ProfessorBainbridge.com

The HP Board Spying Mess

In order to catch a member of the board of directors who was leaking information to the press, HP Chairwoman Patricia Dunn allegedly authorized private detectives to get phone records of the directors. In doing so, the investigators and Dunn may have violated federal and state privacy and telecommunication laws. But I can't think of any corporate law Dunn violated in doing so; indeed, to the contrary, the director/leaker may have violated his fiduciary duties by leaking information to the media.

THe episode calls to mind the scene in the Day of the Jackal, when Inspector Claude Lebel plays the tape of the leaker. When one of the ministers asks how Lebel knew which minister to record, he replied that he had taped them all.

The ministers forgave Lebel because he stopped the Jackal. Will the HP board forgive Dunn? Granted, unlike Lebel, she didn't tape their conversations - instead, she simply had data on who they called collated. Yet, even so, it's hard to imagine the big egos on most corporate boards taking this sort of privacy invasion lightly. Certainly, if I were on HP's board, I'd want Dunn's head on a platter.

Spitzer's Ethics

Bill Hammond in the NY Daily News on NY AG and gubernatorial candidate Eliot Spitzer:

Eliot Spitzer is running for governor as the best guy to clean up Albany, including its corrupt "pay-to-play" system of shaking down interest groups for campaign donations and other goodies. So what the heck is he doing jetting around on the Gulfstream of a Wyoming businessman who wants to run race tracks and build casinos in New York?

It's one thing for Spitzer to pile up money and endorsements from insiders. Fish gotta swim, pols gotta grub for cash. But accepting deeply discounted air travel from a gambling mogul doing lots of business with state government - as Spitzer and an aide did in May - is too cozy for comfort. The would-be Sheriff of Albany should be keeping a safe distance from favor seekers, not putting himself in a position where he owes them anything.

You'll recall that this is the same guy about whom the W$J reported:

Three civil settlements he struck in an unusual case against wealthy telecom executives and IPOs have allowed him to bestow more than $5 million in largess over the past several months to dozens of community groups across New York state. The recipients are intended as a sort of proxy for individual investors who allegedly suffered from the actions of the defendants, who were accused of profiting from undisclosed awards of sought-after initial public offerings from investment bankers seeking their business. ... But the groups receiving the windfall also represent voter constituencies that could be key to Mr. Spitzer's widely expected Democratic run for governor in 2006.

More on Don't Talk about the War

From eyeon08.com, in reply to my TCS column:

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I like the idea of the GOP getting back to its sound fiscal roots, but will it work to talk about it during an election after having failed totally during the Bush administration on these issues? That is, does the current GOP ? defined by President Bush ? have the credibility to speak on these issues?

The trouble, of course, is that the GOP is losing credibility on precisely that isue with important segments of their base and independents, as I discussed in an earlier post.

Backdated Options: Follow the Bouncing Ball

Bodie begins. Ribstein replies. Bodie bangs back. Manne and Wright intervene. Back to Bodie. It's all very interesting, but at the end of the day the discussion didn't change my view that the problem is simply one of disclosure.

The economics of labor unions

I plan on poking some fun at labor later, but for now maybe we should pause and think about the legitimate economic role labor unions could play, at least in theory, if not always in practice.

Labor contracts are subject to moral hazard problems on both sides. Workers shirk—providing less effort than that to which they have agreed. Owners behave opportunistically—providing fewer rewards than promised. Preventing such shirking is one of the principal functions, in economic terms, of any labor relations system. Hence, at least among lawyer-economists in the transaction costs branch of law and economics, the once widely-held view that unions exist to capture monopoly rents for workers in the form of higher wages and superior benefits has given way to an understanding that unions play an important role in reducing transactions costs by constraining strategic behavior by management.

Because workers value job security, firms can obtain lower labor costs if they can credibly promise to refrain from opportunistic conduct. One way of bonding that promise is to sign a collective bargaining agreement with a union. Collective bargaining transforms the decisionmaking process from unconstrained management prerogative to limited managerial discretion bounded by claims of right sounding under the agreement. The seniority system, with its ports of entry, internal promotion ladders, and protection from lay-offs, offers job security. Union monitoring helps ensure compliance by the firm with its contractual obligations. Grievance procedures allow for dispute resolution. Collective bargaining thus becomes a burden on the enterprise, in that it raises the transaction costs associated with decisionmaking processes and limits management discretion. Yet, because that burden serves to make the firm’s promises to its employees more credible, it is one rational managers would accept.

Putting the theory into practice, of course, has been a problem. Unions have been plagued by internal agency costs and been a source of social costs.

For a more detailed explanation see my articles Employee Involvement in Workplace Governance Post-Collective Bargaining and Corporate Decisionmaking and the Moral Rights of Employees.