ProfessorBainbridge.com

Why the MSM is Collectivist

Michael Jensen opines:

I argue that the mass media is best understood as producers of entertainment, not information, and that the theories and facts that people absorb from the media are a by-product of their consumption of the entertainment value of the news. ... To explain the anti-market bias of the media I argue that we must understand the family environment in which people are raised. I outline a theory of the family that is based on the notion that all exchanges must be balanced if two or more parties are to continue in relationship. The family is characterized by the absence of quid pro quo exchanges, and I argue that this occurs because it is inefficient in such relationships to keep the books balanced on a transaction by transaction basis. As a result, the family is organized around non quid pro quo exchanges, and this causes people to erroneously believe that such exchanges are the appropriate way to organize large groups or even societies. This element of consumer demand helps explain why the press is generally biased in its presentation of market vs. collectivist solutions to problems faced in modern societies.

BTW, does this mean we can blame modern liberalism on bad parenting? (Heh.)

Mahony Must Go

The LA Times reports:

At least six months after Cardinal Roger M. Mahony told his superiors at the Vatican that a videotape provided proof of a priest's criminal misconduct with high school boys, the head of the Los Angeles Archdiocese told the public that the tape showed no sexual activity between Father Lynn Caffoe and the boys, according to court records. ...

In a letter to then-Cardinal Joseph Ratzinger before Ratzinger became pope in April 2005, Mahony said Caffoe had videotaped "partially naked" boys in a state of sexual arousal. The tape was "objective verification that criminal behavior did occur," Mahony wrote, according to papers filed last week in Los Angeles County Superior Court in a lawsuit by four plaintiffs who allege that Caffoe abused them.

In October 2005, in what Mahony told parishioners was the "fullest possible disclosure" about the scandal, he reported that a videotape had been discovered in 1992 in Caffoe's bedroom, depicting "improper behavior" with high school boys. But the cardinal said the boys were "fully clothed" and there was no sexual activity.

Canon 387 of the Code of Canon Law of the Catholic Church states that:

Mindful that he is bound to give an example of holiness, charity, humility and simplicity of life, the diocesan Bishop is to seek in every way to promote the holiness of Christ's faithful according to the special vocation of each. Since he is the principal dispenser of the mysteries of God, he is to strive constantly that Christ's faithful entrusted to his care may grow in grace through the celebration of the sacraments, and may know and live the paschal mystery.

Can a Bishop who has lied to his flock on such a key matter be said to be in compliance with Canon 387? No. Especially given Mahony's long track record of other misfeasances and malfeasances in connection with the priest sex abuse scandal.

Curiously, there is no express provision in the Canon Law for removal of a diocesan Bishop.  Canon 401, § 2, however, states that:

A diocesan Bishop who, because of illness or some other grave reason, has become unsuited for the fulfillment of his office, is earnestly requested to offer his resignation from office.

Mahony's violation of Canon 387 constitutes the requisite "grave reason" such that he should voluntarily resign. If he fails to do so, the Pope clearly has authority under Canon 403 to appoint a coadjutor bishop who would be vested with the bulk of Mahony's responsibilities. Alternatively, despite the absence of a clear answer in canon law, most observers believe that the Pope has authority to remove a bishop for sufficiently grave reason. (Certainly, at the bare minimum, the Pope can "lean on" a bishop to do the right thing.)

In any case, however it happens, the time has come for Mahony to go.

Update: The Archdiocese has issued a denial, as one of the commenters below indicates. The denial focuses on a legal proffer:

Cardinal Mahony did not write, edit or otherwise supervise the production of the "proffer" on Lynn Caffoe, as the Los Angeles Times has claimed.

But this is nonsense on stilts. The denial utterly fails to join issue with the Times' reporting about Mahony's communications with his parishioners. The Times' article refers to reports to parishioners. As such, the Times' report likely refers to this Archdiocese document, which purports to offer LA parishioners "full disclosure and transparency," and which states at p. 19:

Two priests at St. Bede’s report finding an undated videotape in Fr. Caffoe’s room of improper behavior with several high school boys. No sexual activity. The boys are fully clothed.

This is precisely the language quoted by the Times. And, of course, that language is clearly inconsistent with the content of the Cardinal's letter to the Pope as reported by the Times.

The document in question is an Addendum to the Report to the People of God. Contrary to what commenter Dan says below, the Report was not a legal document. Instead, the Report itself states that it is a "report to the people of the Archdiocese of Los Angeles from Cardinal Roger M. Mahony concerning the deeply painful and scandalous phenomenon of sexual abuse of minors by clergy over the decades." In addition, as Cardinal Mahony's signed cover letter explains, the Report was designed to provide parishioners with "the fullest possible disclosure of what happened over the years." The Addendum was an update.

The Archdiocese's denial thus compounds the original offense by clumsily misrepresenting both the Times' reporting and the Cardinal's statements. The Times got it right.

Update2: Diogenes also doesn't buy the denial, with details.

Update3: Canon lawyer Edward Peters brings his expertise to bear on the problem, correcting my civil lawyer's reading of the relevant Canons. First, he offers this reassurance:

Prof. Bainbridge's post falls within the bounds of 1983 CIC 212, 3. Perhaps I read Canon 212 too broadly, but I'm an American lawyer, and American lawyers don't mind a good dust-up.

Canon 212 deals with the responsibility of Catholics to be obedient to their pastors and bishops. Here's the relevant section:

§3 They have the right, indeed at times the duty, in keeping with their knowledge, competence and position, to manifest to the sacred Pastors their views on matters which concern the good of the Church. They have the right also to make their views known to others of Christ's faithful, but in doing so they must always respect the integrity of faith and morals, show due reverence to the Pastors and take into account both the common good and the dignity of individuals.

Anyway, Peters goes on to observe:

I am uncomfortable, though, when non-canonists like Prof. Bainbridge, grappling with complex canonical issues, make unguarded statements such as "despite the absence of a clear answer in canon law", when what they should say is something like, "despite my not being able to find a clear answer in canon law" etc., etc. Prof. Bainbridge thinks that he can only muster the authority of "most observers" for his contention that surely the pope must be able to remove a bishop for the alleged grave violation of canon law. Here, though, he not only underestimates his position but, more importantly, the Church's ability to enforce her own discipline.

There is, in fact, no canonical doubt that Pope Benedict XVI has the authority to remove for malfeasance, if he so determines, a cardinal from pastoral office. One need only look to 1983 CIC 1401, n. 2 (reserving to the Church the proper right to adjudicate alleged violations of ecclesiastical law), and 1983 CIC 1405, 1, n. 2 (reserving solely to the Roman Pontiff the right to judge all c. 1401 cases involving cardinals). Additional canons support this conclusion, but given the weight of these two, there is little need to invoke them.

More than this, Pope John Paul II's 1995 removal of Msgr. Jacques Galloit as bishop of Evreux (France) proves that the Holy See can take this kind of action against a sitting bishop if it believes it to be necessary.

I warmly thank Peters for bringing his expertise to bear on the problem.

Julia Child was Right

In the NYT, Julia Moskin opines that cheap wine works fine in cooking (HT: Glenn Reynolds):

Said Julia Child: ?If you do not have a good wine to use, it is far better to omit it, for a poor one can spoil a simple dish and utterly debase a noble one.?  ...

Two weeks ago I set out to cook with some particularly unappealing wines and promised to taste the results with an open mind. Then I went to the other extreme, cooking with wines that I love (and that are not necessarily cheap) to see how they would hold up in the saucepan. ...

It wasn?t that the finished dishes were identical ? in fact, they did have surprisingly distinct flavors ? but the wonderful wines and the awful ones produced equally tasty food, especially if the wine was cooked for more than a few minutes.

But as Harvey Steiman points out:

The writer, Julia Moskin, seems to have deliberately set out to misunderstand the oft-repeated advice to "use a wine you would drink." She took that to mean a wine she liked, so she compared an oaky Chardonnay with a New Zealand Sauvignon Blanc, a California tawny Port with one from Portugal.

Actually, the idea is much less subtle. Basically, it's this: Cook with a simple wine that has no major flaws.

Here's why: When you apply heat to wine, it burns off the subtleties that make a great wine great. The alcohol mostly volatilizes, to the point where you can't taste it any more if you cook the wine for more than a minute or two. Any subtleties, like the teeny amounts of aromatic esters that make a wine complex, will be gone.

More on the Tax Aspects of the Blackstone IPO

Vic Fleischer offers a very detailed analysis of the "aggressive" tax aspects of the Blackstone IPO.

Taylor on Brzezinski on Terrorism

Steven Taylor writes:

The bottom line is that while there is little doubt that 9/11 was one of the single most devastating days in US history (in terms of its overall effect on the national consciousness) and that the events of that day rightly sparked an intense interest in the issue of international terrorism and its potential threat to the United States. It is also the case that the administration has created a false reality regarding that threat which had guided US policy since that time.

Indeed, the continued insistence that the war on terror represents an existential struggle of historical proportions is at the heart of the problem. As Brzezinski notes:

To justify the ?war on terror,? the administration has lately crafted a false historical narrative that could even become a self-fulfilling prophecy. By claiming that its war is similar to earlier U.S. struggles against Nazism and then Stalinism (while ignoring the fact that both Nazi Germany and Soviet Russia were first-rate military powers, a status al- Qaeda neither has nor can achieve), the administration could be preparing the case for war with Iran. Such war would then plunge America into a protracted conflict spanning Iraq, Iran, Afghanistan and perhaps also Pakistan.

We are not in a struggle of the magnitude of either WWII or the Cold War, yet the administration has pursued its foreign policy (and some of its domestic policy) as if this was the case.

That the initial response to 9/11 needed to be dramatic and swift I do not deny. Indeed, the invasion of Afghanistan and the initial attacks on the leadership of al Qaeda were impressive and, on balance, successful (the final hours of Tora Bora not withstanding).

... Still, long ago it should have become clear that another 9/11 was not as imminent as we thought was the case and the need has long passed to re-evaluate exactly where we are and where we should be in regards to counter-terrorism and the overall issue of US foreign policy goals. Hopefully the 2008 presidential campaign cycle will allow such a re-evaluation, although I am not especially optimistic on that front.

Are these preferences transitive?

According to Rasmussen, Barack Obama beats Fred Thompson. Fred Thompson beats Hillary Clinton. Hillary Clinton beats Barack Obama. This probably means something, but I'll leave it to Kenneth Arrow to figure out.

Magito Sauvignon Blanc (North Coast) 2005

Another winner from the growing stable of Magito wines. Very much on the fruit end of the Sauvignon Blanc spectrum rather than the grass and herbs end. Pineapple, mango, and other tropical fruits dominate, with a touch of grass on the edges and a hint of flint on the finish. I don't think I've ever had a SB-based wine break into the A range (there's just not enough profundity and aging potential in this varietal), but this one came close. Recommended. Grade: B++ (same grade as in June 2006, BTW).

Fleischer on Blackstone

Vic Fleischer offers a very interesting analysis of the 40 Act and tax code aspects of the Blackstone IPO. Bottom Line?

For the structure to work, then, what Blackstone does has to be active services for 40 Act purposes (we're an asset management/advisory firm, not a pass-through who lets you invest in a pool of securities) but passive for tax purposes.  I'm not saying the structure doesn't work - quirks in the rules often allow this sort of regulatory arbitrage -- just that it seems a little aggressive.  I don't think I've ever seen an entity go public with such uncertain tax treatment.

Caremark and Stone v Ritter

I'm about to teach Stone v. Ritter for the first time. By the time we get there, my students will have already read Caremark. As I read Caremark, it is a case about whether "unconsidered inaction" on the part of the board of directors gives rise to liability under the duty of care. In Stone v. Ritter, however, the Delaware Supreme Court seems to have transformed the Caremark standard of review into one arising under the obligation of good faith. In turn, good faith is subsumed into loyalty. This is odd.

The doctrinal and remedial aspects of the duty of loyalty have little relevance to Caremark claims. First, the relevant factual issues go not to fairness but to negligence and errors of judgment. Instead, these are precisely the sorts of issues the duty of care was designed to address. Second, the duty of loyalty’s remedies, such as a constructive trust or rescissory damages make no sense in this context. The goal of such remedies in loyalty cases is to ensure that the wrongdoer retains neither its ill-gotten gains nor their tainted fruits. In cases like Stone, however, an award of rescissory damages would have the effect of ordering the defendant directors to return a benefit that they never received. By definition there are no ill-gotten gains to be recouped.

But here's what's really bothering me as I get ready to go teach this mess. In Stone, the court stated that:

We hold that Caremark articulates the necessary conditions predicate for director oversight liability: (a) the directors utterly failed to implement any reporting or information system or controls; or (b) having implemented such a system or controls, consciously failed to monitor or oversee its operations thus disabling themselves from being informed of risks or problems requiring their attention. In either case, imposition of liability requires a showing that the directors knew that they were not discharging their fiduciary obligations.

If I'm right that the Caremark "duties" are about "unconsidered inaction," the clearest cases for Caremark-based liability would be where “there was an unconsidered failure of the board to act in circumstances in which due attention would, arguably, have prevented the loss.”

This is so, Caremark clearly suggests, because the business judgment rule has no application where the board failed to exercise business judgment. The paradigm case for director liability thus was a board, such as the defendant board in Caremark itself, which over a sustained period of time simply failed to even consider whether a law compliance program was necessary.

Yet, by requiring “a showing that the directors knew that they were not discharging their fiduciary obligations,” the Stone court seemingly would allow such a board to escape liability. Right? Would a clueless board that just sort of drifted along for years with unconsidered inaction escape liability? Is ignorance really bliss?

Delaware Supreme Court to Tackle Fiduciary Duties in Zone of Insolvency

Francis Pileggi offers Mark Saltzburg's summary of a speech by Delaware Supreme Court Chief Justice Myron Steele, in which Steele notes:

... that the Delaware Supreme Court had just heard argument in the Trenwick America Litigation Trust litigation that may result in a decision on whether creditors may bring a cause of action for violation of fiduciary duty where a company deepens its insolvency in a way that further damages creditors after any residual interest of shareholders is out of the picture. Typically, fiduciary duties are only owed by directors to shareholders and not to creditors. Steele noted, however, that in an earlier decision by former Delaware Court of Chancery Chancellor William Allen in the Credit Lyonnais case, the court commented that directors may owe creditors a fiduciary duty where a company is in the vicinity of insolvency.

One hopes that Steele doesn't let the Supreme Court make the same mistake Allen made in Credit Lyonnais. As I explained in Much Ado about Little? Directors' Fiduciary Duties in the Vicinity of Insolvency:

Where the contract between a corporation and one of its creditors is silent on some question, should the law invoke fiduciary duties as a gap filler? In general, the law has declined to do so. There is some precedent, however, for the proposition that directors of a corporation owe fiduciary duties to bondholders and other creditors once the firm is in the vicinity of insolvency.

Courts embracing the zone of insolvency doctrine have characterized the duties of directors as running to the corporate entity rather than any individual constituency. This approach is incoherent in practice and insupportable in theory. Courts should focus on whether the board has an obligation to give sole concern to the interests of a specific constituency of the corporation.

Concern that shareholders will gamble with the creditors' money is the principal argument for imposing a duty on the board running to creditors when the corporation is in the vicinity of insolvency. On close examination, however, this argument proves unpersuasive. It is director and manager opportunism, rather than strategic behavior by shareholders that is the real concern. Because bondholders and other creditors are better able to protect themselves against that risk than are shareholders, there is no justification for imposing such a duty.

This article also argues that the zone debate is much ado about very little. The only cases in which the zone of insolvency debate matters are those to which the business judgment rule does not apply, shareholder and creditor interests conflict, and a recovery could go to directly to those who have standing to sue. In those cases, as this Article explains, there is a strong policy argument that creditors should be limited to whatever rights the contract provides or might be inferred from the implied covenant of good faith.

Vice Chancellor Strine was kind enough to consider my argument (which he called "incisive" -ahem!) in the Chancery Court opinion.

Media Bias: Mellman on Fox News

Democratic activist Mark Mellman goes after Fox News:

Fox is not a typical news organization. There are first-rate journalists at Fox, committed to accuracy, objectivity and fairness. However, as a network, Fox’s prime commitment is to the triumph of conservative politics, not to a well-informed public. From hiring hosts to selecting stories to framing questions for discussion, Fox demonstrates its dedication to advancing the ideological interests of the right. ...

Conservatives retort that other media project a liberal bias, while Fox presents a needed counterweight. The liberal bias of network news is debatable; that Fox regularly reports false and inaccurate stories designed to drum up support for their candidates and causes is beyond serious dispute.

Two thoughts. First, the liberal bias of the MSM really isn't all that debatable. Riccardo Puglisi, for example, studied the NYT over a long period of time and concludes:

Controlling for the incumbent President's activity across issues, I find that during the presidential campaign the New York Times gives more emphasis to topics that are owned by the Democratic party (civil rights, health care, labor and social welfare), when the incumbent President is a Republican. This is consistent with the hypothesis that the New York Times has a Democratic partisanship, with some "watchdog" aspects, in that -during the presidential campaign- it gives more emphasis to issues over which the (Republican) incumbent is weak. ...

Lott and Hassett found that:

American newspapers tend to give more positive news coverage to the same economic news when Democrats are in the Presidency than for Republicans. ...

A UCLA study found that:

Of the 20 major media outlets studied, 18 scored left of center, with CBS' "Evening News," The New York Times and the Los Angeles Times ranking second, third and fourth most liberal behind the news pages of The Wall Street Journal.

Only Fox News' "Special Report With Brit Hume" and The Washington Times scored right of the average U.S. voter.

Second, and more interestingly, is the liberal bias of the MSM and the conservative bias of Fox a product of ideology or rational economic decision making? My guess is that it's the latter. Economist Michael Jensen theorizes that:

... the mass media is best understood as producers of entertainment, not information, and that the theories and facts that people absorb from the media are a by-product of their consumption of the entertainment value of the news. In addition, peoples' intolerance of ambiguity causes them to demand answers to questions; including those that are unanswerable. As a result the media is generally in the business of providing simple answers to complex problems whose answers are unknown, and it must do so in an entertaining way. Complex answers, even if correct are not acceptable to consumers of the media, and therefore are seldom provided.

Jensen's hypothesis is supported by the work of Gentzkow and Shapiro, who find that "analysis confirms an economically significant demand for news slanted toward one's own political ideology. Firms respond strongly to consumer preferences, which account for roughly 20 percent of the variation in measured slant in our sample." (I'd argue that the success of the Daily Show and the Colbert Report offer further anecdotal support.)

Perhaps then we should all just give up complaining about the media's lack of objectivity. After all, we don't expect objectivity from The Sopranos, so why should we expect it from CBS News?

In other words, Fox recognized that there was a market segment seeking entertainment slanted towards the center-right that was not being satisfied by the MSM. Put another way, there was a business case to be made for a conservative-leaning news outlet entirely independent of ideological considerations. (Remember when Rupert Murdoch cozied up to the Clintons?)

So what really seems to be bugging Mellman is that markets work.

Reports of the Demise of the Public Firm Greatly Exaggerated

Holman Jenkins offers some enlightening thoughts on the future of public versus private firms:

Look upon Blackstone's prospectus, if one is ever issued, as a self-rebuttal to Blackstone co-founder Stephen Schwarzman's comment: "The public markets are overrated." ... Mr. Schwarzman has offered two observations, perfectly separable. One is that government regulation, shareholder lawsuits and political mau-mauing have made the bureaucratic and legal overhead of being a public company prohibitive in relation to the benefits.

Yup. Costs attend going public as well as benefits, and the costs likely have been rising since Enron and WorldCom. But regulation is driven by headlines, and headlines about the power of private equity now are making Washington hungry to regulate and tax the private equity firms more punitively. So it goes: Wealth holders are constantly on the hunt for new legal and financial structures to preserve their wealth from predatorial government, and government is never far behind.

Second, and more dubious, or at least more subjective, is Mr. Schwarzman's complaint that the public market's obsession with quarterly profits works against intelligent management of companies for the long term.

Here we come to the real crux. Complaints about short-termism always issue from managers, who naturally prefer freedom from second-guessing and nitpicking. But the shoe rapidly shifts to the other foot when an owner-manager wants to retreat to a more passive role. Then the second- guessing of public investors becomes a blessing not a curse. Few of us, after all, are prepared to extend to our agents the trust and confidence that we extend to ourselves in caring for our precious money.

And the benefits of a public share price only begin with the opportunity and incentive for all the smartest money in the world to inform itself about a company and its prospects and cast a weighted vote in the stock market. Constant feedback from well-informed investors is also a form of competitive intelligence, providing a signal when management's strategies aren't working, its assumptions need revisiting or new developments in the marketplace warrant its attention.

A public share price also allows no ambiguity internally about a company's overarching purpose, no difficulty in communicating its agenda and challenges up and down the chain of command, nor any uncertainty about what constitutes success and failure. And a public listing offers a transparent, easily understood mechanism to attract talent to a growing operation like Blackstone in the form of stock options. Stock options allow risks to be shared with recruits, without the arbitrariness or unreliability of promised bonuses and profit sharing after the fact.

Most of all, a public listing provides the incentive and means for well-informed outsiders to intervene and force a change in direction when a company is off track.

These benefits have tended to be downgraded in the recent enthusiasm for escaping from the public markets. While Mr. Schwarzman runs Blackstone, he (like anyone) undoubtedly prefers to be free of outside monitoring by busybody investors and analysts and financial journalists. Someday, though, he will hand off to a successor whom he will prefer not to trust quite so much. One onlooker, Christopher Bower, chairman of Pacific Corporate Group, was aptly quoted in Saturday's Journal about why a public listing becomes attractive at this point to Blackstone's founders: "They can use this to further institutionalize their business and make sure Blackstone is around 100 years from now, versus relying on any one personality."

If the public firm is likely to survive, as I also believe, I suppose it remains to be decided whether it will be in the form of a corporation or a "public uncorporation." My guess is the former. Even if it's true that publicly traded LLCs or partnerships have efficiency advantages over the corporate form, a debatable proposition but not one I propose to debate today, path dependence, herd behavior, and other incentives towards inertia likely will continue to bias choices of form towards the corporation at least in the near term. With 15 or so years left before I retire, I'm reasonably confident that I'll still be teaching mainly corporate law when I call it quits.

Associates: Hire or Sweat?

The W$J's Law Blog reports that most big law firms plan to hire more associates in the coming year:

“It’s all about firms trying to build up leverage,” says DiPietro, referring to the ratio of associates to partners. ...

Instead of hiring fleets of new associates, can’t law firms just ask their existing worker-bees to put in a few more hours every month? DiPietro says that associates are, on average, billing more hours then they were several years ago, but that they’re not at the the levels seen from 1998-2000. “I don’t know why that is,” he says, “if it’s a ‘Gen Y’ thing or what. But the ranks of associates are swelling because the firms aren’t getting them to work” as hard as they’d like.

Talk to us associates — what do you think is better for firms, and for yourselves: that firms hire more associates (thus making partnership more competitive), or task their current fleet with billing more hours (and thus making everyday life a bit more brutal)?

It's not obvious (at least to me) which option makes more sense for either firms or associates.

Like many other service firms, law firms use promotion tournaments as a mechanism for reducing agency costs through comparative performance evaluation. In a promotion tournament, the principal ranks its agents by their performance relative to one another. The best performing agents are promoted to positions with higher pay and/or status. In law firms, associates thus are ranked and the best performers are promoted to partner at the end of an evaluation period.

For law firms, the promotion-to-partner tournament solves two agency cost problems at a single stroke. On the one hand, the firm makes investments in its associates' human capital -- i.e., skills and client relationships -- during their apprenticeship. The firm will want to discourage associates from leaving the firm before it has fully amortized those investments. On the other hand, the firm must also deter shirking by associates. The firm gives associates incentive both to remain for the optimal period and to maximize their productivity during that period by holding what someone (I've lost the citation) called "a tournament in which all the associates in a particular entering class compete and the firm awards the prize of partnership to the top X percent of the contestants."

The prize of promotion to a more secure and higher status position, plus the accompanying increase in compensation, gives lawyers an incentive to remain at the firm. Conversely, the threat of losing the tournament deters shirking.

Hiring more associates means that a given junior lawyer's chance of winning the tournament decline. Unless the effect of adding additional leverage is to increase the value of the prize by an off-setting amount, hiring more associates therefore means the present value of the prize decreases for each associate and each associate therefore has less incentive to refrain from shirking and less incentive to remain at the firm.

Conversely, demanding more from the worker bees increases the current costs incurred by the associates competing in the tournament. Again, the net present value of the prize therefore decreases. Again, the prize has less of an incentive effect with respect to both shirking and retention.

Sarbox or SOX?

One of my colleagues routinely refers to the Sarbanes-Oxley Act as "Sarbox." I use "SOX." Who's right? A Westlaw JLR search kicked up a mere 62 documents using Sarbox. SOX kicked up 1588 documents, although some of them might be referring to the baseball teams playing under one of the variants of that moniker. SOX & Sarbanes kicked up 522 documents. SOX /s Sarbanes got me 356. All told, in the legal literature, SOX seems to be running away with the game. (The ratio's 20 to 2 in favor of SOX in judicial opinions, BTW)

Outside Directors and Crisis Management

The W$J reports:

Independent board members typically provide oversight and monitoring of a company, while managers run operations. But when a crisis erupts, as at New Century, such directors increasingly are assuming a more hands-on role. Stronger governance standards adopted following corporate scandals -- and the prospect that directors could be held personally liable -- reinforce the trend. ... As a result, "the line between directors and managers is getting a little more blurry than what it has been," says David Larcker, a professor at Stanford University's Graduate School of Business.

Lots of useful anecdotal examples follow. None of this should come as a surprise to students of corporate governance, of course. As I explained in Why a Board? Group Decisionmaking in Corporate Governance, the board of directors is "a production team whose product consists of a unique combination of advice giving, on-going supervision, and crisis management." Hence, as Don Langevoort put it: "Absent some sort of crisis, outside members see their value largely in terms of constructive advice, giving insiders the benefit of an expert external perspective on the company’s uncertain world." In a crisis situation, however, the board must become more active. It must determine whether the crisis is the fault of senior management or the result of an exogenous shock. If the latter, the board must serve as a 24/7 monitoring and advising body to senior management. If the former, the board must depose incumbent senior management and move forward.