressional act," said Justice John Paul Stevens, writing for the majority. The tribunals, he said, "must be understood to incorporate at least the barest of those trial protections that have been recognized by customary international law."

"In undertaking to try Hamdan and subject him to criminal punishment, the executive (Bush) is bound to comply with the rule of law that prevails in this jurisdiction," Stevens said. ...

Dissenting on the ruling were justices Antonin Scalia, Clarence Thomas and Samuel Alito. Scalia, in his dissenting opinion, used the word "mess" to describe the court's reasoning.

"The president's decision to try Hamdan before a military commission for his involvement with al Qaeda is entitled to a heavy measure of deference," said Thomas.

This case is way outside my area of expertise (I'm waiting for my biddy and international law expert Tony Arend to tell us what he thinks), but it does raise an issue about which I've been pondering lately: Is "war" the right metaphor for dealing with terror? Or should we accept that terror is really mainly a police/intelligence issue? If the latter is the right metaphor, this ruling makes more sense.

KPMG and the Right to Fairness

Dale Oesterle makes a great point about the recent decision in which a federal judge "all but declared unconstitutional ... parts of the Thompson memo."

The Thompson memo is a Justice Department document of guidelines on whether to indict a firm and well as its misbehaving executives.  The documents recommends that prosecutors take a corporation's willingness to pay legal fees of its indicted employees as evidence of lack of cooperation for an indictment of the company itself.  The judge found that this pressure on the firm is unconstitutional, a violation of an executive's the right to a fair trail and the right to an attorney.   I have written elsewhere criticizing the Thompson memo and think it is bad policy.  But unconstitutional??  We are fast developing a culture of protection based on a constitution that is "unfair."  My lay person friends believe that anything unfair is unconstitutional.  The document is some granddaddy protection against all that is unfair.  Opinion like this contribute to the fallacy. 

Cited in Delaware

In Gesoff v. IIC Industries, Delaware Vice Chancellor Stephen Lamb addressed the use by a subsidiary corporation of a special committee of independent directors to negotiate a proposed freezeout merger between the sub and its parent corporation. In the course of his opinion, he noted:

Members of a special committee negotiating a parent-subsidiary merger must, of course, be independent and willing to perform their job. This independence is the sina qua non of the entire negotiation process. The court necessarily places more trust in a multiple-member committee than in a committee where a single member works free of the oversight provided by at least one colleague.¹⁰⁰ But, in those rare circumstances when a special committee is comprised of only one director, Delaware courts have required the sole member, “like Caesar’s wife, to be above reproach.”

¹⁰⁰ Vice Chancellor Hartnett’s common sense intuition that two heads are better than one in the context of special board committees has since been bolstered, in some sense, by economic and empirical research. See, e.g., Stephen M. Bainbridge, Why a Board? Group Decisionmaking in Corporate Governance, 55 VAND. L. REV. 1, 12 (2002) (“In sum, groups appear to outperform their average member consistently, even at relatively complex tasks requiring exercise of evaluative judgment . . . . Corporate law’s strong emphasis on collective decisionmaking by the board thus seems to have a compelling efficiency rationale.”).

The cited article can be downloaded here. Also potentially of interest will be the sections in my books Corporation Law and Economics and Mergers and Acquisitions on the role of independent directors in various corporate transactions and, specifically, in freezeout mergers.

The World's Greatest Rock and Roll Band?

My wife has been back East visiting family the last 4 nights, leaving the dogs and I to revive a tradition familiar to long time readers; namely, Bachelor Night. The menu is always more-or-less the same: red meat with an appropriate starch, a minuscule amount of the obligatory green vegetable, and a big red wine, followed by port or Wild Turkey Liqueur, a Dunhill Peravia or two, and a DVD. This time around we've been watching concert videos:

• The Who - Live at the Isle of Wight Festival 1970
• The Who - Live in Boston
• Bruce Springsteen and the E Street Band - Hammersmith Odeon London '75
• Bruce Springsteen and the E Street Band - Live in Barcelona

There's no doubt in my mind that these are the greatest rock and roll bands ever. To be sure, the Beatles and the Rolling Stones have their advocates, but for me they pale by comparison. The Who and the E Street Band have been the soundtrack of my life. (Besides which, if the Stones are so great, why does one of my posts about The Who rank #1 on a google search for "world's greatest rock and roll band", while the Rock and Roll Hall of Fame's site for the Stones ranks #2?)

But how to choose between the two? At one level, it's an easy choice. The original line-up of the Who - Townshend, Daltrey, Entwhistle, and Moon - remain my choice as the World's Greatest Rock and Roll Band and the Isle of Wight remains their greatest concert. (I was lucky enough to see the original lineup on one of their last US tours and it remains the highlight of my rock concert list.)

I'd also rank the 1975 version of the E Street Band higher than the current line-up, if only because of my memories of seeing them play at Bryn Mawr, and multiple tours in the late 1970s. Plus, back then Springsteen and Clarence Clemons acted in concert like they liked each other, with Bruce using Clarence as a foil all night, instead of just treating each other like parts of a money-making machine. (The Townshend-Moon relationship at Wight gives you some sense of what the Springsteen-Clemons relationship might have been if the latter had been telepathic.)

My dilemma is deciding whether Townshend + Daltrey post-Entwhistle/Moon outrank any iteration of the E Street Band. In other words, is The Who in Boston > The E Street Band at the Hammersmith Odeon?

After watching 4 concerts in 4 nights, I think the answer is that Townshend + Daltrey have to be ranked # 1 whether they have Entwhistle and Moon with them or not. Springsteen simply can't match Daltrey as a vocalist, neither Springsteen, Van Zandt, or Nils Lofgren can match Townshend as a guitarist, and even moments as great as Clemon's sax solo in Jungleland or Bruce's guitar solo in the extended introduction to Prove it All Night in the 1978 tour can't match Pete's guitar solo in Won't Get Fooled Again even as late as the Boston concert or Roger's penultimate banshee scream as that classic winds to its end.

More generally, going back to the initial question, nothing Bruce has ever done matched the moment when the Who played See Me, Feel Me at dawn at Woodstock (to be sure, I wasn't there, but I've seen the damn movie), or that amazing moment on the Isle of Wight when they duplicated the sunrise with a battery of search lights (ditto).

Having said all that, as a Sirius radio subscriber, if I had my druthers, Sirius would bring back E Street Radio on Channel 10 and convert Channel 11 to The Who 24/7. But if wishes were fishes ....

Preemption of North Korea's Test Launch?

International law expert Tony Arend rounds up some commentary on the prospect of a possible US preemptive attack on North Korea and concludes:

First, as noted in earlier posts, most international legal scholars and state officials would argue that if preemptive force is lawful, it is so only when faced with the imminent threat of attack-- not the imminent threat of a test launch. Second,  as my friend, colleague, and former arms negotiator, Doug Shaw, would note, the preemptive action suggested by Carter and Perry  would play right into the North Korean's hands. They would then be able to point to a real attack against them by the United States military. And when this attack would be coupled with references to U.S. actions in Iraq, one can only imagine the further blow to American legitimacy and prestige.

The Right's Netroots versus the Elite

Newsweek has a short article on Hugh Hewitt's involvement with the revamped Townhall:

Hugh Hewitt is a master of multitasking. Week after week, the sanguine, persistent pundit hosts his "center-right" talk radio show from a nondescript office in Orange County, Calif.—and more than a million people tune in. Two computers flank his mike. While on the air, Hewitt uses the first to surf news sites, then swivels to the second during breaks to update his well-trafficked blog. "Both spoken words and written words are powerful," he says. "Acting in harmony, the effect is exponential." ...

On July 4, Salem Communications, one of the country's largest radio-station owners, will relaunch an old Web war horse called Townhall.com as a hub for its stable of stars (including Bill Bennett, Michael Medved and Hewitt himself). The hope? That "Web 2.0" wherewithal can transform what was once an op-ed clearinghouse into a single nerve center serving the separate conservative communities of talk radio and the Internet. To Hewitt, a valuable White House ally, the math is simple: add 6 million Salem fans to Townhall's 1.4 million unique monthly visitors and you've got an audience six or seven times the size of liberal site Daily Kos, the Web's biggest political blog. "We will overwhelm them," he says.

Hugh's justifiably pleased, but I'm a little skeptical. Peggy Noonan recently - and, I think, correctly - pointed out the serious disconnect between the DC GOP elites and the base:

They feel less fealty to the insights of the base. They know more than the base, are more experienced than the base, have a more nuanced sense of reality. And as for conservative social issues groups, the politicians resent those nagging, whining pushers-for-the-impossible who are always threatening to stay home or go elsewhere. (Where?)

Newsweek correctly points out the Hugh has been "a valuable White House ally," in large part because he has consistently sided with the DC elite rather than the base. Remember his unswerving fealty to the excreable Harriet Miers or the way he tore into Mark Tapscott and yours truly for suggesting that the base might sit out 2006?

Conservative leaders like Hugh are soon going to face the need to choose between the base and the corrupt/out-of-touch K Street Gang. Noonan and Tapscott get it; does Hugh?