ProfessorBainbridge.com

On the road again

I'm off tomorrow morning to the University of Delaware, where my friend and law school classmate Charles Elson heads the Weinberg Center for Corporate Governance at the Lerner College of Business and Economics. Elson and Professor April Klein of New York University are hosting a conference on “Corporate Governance and Managing Firm Risk” on October 1 & 2, 2009. It "will examine risk mitigation strategies and the causes of current financial crisis. The Conference features a keynote address by Professor Robert Engle, Nobel Laureate and Professor of Finance at New York University’s Stern School of Business." 

The conference will also feature a presentation by yours truly based on my paper, Caremark and Enterprise Risk Management. 

Abstract: The financial crisis of 2008 revealed serious and widespread risk management failures throughout the business community. Shareholder losses attributable to absent or poorly implemented risk management programs are enormous.

Efforts to hold corporate boards of directors accountable for these failures likely will focus on so-called Caremark claims. The Caremark decision asserted that a board of directors has a duty to ensure that appropriate "information and reporting systems" are in place to provide the board and top management with "timely and accurate information." Although post-Caremark opinions and commentary have focused on law compliance programs, risk management programs do not differ in kind from the types of conduct that traditionally have been at issue in Caremark-type litigation.

Risk management failures do differ in degree from law violations or accounting irregularities. In particular, risk taking and risk management are inextricably intertwined. Efforts to hold directors accountable for risk management failures thus threaten to morph into holding directors liable for bad business outcomes. Caremark claims premised on risk management failures thus uniquely implicate the concerns that animate the business judgment rule's prohibition of judicial review of business decisions. As Caremark is the most difficult theory of liability in corporate law, risk management is the most difficult variant of Caremark claims.

Vice Chancellor Leo Strine will be commenting on the paper. Should be an interesting discussion, especially since my paper argues Strine's decision in Guttman v Huang put this area of the law on the wrong footing.

AALS Rip-Off

A while back, I agreed to be on a panel presentation by the AALS Section on Business Associations. I had not planned on attending AALS, but the person who asked is a friend to whom I would hate to say no.

My plan all along has been to fly in the night before, give my talk at the 9am session, and fly home immediately thereafter.

Even though the only AALS event I'll be attending is the talk to which I was invited, the AALS says I have to register for the convention and pay the whopping $425 registration fee.

Brian Leiter actually backed out of an AALS speaking commitment over this issue a few years ago:

On October 8, 2003, I sent the following letter to Jane La Barbera, the Associate Director of the AALS, in response to her letter "confirming" my participation on the panel noted above:

"I am writing in reply to your October 1 letter confirming my having agreed to participate in a session at the Annual Meeting for the section on Legal Scholarship. In your letter you state: “The AALS Executive Committee has asked the staff to remind each participant that by agreeing to speak at the Annual Meeting, you are also agreeing to pay the registration fee.”

"In agreeing to speak I explicitly did not agree to pay the outrageous registration fees that the AALS extracts from participants. I did agree to speak for free, but I’m not going to pay for that privilege. In my own case, I will be arriving late on the Saturday, am scheduled to speak on Sunday morning, and then will be leaving Atlanta that afternoon. I am not going to squander over $300 [Note: it's closer to $400] of my law school’s money for registration fees under these circumstances.

"The AALS Executive Committee has asked you to inform participants that they “agreed” to something they didn’t agree to no doubt because other participants in the past have resisted being exploited like this. There are many law professors who are angry both about the exorbitant fees the AALS charges and who are also in my situation, i.e., only attending the conference because they were asked to speak.

"Two years ago, I raised this issue with then–President Mary Kay Kane. I see, alas, that nothing has changed. I am cc’ing both the current and incoming President; perhaps they will take up the issue. Professor Tushnet wants to make the annual meeting a more scholarly event, a move I applaud; but one way to help achieve that goal is to stop ripping off the speakers. I am also cc’ing Professor Sherwin, who had kindly extended the invitation to me to speak at the Legal Scholarship session.

"In sum, I did not agree to pay, and I will not pay, the registration fee for a conference that I won’t be attending, except to participate as an invited speaker—not an attendee—at one session. If that is unacceptable to the AALS, please notify me in writing promptly, before I make any travel arrangements."

For my trouble, I was treated to an abusive reprimand by a senior officer of the AALS, who apparently thinks there is nothing wrong with charging $400 for the privilege of speaking at the AALS. This officer objected to the tone of my letter (what else is new?), and accused me of arrogance for acting as though I had nothing to gain from the AALS conference. Since I'd said nothing about my reasons for not attending more of the conference, this was pure churlishness. I pointed out to him the reason for my having to come and go so quickly was a family wedding.

Tempting as that solution is, I don't want to leave the panel's organizer in the lurch. It will, however, be a cold day in hades the next time I agree to do anything for the AALS.

New Vice Chancellor

Via Francis Pileggi, we learn that "J. Travis Laster was confirmed [last week] by the Delaware Senate to become the newest Vice Chancellor on the Court of Chancery for the State of Delaware."

Like yours truly, Laster is an alum of the University of Virginia School of Law, where he has taught courses as an adjunct professor.

His other credentials are equally sterling, so he should be a fine addition to an already strong bench.

World of Warcraft in the Delaware Chancery

Francis Pileggi offers a concise legal analysis of the Delaware Court of Chancery's decision in Wayne County Employees’ Retirement System v. Corti, 2009 Del. Ch. LEXIS 126 (Del. Ch. 2009), in which shareholders challenged a transaction by which Vivendi S.A. obtained a majority of the voting stock of Activision, Inc.—the makers of the computer game World of Warcraft.

As he discusses, the case is highly instructive with respect to disclosure and Revlon duties.

Conference Board Speaks on Executive Comp

The Conference Board's Task Force on Executive Compensation has issued its report, available here. It sets out 5 "guiding principles," whose level of generality makes them relatively useless as operational guidance:

Principle One—Paying for the right things and paying for performance

Compensation programs should be designed to drive a company’s business strategy and objectives and create shareholder value, consistent with an acceptable risk profile and through legal and ethical means. To that end, a significant portion of pay should be incentive compensation, with payouts demonstrably tied to performance and paid only when performance can be reasonably assessed.

Principle Two—The “right” total compensation

Total compensation should be attractive to executives, affordable for the company,  proportional to the executive’s contribution, and fair to shareholders and employees, while providing payouts clearly aligned with actual performance.

Principle Three—Avoid controversial pay practices

Companies should avoid controversial pay practices, unless special justification is present.

Principle Four—Credible board oversight of executive compensation

Compensation committees should demonstrate credible oversight of executive compensation. To effectively fulfill this role, compensation committees should be independent, experienced, and knowledgeable about the company’s business.

Principle Five—Transparent communications and increased dialogue with shareholders

Compensation should be transparent, understandable, and effectively communicated to shareholders. When questions arise, boards and shareholders should have meaningful dialogue about executive compensation.

While it's mostly pablum, it does provide a set of generic best practices. In addition, there is some useful stuff in the appendices.

Fantasy Week 3-Part 4

In Charles Tabb's Cowboys Rule league (Yahoo PPR), my Cowboys Drool team enters week 2 with a 2-0 record and is # 1 in scoring. I'm especially pleased with this team's success so far, because I went into this draft determined to try a non-RB RB draft strategy. I went WR QB WR and still ended up with two RBs that have had decent fantasy production.

Actives
Peyton Manning (Ind - QB)
Larry Fitzgerald (Ari - WR)
Marques Colston (NO - WR)
Ronnie Brown (Mia - RB)
Tim Hightower (Ari - RB)
Chris Cooley (Was - TE)
Brent Celek (Phi - TE) @ Flex WR/RB/TE
Neil Rackers (Ari - K)
Green Bay (DEF)

Reserves
Devin Hester (Chi - WR)
Josh Morgan (SF - WR)
Donald Brown (Ind - RB)
Ricky Williams (Mia - RB)
Jason Campbell (Was - QB) P
Arizona (DEF)

Brent Celek has thus far confirmed my hope that he'd have a break out year, to the point that I'll use him at the Flex this week. Having both Celek and Cooley on the field at the same time defies conventional wisdom, but I think it makes sense in the context of my roster. The only "disappointment" has been Larry Fitzgerald. Ten catches and 105 yards ought to be more like 1 week's production than 2.

This week I face one of the two other remaining undefeated teams. He's got some serious studs: Andre Johnson and Chad Ochocinco at WR, Jason Witten at TE, Willis McGahee at Flex, and Frank Gore and Steven Jackson at RB. My major edge will be at QB (Peyton Manning versus Carson Palmer.)

A win this week will put me in great shape.

Fantasy Week 3-Part 3

In the ProfessorBainbridge.com league, I entered week 3 with a total of 219 points, which had me in 8th place and 53 points behind #1 Roswell Oilers.

Actives
Aaron Rodgers (GB - QB)
Reggie Wayne (Ind - WR)
Devin Hester (Chi - WR)
Steve Slaton (Hou - RB)
Ryan Grant (GB - RB)
Owen Daniels (Hou - TE)
Eddie Royal (Den - WR) @ Flex WR/RB
David Akers (Phi-K)
NYJ (DST)

Reserves
Julius Jones (Sea - RB)
Earl Bennett (Chi - WR)
JaMarcus Russell (Oak - QB)
Chris Henry (Cin - WR)
Benjamin Watson (NE - TE)
Atlanta (DST)

The major personnel changes so far have included dropping Jeremy Maclin to add Ben Watson and Peyton Hillis to add Chris Henry. I'll be looking to trade or drop Earl Bennett and the Atlanta DST (which I added last week in hopes that they'd have a big day against Jake Delhomme and the Panthers).

I'm really disappointed by this team. Steve Slaton is the biggest bust, of course. But Aaron Rodgers, Ryan Grant, and Eddie Royal have all disappointed as well. Julius Jones had a good week 1, but looks to be up and down, at best. Sigh.

Fantasy Week 3-Part 2

Bruinskins II (CBS Standard Scoring)

Actives

Rivers, Philip QB SD
Peterson, Adrian RB MIN
Ward, Derrick RB TB
Sproles, Darren RB SD
Jackson, DeSean WR PHI
Jennings, Greg WR GB
Clark, Dallas TE IND
Rackers, Neil K ARI
Redskins DST

Reserves
Garrard, David QB JAC
Moreno, Knowshon RB DEN
Harvin, Percy WR MIN
Sims-Walker, Mike WR JAC
Falcons DST

Only a few personnel moves: Dropped James Davis and Kevin Walter. Added the Falcons DST to try to get a good matchup against the Panthers last week. I'll keep them for another week or two to see what happens. Picked up Mike Sims-Walker as a waiver wire flyer based on his 107 yards last week.

This team is 2-0 and predicted to win today 123-90. It's also the highest scoring team in the league after 2 weeks. With Cadillac Williams out, Derrick Ward should start to perform as a decent RB2. With LT out, Sproles makes a great flex play. Harvin gives me another great flex option. At the moment, I'm in really good shape here. I made three key drafting decisions that have turned out very well: Going QB at 3-1 to get Rivers and TE at 4-12 gave me Dallas Clark. Then I picked up Darren Sproles at the end of the 10th round. They've been my # 2, 3, and 4 scorers. With AP, they also give me 4 out of the top 35 scorers in the league.

Fantasy Week 3-Part 1

Bruinskins 1 (CBS Standard Scoring)

Matt Forte's poor start has really hurt this team. Niothing could have helped last week, however, since our opponent got a whopping 45 points from Chris Johnson. And so we fell to 0-2.

Here's this week's roster:

Actives

J. Flacco QB
M. Forte RB
C. Portis RB
M. Manningham WR
C. Ochocinco WR
R. White WR
K. Winslow TE
R. Gould K
Cardinals DST

Reserves
J. Cutler QB 
K. Moreno RB 
J. Knox WR 
B. Celek TE
49ers DST

Note the personnel moves: I dropped the Chargers DST and LeSean McCoy after week 1, and Torry Holt and Kevin Walter after week 2. Dropping McCoy looks to have been a mistake, given that Westbrook is already banged up, and Clinton Portis' ankles could nag him all season. I need another RB2 pretty badly.

Turning to this week's lineup, the only hard choice is Cutler versus Flacco. Cutler's going up against the Seahawks, which currently has the #2 passing defense, although I think that's overinflated. Another consideration is the state of the Seahawk's offense, which is unlikely to put up a lot of points with Hasselbeck out and their WRs dinged up, which means that the Bears are likely to be ahead at the end of the game and running rather than passing during garbage time. 

In contrast, I really like Flacco's matchup against the Browns.

This will be an interesting issue going forward, as I try to play the matchups. OTOH, if I don't start getting some wins soon, it won't matter very much.

Top Gear Takes on Speed Cameras

Corporate Constitutional Rights

My friend and UCLA colleague Eugene Volokh has a nice post on the corporate personhood issue we discussed a few days ago. He focuses on many aspects of the problem, but I'll pluck out two issues most pertinent to most readers of this blog. First, the practical consequences of denying the corporation constitutional statuts and protections:

... if corporations lack constitutional rights, the government could take their property without just compensation, and in fact without any hearing. It could just come in and grab it, no questions asked.

Second, the individual rights aspect of the problem, which I regard as the most important:

If you take the property of a corporation without compensation, whom are you really hurting? Not "the corporation," which is, indeed, a convenient legal fiction. You're hurting the corporation's owners.

If you accept the legal fiction of the corporation being a separate person, then taking its property violates its rights. But if you reject that fiction, as a means of arguing that the corporation should lack rights, then taking its property violates its owners' rights. Either way, the Takings Clause should apply; and that's what suggests that the legal fiction (a corporation is a person) is a sensible one here — using it makes analysis easier, but doesn't ultimately change the results much.

The same goes for the Due Process Clause, the Civil Jury Trial Clause, and so on. If you take a corporation's property, or let it be taken through certain procedures, you're affecting the property of individual owners. There's therefore no real reason to deny these rights to the corporation.

Likewise for free speech. Corporations don't actually speak; people speak. A corporation's employee (a person) communications information that is decided on by a group of managers (people) who represent the stockholders (other people). Barring the New York Times or the ACLU or the Catholic Church or General Motors from speaking bars real people from speaking using the corporation's property.

Aha, some might say, the real people aren't silenced — they can still speak using their own property. But the Court has long understood that to speak effectively in a vast nation, you need to be able to pool your resources with others (even in this cyberspace age).

The Court has recognized this under the rubric of the right to expressive association, but the same applies to speech via corporations. When people contribute money to the ACLU, so that the ACLU's directors can decide what ACLU's spokespeople say, the contributors are making a decision to pool their resources so that some decisionmakers (the directors) can decide how to use them to speak. And the same goes for GM shareholders — they are pooling their resources and giving them to some decisionmakers (GM managers) so they can decide how to spend the resources, including spending them for speech, whether advertising or political advocacy.

Do go read the whole thing for his views on original intent and so on.

The Specter of Undoing Stoneridge

Larry Ribstein has a great post on a Snarlin' Arlen Specter bill that would, among other things, undo the Supreme Court's decision in the Stoneridge case. The effect would be to dramatically increase the class of potential defendants in securities cases by imposing potential liability on those who "aid and abet" violations. The consequences would be severe and adverse to the competitiveness of US capital markets (for more the effect of litigation on that market, see here). As the Supreme Court explained in the Stoneridge case:

The practical consequences of an expansion [of the Rule 10b-5 cause of action], which the Court has considered appropriate to examine in circumstances like these, provide a further reason to reject petitioner?s approach. In Blue Chip, the Court noted that extensive discovery and the potential for uncertainty and disruption in a lawsuit allow plaintiffs with weak claims to extort settlements from innocent companies. Adoption of petitioner?s approach would exposea new class of defendants to these risks. As noted in Central Bank, contracting parties might find it necessary to protect against these threats, raising the costs of doing business. Overseas firms with no other exposure to our securities laws could be deterred from doing business here. This, in turn, may raise the cost of being a publicly traded company under our law and shift securities offerings away from domestic capital markets

Specter has always been a friend of the trial lawyers, but even so one suspects that this bill is designed to cement their support in the upcoming Democrat Senate primary. As a spanking new Democrat, Specter needs to solidify his relationships with key special interest constituencies like the trial lawyers as much as possible.

Most Americans Think Government is Too Big and Does Too Much

Despite the financial crisis and the bursting of the housing bubble, which President Obama and the left obviously thought would create the political conditions for a New New Deal, it turns out that most Americans think government is doing too much:

Americans are more likely today than in the recent past to believe that government is taking on too much responsibility for solving the nation's problems and is over-regulating business. New Gallup data show that 57% of Americans say the government is trying to do too many things that should be left to businesses and individuals, and 45% say there is too much government regulation of business. Both reflect the highest such readings in more than a decade.

Not surprisingly, this isn't sitting well in some quarters. It prompted a burst of liberal elitism/paternalism, for example, from Steven Benen: "much of the public doesn't even understand what is and isn't a government program." In other words, because the people are too dumb to see that massive government is good for them, they need us Washington elites to run their little lives for them.

No thanks.

The difficult political question is how a deeply corrupt and intellectually vapid Republican Party can take advantage of this political opportunity. The party of anti-intellectuals, of hypocritical moralizers, of K Street deal makers, which viewed power not as an opportunity but as something to be clung to, is not a party that is well-positioned to take advantage of this public attitude to benefit itself or, more important, the country.

Sports schadenfreude

When the NY Giants and the Dallas Cowboys play, my usual attitude could be summed up by Henry Kissinger's famous quip about the Iran-Iraq war: It's a pity they can't both lose. Or fall into a mile-deep sinkhole. Whichever.

But tonight I was rooting for the Giants to spoil the opening night of Jerry Jones' new stadium. And they did it!

Huzzah!

Chateau Lynch-Bages (Pauillac) 1986

Helen and I celebrated our 23rd anniversary a week early, because I'll be in Chicago next week. Grilled leg of lamb, barley pilaf, and honeyed carrots. A 1986 Chateau Lynch-Bages to drink. (Luckily, my anniversary year was one of Bordeaux's best and longest-lived vintages.)  The lamb was perfectly medium-rare. Yum. A great meal to celebrate 23 great years.

The Lynch-Bages was a deep purple and still incredibly young. Deep. dark fruit flavors. A powerful bouquet of youthful fruit. It has at least a couple of decades of life left. With a couple of bottles left in the cellar, I can easily imagine drinking this wine for my 40th anniversary. Grade: A