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What was Elizabeth Warren thinking? Her structure of the CFPB comes back to bite her.

On a party-line vote, the Senate approved Kathy Kraninger for a five-year term as the head of the Consumer Financial Protection Bureau. You will recall, of course, that many of us were critical of the structure of the CFPB, which Senator Warren in her infinite wisdom basically structured so as to be unaccountable to either the President or Congress. That particular decision has now come back to bite her in the proverbial Biblical beast of burden, as Bloomberg Law reports:

Consumer advocates and Democratic lawmakers fear that Kraninger will go farther than periodically skipping funding draws from the Fed. They worry that Kraninger will attempt to enact a proposed Trump administration fiscal 2019 budget that she helped write while she was at the Office of Management and Budget. As the CFPB’s director, Kraninger would be able to enact a proposed $147 million cut, about 23 percent of the the bureau’s budget, on her own and without any input from Congress.

The lesson is never to assume that your acolytes will be in charge permanently.

Social justice warrior CEOs should keep their mouths shut, absent board approval, as should conservative CEOs

Bloomberg reports:

In these polarizing times, chief executives are increasingly called on to take a stand on political and social issues. They shouldn’t, a Stanford University study suggests, at least not without the blessing of their boards.

Consumers remember more instances when they’ve boycotted in protest of a CEO’s politics than they recall products they’ve bought to show their support, according to the study. Even if consumer furor doesn’t have a massive or immediate financial impact, the controversy can damage the brand and distract executives from other, more important activities, said David Larcker, a professor at the Stanford University School of Business and a co-author of the research.

“From a board perspective, there really ought to be some discussion if the CEO is going to do something that’s going to attract a lot of attention,” said Larcker, who has studied CEO behavior for decades. “Even though that person is speaking for themselves, they’re identified with a company, and it can affect purchase behavior.”

 

Thanksgiving Dinner: Blood orange glazed duck with Ridge 1996 Monte Bello

The Duck

• 5½ pound Rohan duck
• ½ onion, roughly chopped
• 1 stalk celery, roughly chopped
• 2 oranges, quartered
• 1 tablespoon kosher salt
• ½ teaspoon freshly ground black pepper
• ½ teaspoon 5 spice powder

Preheat oven to 475°.

Trim excess skin from front and tail of duck. Remove and discard giblets etc. from the interior of the duck. Cut off and remove duck neck (which comes tucked into the cavity), reserve for future stock making. Rub duck inside and out with half of spice mix. Combine onion, celery, and orange pieces in a bowl and toss with the remaining spice mix. Stuff into duck and tie legs.

Put a rack into a roasting pan that has a lid. Set duck breast side up on rack.

Bring 2 cups of water to a boil (I like to use my electric kettle). Pour boiling water into pan until it almost touches the duck. Cover. Put roasting pan into oven and drop oven temperature to 325°. Roast for 40 minutes. Remove from oven and transfer duck to a cutting board or platter. Pour water and duck fat from pan into a fat separator. Be sure to save the fat to use for roasting potatoes or some similarly yummy purpose.

Return duck to pan breast side down, cover, and return to oven. Roast 40 minutes.

Raise oven temperature to 375°. Remove lid. Flip duck breast side up. Roast 15 minutes. Smear glaze all over duck. Roast 15 more minutes. Check temperature by inserting an instant read thermometer into the inner thigh near the breast. I like my duck at 160°.

Let duck rest 15 minutes, carve, and serve with orange sauce on the side.

Orange glaze and sauce

• ½ teaspoon 5 spice powder
• 3 tablespoons Grand Mariner
• 8 tablespoons Sarabeth's Blood Orange Marmalade

Combine spice, liquor, and marmalade in your All-Clad 1-Quart sauce pan and bring to a simmer over medium heat. When mixture has thickened set half aside to use as a glaze.

Add the following to the remaining mixture in the sauce pan:

• 1 tablespoon Grand Mariner
• 1 tablespoon Sarabeth's Blood Orange Marmalade
• 1 8 ounce can mandarin oranges with their juice
• 2 tablespoons sherry vinegar
• salt to taste

Bring to a simmer and let thicken slightly.

@RidgeVineyards 1996 Monte Bello. Like an old claret. Earth. Tobacco. Leather. Cedar. Prunes. Currants. One of the best aged California Cabernets I’ve ever had. Grade: 99 pic.twitter.com/jdY2ey1Hx7

— Professor Bainbridge (@ProfBainbridge) November 23, 2018

Question for the day

Question for #lawtwitter. What's the most insulting citation sentence you've ever seen in a #lawreview article. Something like: "For an astonishingly incompetent review of the cases, see ...."

— Professor Bainbridge (@ProfBainbridge) November 15, 2018

Park on "Insider Trading and the Integrity of Mandatory Disclosure"

My friend and UCLAW colleague Jim Park has just posted a new article:

Insider trading regulation has been primarily shaped by two theories. The first argues that unequal access to material information corrupts the integrity of securities markets. The second contends that insider trading primarily undermines the property rights of a corporation. The dominance of the market integrity and property frameworks has obscured an important reason to regulate insider trading – it can undermine the integrity of the disclosure mandated by the securities laws. Such disclosure is meant to benefit all investors and should not be exploited by a few. Insider trading is particularly problematic in a periodic disclosure system where the release of significant information is deliberately delayed so it can be analyzed and verified. This Article argues that protecting the integrity of mandatory disclosure is a compelling reason for insider trading regulation. This disclosure approach suggests clearer limits to the reach of insider trading law and enforcement than the market integrity and property theories.

Park, James J., Insider Trading and the Integrity of Mandatory Disclosure (October 1, 2018). 2018 Wisconsin Law Review (Forthcoming); UCLA School of Law, Law-Econ Research Paper No. 18-12. Available at SSRN: https://ssrn.com/abstract=3258608

Anabtawi on "The Twilight of Enhanced Scrutiny in Delaware M&A Jurisprudence"

My friend and colleague Iman Anabtawi has posted a new article:

Merger and Acquisition (M&A) transactions create the potential for self-interested behavior by the boards of directors of acquired, or target, corporations because target boards may have self-interested reasons for preferring one acquirer over any other. The preferred acquirer may, for example, be more likely to retain the services of certain board members or to employ them in some other capacity after the completion of the transaction. In recognition of these potential conflicts of interest, the courts have recognized that target boards of directors may not always be incentivized to exercise their business judgment in M&A transactions in the best interests of shareholders and have therefore held them to the heightened standard of review of enhanced scrutiny. Enhanced scrutiny contemplates substantive judicial review of the reasonableness of the target board’s conduct in the sale of the company. Until recently, enhanced scrutiny review was not susceptible to being adjusted downward to business judgment-level review through procedural safeguards, such as the constitution of a special committee of the board or shareholder ratification. A special committee was not considered to be an effective means of cleansing an inherent conflict, and shareholder approval of the transaction was deemed to approve only the board’s decision to sell, as opposed to the board’s conduct of the sale process. The Delaware Supreme Court revisited the issue, holding that the shareholder ratification doctrine applies to a shareholder approval of an M&A transaction on the rationale that shareholders, particularly institutions, are at least as well-positioned as judges to evaluate the merits of a sale. As a result, approval of an M&A deal by target shareholders displaces enhanced scrutiny of the board of directors’ conduct in managing the sale in favor of the business judgment rule, effectively making the target board’s decision unreviewable. This Article argues that recent Delaware jurisprudence on shareholder ratification constitutes a fundamental shift in M&A jurisprudence, predicts that, while it will reduce deal litigation, it will have unnecessary detrimental effects on deal process, and proposes a procedural mechanism for mitigating those effects in the form of a bifurcated shareholder vote on each of the deal process and the sale transaction.

Anabtawi, Iman, The Twilight of Enhanced Scrutiny in Delaware M&A Jurisprudence. 43 Delaware Journal of Corporate Law (January 2019, Forthcoming); UCLA School of Law, Law-Econ Research Paper No. 18-11. Available at SSRN: https://ssrn.com/abstract=3248474

Holman Jenkins: "Google Confronts Its Bolsheviks"

From behind the WSJ paywall:

We may have to refine our theories of creative destruction. America’s big tech companies—Google in particular—suddenly seem less at risk from nascent competitors than from the politicization of their own employees. ...

The Google protests have been led by a group calling itself the Tech Workers Coalition, whose avowed purposes are ideological rather than strictly work-related. It got its start helping the Teamsters organize subcontractors who operate Silicon Valley’s employee shuttle buses. ...

They want politics to be in control of business. That includes deciding which products and services will be developed. According to San Francisco’s KQED, the activist group is reluctant even to name its “founders” due to the word’s “negative associations with what they call the capitalist-driven ethos that has become pervasive in Silicon Valley.” ...

Notice an irony here: Google’s bosses are shielded from any challenge coming from disappointed shareholders by a special voting-rights lockup. This was justified at the time of Google’s initial public offering as protecting management’s ability to make brave, long-term decisions without concern for short-term market reaction.

Now management seems to be in need of some bravery to defend the company’s long-term interests against a small band of employees who feel entitled to substitute their political hobby horses for their employer’s business priorities.

"The Costs and Benefits of Shareholder Democracy"

Gantchev, Nickolay and Giannetti, Mariassunta, The Costs and Benefits of Shareholder Democracy (October 18, 2018). SMU Cox School of Business Research Paper No. 18-35. Available at SSRN: https://ssrn.com/abstract=3269378

We show that while low-cost shareholder activism via shareholder-sponsored proposals is occasionally value-enhancing, many proposals are submitted by the same few individual investors and other sponsors without organizational capabilities to analyze a large number of firms. These proposals if approved and subsequently implemented appear to destroy shareholder value. We show that firms whose shareholders are more likely to collect information before voting benefit from low-cost shareholder activism because these investors weed out low-quality proposals. We conclude that an informed shareholder base is crucial for firms to take advantage of low-cost shareholder activism.

As I suspected!

Verstein on Insider Trading in the Stocks of Insolvent Corporations

Andrew Verstein writes:

Are insolvent firms different from solvent firms with respect to insider trading law and policy? Formally, the law does not change. But economic realities and non-securities law duties do. As a result, the insider trading landscape changes considerably. The law is more permissive in some ways, and more constraining in others, as troubled instruments trade.

It's a very interesting analysis. And one that I have not thought about before. (Verstein's very good at sniffing out these sort of seemingly obscure problems that turn out to be interesting and important.)

I'm going to have to mull this one over for a while.

Some unsolicited advice for law students, especially 1Ls

On a serious note: Dear 1Ls: My experience in law school (which was probably about the time your parents were being born, so take this with a grain of salt) was that libraries were a noisy social hall full of distractions at exam time. https://t.co/cIIdAzEyRZ

— Professor Bainbridge (@ProfBainbridge) November 7, 2018

I did much better in law school when I gave up studying in the library and studied in my apartment bedroom with the door closed and ear plugs in my ears. Silence was indeed golden.

— Professor Bainbridge (@ProfBainbridge) November 7, 2018

The Catholic Church Needs a Change in Tone at the Top, which Requires a Change in the Top

From Crux:

The National Review Board chairman called for changes to the “Charter for the Protection of Children and Young People” to “make it a less ambiguous document” because despite nearly every diocese meeting its standards in third-party audits, some bishops are facing scrutiny about their handling of reports of wayward priests.

Francesco Cesareo, the board’s chairman since 2013, ...

“This is much more of a crisis of a failure of leadership,” he said.

“It is frustrating because on the one hand, you know that the church has put in place all of these policies and procedures, which have definitely made a difference. All of these allegations are historic. (There are) very few new ones,” he said.

“What’s frustrating is that there’s been this collapse in leadership,” Cesareo continued. “That’s the real frustrating part. There hasn’t been a recognition to the level of responsibility that needs to be taken on the part of leadership to address this in a way that minimizes this from possibly happening in the same way again.”

I agree that the response of too many of the Bishops has been a huge part of the problem (although not the whole problem, obviously), which is why my article on proposed reforms to the Dallas Charter includes a section on "Changing the Tone at the Top by Changing Who is at the Top."

Having the right tone at the top of an organization is critical to establishing a proper culture of compliance within the organization, but when the organization’s leadership has lost credibility achieving that correct tone requires replacing those at the top. Accordingly, this section proposes shifting responsibility for investigating and adjudicating sexual misconduct cases from the extant system of Church tribunals overseen by the diocesan bishop to an independent review board. It further proposes the creation of a national review board under the auspices of the USCCB to investigate and adjudicate charges against bishops of sexual misconduct or enabling of abusers. Finally, this section draws on an analogy to corporate audit committees to suggest certain features that should be incorporated into these bodies to insure their independence and competence.

These proposals will run afoul of current canon law. They offend the canons on the limited powers of national conferences, the extensive powers and rights of diocesan bishops who answer only to the Pope, and role of tribunals, bishops, and the Vatican in conducting investigations and trials. As we have seen, however, canon law can be changed.

Bainbridge, Stephen Mark, Restoring Confidence in the Roman Catholic Church: Corporate Governance Analogies. UCLA School of Law, Public Law Research Paper No. 18-32. Available at SSRN: https://ssrn.com/abstract=3249236 or http://dx.doi.org/10.2139/ssrn.3249236

Beware the new "delivery charge" scam going around Los Angeles (and maybe elsewhere)

The following is a recounting of the incident from the victim:

 

The following is a recounting of the incident from the victim:

Wednesday a week ago, I had a phone call from someone saying that he was from some outfit called: "Express Couriers," (The name could be any courier company).  He asked if I was going to be home because there was a package for me that required a signature.

The caller said that the delivery would arrive at my home in roughly an hour. Sure enough, about an hour later, a uniformed delivery man turned up with a beautiful basket of flowers and a bottle of wine. I was very surprised since there was no special occasion or holiday, and I certainly didn't expect anything like it. Intrigued, I inquired as to who the sender was.

The courier replied, "I don't know, I'm only delivering the package."

Apparently, a greeting card was being sent separately (the card has never arrived!).  There was also a consignment note with the gift.

He then went on to explain that because the gift contained alcohol, there was a $3.50 "delivery/ verification charge," providing proof that he had actually delivered the package to an adult (of legal drinking age), and not just left it on the doorstep where it could be stolen or taken by anyone, especially a minor.

This sounded logical and I offered to pay him cash. He then said that the delivery company required payment to be by credit or debit card only, so that everything is properly accounted for, and this would help in keeping a legal record of the transaction.

He added, "Couriers don't carry cash to avoid loss or likely targets for robbery."

My husband, who by this time was standing beside me, pulled out his credit card, and 'John,' the "delivery man," asked him to swipe the card on a small mobile card machine with a small screen and keypad. Frank, my husband, was asked to enter his PIN number and a receipt was printed out. He was given a copy of the transaction.

The guy said everything was in order, and wished us good day.

To our horrible surprise, between Thursday and the following Monday, $4,000 had been charged/withdrawn from our credit/debit account at various ATM machines.

Apparently the "mobile credit card machine," which the deliveryman carried now had all the info necessary to create a "dummy" card with all our card details including the PIN number.

Upon finding out about the illegal transactions on our card, we immediately notified the bank which issued us a new card, and our credit/debit account was closed.

We also personally went to the Police, where it was confirmed that it is definitely a scam because several households had been similarly hit.

WARNING: Be wary of accepting any "surprise gift or package," which you neither expected nor personally ordered, especially if it involves any kind of payment as a condition of receiving the gift or package. Also, never accept anything If you do not personally know or there is no proper identification of who the sender is.

Above all, the only time you should give out any personal credit/debit card information is when you yourself initiated the purchase or transaction!