ProfessorBainbridge.com

Science versus magic in fantasy

One of the recurring tropes in fantasy is that of the good ecomentalists fighting impossible odds to defeat the evil capitalists. Don't believe me? The Hobbits of the Shire coming home to scour the Shire clean of the depridations of proto-industrialist Lotho Sackville-Baggins. The Ewoks beating the Empire's best troops. Avatar. The Dark Tower. The Stand. Erin Brockovich.

It's the awful love child of the Green Aesop and Noble Savage tropes. It's boring. It's preachy. It makes me want to root for Sauron to spit Luke on Stormbringer.

A recurrent problem in fantasy is that nobody has ever come up with a really plausible system of magic. To the contrary, good fantasy writers know that they have to keep magic off stage as much as possible. You almost never see Gandalf perform magic, after all, and especially not when it's really needed--like in climactic battle scenes.

To paraphrase Arthur C Clarke, the only plausible magic is really advanced technology.

So I went hunting for a novel in which the good guys are the heavily armed scientists, the bad guys are the ecomentalist Renassiance Faire sword swingers, and the Dark Lord kicks ass because his capitalist economy's GDP swamps that of the tree hugger's socialist paradise.

And I found it: The Last Ringbearer. As Laura Miller explains:

In Yeskov's retelling [of the Lord of the Rings], the wizard Gandalf is a war-monger intent on crushing the scientific and technological initiative of Mordor and its southern allies because science "destroys the harmony of the world and dries up the souls of men!" He's in cahoots with the elves, who aim to become "masters of the world," and turn Middle-earth into a "bad copy" of their magical homeland across the sea. Barad-dur, also known as the Dark Tower and Sauron's citadel, is, by contrast, described as "that amazing city of alchemists and poets, mechanics and astronomers, philosophers and physicians, the heart of the only civilization in Middle-earth to bet on rational knowledge and bravely pitch its barely adolescent technology against ancient magic." ...

In Yeskov's scenario, "The Lord of the Rings" is a highly romanticized and mythologized version of the fall of Mordor, perhaps even outright propaganda; "The Last Ringbearer" is supposed to be the more complicated and less sentimental true story.

The inhuman nature of the orcs and Tolkien's depiction of Mordor's human allies as swarthy-skinned outsiders has prompted complaints that his book obscures the moral conundrums of warfare and dabbles in racial demonization. The American critic Edmund Wilson described "The Lord of the Rings" as a children's book that had "somehow got out of hand" and "juvenile trash," in large part for such reasons. Others, like the novelist Michael Moorcock, have attacked Middle-earth as a childishly rose-tinted vision of the Merrie Olde England that never was, as well as willfully blind to the hardships and injustice of preindustrial and feudal societies.

"The Lord of the Rings" wouldn't be as popular as it is if the pastoral idyll of the Shire and the sureties of a virtuous, mystically ordained monarchy as embodied in Aragorn didn't speak to widespread longing for a simpler way of life. There's nothing wrong with enjoying such narratives -- we'd be obliged to jettison the entire Arthurian mythos and huge chunks of American popular culture if there were -- but it never hurts to remind ourselves that it's not just their magical motifs that makes them fantasies.

My review of Kraken: The Curious, Exciting, and Slightly Disturbing Science of Squid

I just finished reading Kraken: The Curious, Exciting, and Slightly Disturbing Science of Squid by Wendy Williams. (It's not just about squid, but about cephalopods generally). It's a highly accessible, very well written work of popular science. I learned a lot not just about squid but marine biology and medicine as well. Highly recommended.

Here's what Science said:

Williams also brings readers up to date on modern cephalopod science, including an exploration of the ongoing Humboldt squid invasion of California’s Monterey Bay. And how octopuses change color so quickly — that’s a topic too fascinating to pass up (hint: It works like a cellular peekaboo game). Most important, perhaps, these animals have also taught humankind a lot about itself. Much of what scientists know today about brain and spinal cells, for instance, came from studies of rice noodle–like neurons that run down the bodies of small squids.

Here's what Wired had to say:

Kraken is as an exploration of how we perceive squid, octopus, and cuttlefish. Only a handful of species – primarily the giant squid, the Humbolt squid, the longfin inshore squid, and the Pacific giant octopus – receive much detailed attention. These relatively familiar cephalopods act as molluscan ambassadors for the rest of their kind, and Williams uses them the draw out the general characteristics that make these creatures seem so strange. ...

Williams guides her readers over squid-filled boat decks, by aquarium tanks, and into dissection labs during her journey to understand cephalopods, but the narrative she creates is uneven. She is at her best when writing in the first person or recounting her conversations with researchers, but there are other explanatory portions of the book that simply fall flat. An early subsection about the evolutionary history of squid feels more like a Wikipedia article than part of a book, and long stretches of historical narrative in the neuroscience portion of the book feel tangential to the main storyline. Williams ends the book strong by considering what investigations of cephalopod intelligence might tell us about our own ability to understand the mental lives of other animals, though, and the portions of the book about the Humbolt and giant squid truly shine.

I think the Wikipedia analogy is unduly harsh, although the other criticism is fair. Even so, it's still a worthwhile read.

Lost in Revlon-land: An acquisition by a public corporation should not trigger Revlon

Let me start by excerpting some background from my book Mergers and Acquisitions (Concepts and Insights):

In Revlon v. MacAndrews & Forbes Holdings, the Delaware supreme court developed a modified version of the Unocal standard to deal with a particular problem; namely, the use of takeover defenses to ensure that a white knight would prevail in a control auction with the hostile bidder.[1] In response to an unsolicited tender offer by Pantry Pride, Revlon's board undertook a variety of defensive measures, culminating in the board's authorization of negotiations with other prospective bidders. Thereafter the board entered into a merger agreement with a white knight, which included a lock‑up arrangement, as well as other measures designed to prevent Pantry Pride's bid from prevailing. Revlon's initial defensive tactics were reviewed (and upheld) under standard Unocal analysis. In turning to the lock‑up arrangement, however, the Court struck out in a new direction:

The Revlon board's authorization permitting management to negotiate a merger or buyout with a third party was a recognition that the company was for sale. The duty of the board had thus changed from the preservation of Revlon as a corporate entity to the maximization of the company's value at a sale for the stockholders' benefit. This significantly altered the board's responsibilities under the Unocal standards. It no longer faced threats to corporate policy and effectiveness, or to the stockholders' interests, from a grossly inadequate bid. The whole question of defensive measures became moot. The directors' role changed from defenders of the corporate bastion to auctioneers charged with getting the best price for the stockholders at a sale of the company.

Because the lock‑up ended the auction in return for minimal improvement in the final offer, it was invalidated.

Revlon proved surprisingly troublesome. For example, did it establish special duties to govern control auctions or were the so‑called "Revlon duties" really just the general Unocal rules applied to a special fact situation? The courts have waffled on this issue, although the latter interpretation seems to have ultimately prevailed. In 1987, for example, the Delaware supreme court drew a rather sharp distinction between the Unocal standard and what it then called "the Revlon obligation to conduct a sale of the corporation."[2] Two years later, however, the court indicated that Revlon is "merely one of an unbroken line of cases that seek to prevent the conflicts of interest that arise in the field of mergers and acquisitions by demanding that directors act with scrupulous concern for fairness to shareholders."[3] The doctrinal differences between Unocal and Revlon still loom quite large at times or, at least, in some eyes.

Whether the Revlon duties were distinct or just a sub‑set of Unocal, what exactly were directors supposed to do once their role changes from "defenders of the corporate bastion to auctioneers"?

It's the latter issue that was at stake in Delaware Vice Chancellor Parson's recent opinion in In re Smurfit-Stone Container Corp. Litig. (No. 6164-VCP May 24, 2011). [BTW, when I first saw the caption, I misread the firm name and concluded that Smurfs were building containers!]

The pertinent facts are simple: We are dealing with a triangular merger in which publicly held target Smurfit is to merge into a wholly owned subsisdiary of a publicly held corporation named Rock-Tenn Co. In the merger, the shareholders of Smurfit will get $35 per share, with 50% of the consideration paid in cash and 50% paid in Rock-Tenn stock. Accordingly, as VC Parson observed:

... this case provides cause for the Court to address a question that has not yet been squarely addressed in Delaware law; namely, whether and in what circumstancesRevlon applies when merger consideration is split roughly evenly between cash and stock.

Unfortunately, VC Parsons came up with the wrong answer.

Because the shareholders will get cash for a portion of their shares, VC Parsons concluded that the transaction was subjected to the heightened Revlon standard of review rather than the business judgment rule:

... while no Smurfit-Stone stockholder will be cashed out 100%, 100% of its stockholders who elect to participate in the merger will see approximately 50% of their Smurfit-Stone investment cashed out. As such, ... the concern here is that there is no "tomorrow" for approximately 50% of each stockholder's investment in Smurfit-Stone. That each stockholder may retain a portion of her investment after the merger [does not preclude the Court from invoking Revlon where] a transaction ... constitutes an end-game for all or a substantial part of a stockholder's investment in a Delaware corporation.

This was so, VC Parson argues, even though "control of Rock-Tenn after closing will remain in a
large, fluid, changing, and changeable market" and the "Smurfit-Stone stockholders will retain the right to obtain a control premium in the future."

I completely disagree with VC Parsons on this issue. Parsonis is wrong on the law. Revlon duties are triggered "(1) when a corporation initiates an active bidding process seeking to sell itself or to effect a business reorganization involving a clear break-up of the company; (2) where, in response to a bidder's offer, a target abandons its long term strategy and seeks an alternative transaction involving a break-up of the company, or (3) when approval of a transaction results in a sale or change of control." Arnold v. Society for Sav. Bancorp, Inc., 650 A.2d 1270 (Del. 1994). Only the third prong is relevant here and on these facts there is no change of control.

That conclusion follows because Revlon is not triggered where control of the combined entity remains in the hands not of an identifiable control person or group but rather "in a large, fluid, changeable and changing market." Paramount Communications Inc. v. Time Inc., 1989 WL 79880 (Del. Ch. 1989), aff'd on other grounds, Paramount Communications, Inc. v. Time Inc., 571 A.2d 1140 (Del. 1989). Where one public corporation is acquired by another public corporation, that condition is satisfied. Arnold v. Soc. For Savings Bancorp., Inc., 650 A.2d 1270, 1290 & n. 45 (Del. 1994).

On these facts, both companies are publicly held. Neither company has a controlling shareholder. The same will be true of the combined post-acquisition corporate group. There is no change of control.

As to policy, Parsons follows some Chancery Court opinions that focus on whether there will be a tomorrow for the target shareholders. The logic of these opinions is that shareholders who get cash have no opportunity to participate in the potential post-acquisition gains that may acrue to shareholders of the combined company. But that's just wrong. First, shareholder who get cash could simply turn around and buy stock in the post-acquisition company. Only if there has been a change of control is that option foreclosed.

Second, the relevant policy concern is not whether there is a tomorrow. The relevant concerns are gain division and conflicted intersts. So long as acquisitions of publicly held corporations are conducted by other publicly held corporations, diversified shareholders will be indifferent as to the allocations of gains between the parties. Assume that the typical acquisition generates gains equal to 50 percent of the target's pre‑bid market price. A fully diversified investor is just as likely to own acquiring company shares as target shares. Indeed, he may own both. Allocation of the available gain between targets and acquirers is thus irrelevant to the diversified shareholder. Increasing the target's share of the gains by increasing the premium the acquirer pays to obtain control necessarily reduces the acquirer's share, which from the shareholder's perspective is simply robbing Peter to pay Paul. Worse yet, to the extent that gain allocation rules increase transaction costs, they leave a fully diversified shareholder worse off.The argument that Revlon must be invoked so as to increase the size of the premium paid target shareholders in such a case is thus misplaced.

In contrast, if the acquiring entity is privately held, even a fully diversified shareholder by definition cannot be on both sides of the transaction. If the acquiring entity is publicly held, but is controlled by a single very large shareholder, a fully diversified shareholder may not be able to fully share in the gains to be reaped by the acquiring company because the large shareholder's control enables it to reap a non‑pro rata share of any such gains. In either situation, shareholders therefore would not be indifferent to gain allocation. Instead, they would prefer to see gains allocated to the target. It is in these situations that Revlon should come into play.

There is so because there is special reason to fear that the controlling shareholder's positional and informational advantages will affect the allocation of gains. In particular, the controlling shareholder's ability to reap a disproportionate share of post‑transaction gains gives it an unusually high incentive to cause the acquiring entity to offer side‑payments to target directors in order to obtain their cooperation. In turn, the controlling shareholder's ability to reject acquisition proposals insulates the combined entity from the constraining influence of the market for corporate control. As a result, the normal conflict of interest to be found in any acquisition is substantially magnified in the latter  situations.

The Chancery Court continues to get lost in Revlon-land. Hopefully, the Supreme Court will eventually choose to provide them with a map. Preferably, of course, my map.

Happy Memorial Day

General Orders No.11, HQ, GRAND ARMY OF THE REPUBLIC, WASHINGTON, D.C., May 5, 1868:

The 30th day of May, 1868, is designated for the purpose of strewing with flowers or otherwise decorating the graves of comrades who died in defense of their country during the late rebellion, and whose bodies now lie in almost every city, village, and hamlet church-yard in the land. In this observance no form of ceremony is prescribed, but posts and comrades will in their own way arrange such fitting services and testimonials of respect as circumstances may permit.

We are organized, comrades, as our regulations tell us, for the purpose among other things, "of preserving and strengthening those kind and fraternal feelings which have bound together the soldiers, sailors, and marines who united to suppress the late rebellion." What can aid more to assure this result than cherishing tenderly the memory of our heroic dead, who made their breasts a barricade between our country and its foes? Their soldier lives were the reveille of freedom to a race in chains, and their deaths the tattoo of rebellious tyranny in arms. We should guard their graves with sacred vigilance. All that the consecrated wealth and taste of the nation can add to their adornment and security is but a fitting tribute to the memory of her slain defenders. Let no wanton foot tread rudely on such hallowed grounds. Let pleasant paths invite the coming and going of reverent visitors and fond mourners. Let no vandalism of avarice or neglect, no ravages of time testify to the present or to the coming generations that we have forgotten as a people the cost of a free and undivided republic.

If other eyes grow dull, other hands slack, and other hearts cold in the solemn trust, ours shall keep it well as long as the light and warmth of life remain to us.

Let us, then, at the time appointed gather around their sacred remains and garland the passionless mounds above them with the choicest flowers of spring-time; let us raise above them the dear old flag they saved from hishonor; let us in this solemn presence renew our pledges to aid and assist those whom they have left among us a sacred charge upon a nation's gratitude, the soldier's and sailor's widow and orphan.

I blame Jenny McCarthy

Megan McArdle:

... vaccine resistance is spreading among parents who want to free ride on the herd immunity of others.  If these diseases were widespread, they'd be rushing to vaccinate their kids.  But they can delay, or forgo the vaccines entirely, thanks to other parents who are willing to risk their kids in order to do the right thing.

They're already killing little babies who catch pertussis before they can be vaccinated, and now measles has killed six people in France just since the start of the year.

People complain that conservatives are anti-science, because some of us are skeptical about handing the economy over to climate scientists or that we ought to kill babies so as to experiment on their stem cells. But we also need to be talking about the anti-science views of Hollywood limousine liberals like Jenny McCarthy.

How regulation affects the economy

I don't recall a better analogy:

Michael Mandel, an economist with the Progressive Policy Institute, compares government regulation of innovation to the accumulation of pebbles in a stream. At some point too many pebbles block off the water flow, yet no single pebble is to blame for the slowdown. Right now the pebbles are limiting investment in future innovation.

Corporate Law Stories

My friend and co-author Mark Ramseyer's anthology, Corporate Law Stories, is now available as an eBook for Kindle. The series is intended to "bring famous cases to life by telling the true, never-heard-before stories behind landmark cases."

• Offer larger than life view of landmark cases
• Identify the parties to the dispute, motives and approach
• Outline the legal and historical context
• Discuss the immediate impact of the case
• Document the continuing importance of the case in shaping the law
• Every case is found in all leading casebooks

Ramseyer's volume focuses on "eleven pivotal cases that have shaped the evolution of corporate law, internationally renowned scholars explore the people behind the disputes, and the forces that led the judges to decide the cases the way they did. From Meinhard v. Salmon to Paramount v. QVC, they unravel the logic (and, often, apparent illogic) of the opinions. Simultaneously amusing and clarifying, the resulting chapters make sense of cases that have puzzled students and scholars for decades."

Yours truly contributed the chapter on Smith v Van Gorkom. Bill Klein did a great job with Meinhard v. Salmon and Ramseyer himself hit a home run with a wonderful backgrounder on the famous Ringling Bros. case.

Law review editors and why I keep thinking about self-publishing

Minnesota Law Review articles editor Carl Engstrom takes umbrage at law professor blog potshots at law review editors:

A few of us read the lawprof blogs, including this one, and it’s always dispiriting to see how much apparent contempt there is for articles editors, with authors dismissing us as “stupid 2Ls” who don’t know anything about their areas of expertise.

Personally, I'm feeling a bit touchy about this issue these days, because I recently went through a rather painful editing experience with a law review that left me with a very bad taste in my mouth about the whole process. I was asked to contribute an article to a symposium issue by a top 30-ish law review, which I did. The first substantive edit came back having made a great many changes, especially in the first half of the article. On some pages there were as many as 16 substantive changes to the text. Virtually none were to correct typographical or grammatical errors. Instead, the changes were purely stylistic.

Perhaps the articles editor thought s/he was a better writer than I am. But s/he was not invited to contribute an article to their symposium. I was. Yet, when I printed out clean versions of some of the more heavily edited pages, with all the editor's changes accepted, and showed them to some of my colleagues, the latter all thought those portions of the article were hard to recognize as mine. There were pages where it was the editor's authorial voice, not mine.

The level of stylistic changes was maddening enough given that it was a solicited piece, but there were even more serious concerns. To cite but a single example, at one point the editor commented that "Perhaps define here (maybe in a footnote) [a particular term of art].” In fact, the term of art in question had been defined in a footnote two pages earlier. This was simply shoddy. It raised lots of questions in my mind about how carefully the editor read the piece before s/he starting hacking at it.

Oddly enough, twenty years earlier, an editor at the very same law review did an even more egregious rewrite of one of my first articles as a law professor. Back then I was a newbie who had to put up with such abuse. But I'm not anymore. This time, I made them put it back the way I wrote it.

As you can imagine, this experience is a major reason I keep toying with the idea of self-publishing future monographs as eBooks on Kindle. At this stage of my career, I just don't need the aggravation.

So I'm sorry Mr. Engstrom is dispirited by those of us in the blawgosphere who complain about having their work assessed and, sometimes, butchered by 2Ls. But I, for one, remain unrepentant.

Review of Michael Perino's Hellhound of Wall Street

Peter Conti-Brown reviews Michael Perino's Hellhound of Wall Street: How Ferdinand Pecora's Investigation of the Great Crash Forever Changed American Finance:

This essay reviews Perino's timely, well-written, and meticulously researched book on Ferdinand Pecora's 1933 investigative hearings into the malfeasance of Wall Street banks and securities dealers preceding the Great Crash. The essay, after summarizing Perino's main contributions, argues that the Pecora Commission enjoyed extraordinary measures of luck and casting that captured the attention of the American public in a way that the Financial Crisis Inquiry Commission, its 2008 successor, has failed to do. The essay argues that the unfavorable comparisons drawn between the FCIC and the Pecora Commission -- always to the former's detriment -- are too hard on the FCIC, too complimentary to Pecora. While Gibbons may be right that "the wind and the waves are always on the side of the ablest navigators," the fact remains that the Pecora Commission enjoyed a great deal more favorable wind and waves than the FCIC, at every juncture. The role of luck in the success of such Commissions can be easily forgotten, but shouldn't be if we are to take fullest advantage of value of Congressional inquiries in general, the FCIC in particular.

Can Unionized Employers Expand into Right to Work States?

Glenn Taubmann published a briefing paper on The NLRB v. Boeing: Can Unionized Employers Expand into Right to Work States? in the Federalist Society's New Federalism Initiatives Project series. Nice summary of the issues.

Manne on Entrepreneurship, Compensation, and the Corporation

Henry Manne's published Entrepreneurship, Compensation, and the Corporation in the Quarterly Journal of Austrian Economics:

This paper revisits the concept of entrepreneurship, which is frequently neglected in mainstream economics, and discusses the importance of defining and isolating this concept in the context of large, publicly held companies. Compensating for entrepreneurial services in such companies, ex ante or ex post, is problematic—almost by definition—despite the availability of devices such as stock and stock options. It is argued that insider trading can serve as a unique compensation device and encourage a culture of innovation.

The Bishops and the budget

There's been a bit of kerfuffle lately between the House GOP and the US Catholic Bishops over the budget and Catholic social teaching. I'll borrow a Rick Garnett post to summarize the context:

Here is Rep. Paul Ryan's April 29 letter to Archbishop Dolan; here is Archbishop Dolan's reply.  The exchange is well worth reading, I think, especially as a follow-up to the much remarked public letter to Speaker Boehner, which was signed by a number of Catholic academics.  (As I indicated, in an earlier post, I thought the letter to Boehner overstated the alleged conflict between his voting record and "the Church's most ancient moral teachings", but that's water under the bridge.) 

Speaker Boehner reponded, in a statement, to the Ryan-Dolan exchange:

“I welcome Archbishop Dolan’s letter and am encouraged by the dialogue taking place between House Republicans and the Catholic bishops regarding our budget, the ‘Path to Prosperity.’ Our nation’s current fiscal path is a threat to human dignity in America, offering empty promises to the most vulnerable among us and condemning our children to a future limited by debt. We have a moral obligation as a nation to change course and adopt policies that reflect the truth about our nation’s fiscal condition and our obligation to future generations, and to offer hope for a better future. Our duty to serve others compels us to strive for nothing less. As Chairman Ryan notes in his letter to the archbishop, Americans are blessed to have the teachings of the Church available to us as guidance as we confront our challenges together as a nation.”

Michael Sean Winters, at NCR, and others are underwhelmed by Ryan's letter and -- in Winters's case -- skeptical about the possibility for consonance between the vision proclaimed in the Church's social-teaching tradition and that on display in the work of Ayn Rand.  I don't share (what seems to be) Winters's view that Ryan's reported interest in the (banal and turgid) writings of Ayn Rand has, in his budget, simply been translated into proposed policy.  (By the way, for Rand-haters, David Hart's essay on the occasion of the "Atlas Shrugged" movie is a must-see.) 

One does not have to like Ayn Rand (and I don't), or to be a "Catholic neo-con", to think that (a) it is both profoundly immoral and stupid to continue accumulating debt burdens at our current rates, (b) deep cuts in spending are required, and (c) these cuts require more than the usual promises of increased attention to "waste, fraud, and abuse" and "corporate loopholes" and will have to touch popular social-welfare programs (and defense spending).  Winters is right, of course, to say that Rand's vision is less attractive (because it is unsound) than is Pope Benedict's; but this fact does not eliminate the need to attend more seriously than, say, Sen. Reid has been willing to do to the need to cut spending and to design carefully any tax increases so as to avoid stunting growth.

Catholic neo-con, of course, is more or less where I situate my politics on economic issues, so I have no trouble embracing Rick's points a to c. I'd go on, however, to express a certain amount of skepticism about the Bishop's policy prescriptions. As Michael Novak observes, Catholic prelates and theologians tend to be poorly trained in economics and inexperienced with the business world. They “are likely to inherit either a pre-capitalist or a frankly socialist set of ideals about political economy.”[1] Consequently, theologians “are more likely to err in this territory [i.e., economic justice] than in most others.”[2]

So I take the Bishop's attack on the House GOP budget with more than a grain of salt.

---

[1] Michael Novak, Toward a Theology of the Corporation 59 (rev. ed.1990).

[2] Id. at 12.

Law reviews and specialty topics

From Prawfsblawg:

“We would have accepted this article in February,” one editor-in-chief kindly wrote me not long ago, “but we’ve already accepted a tax article this year.”  At the time, I took this as likely an editor’s version of “I have to wash my hair” and tried not to take it too seriously.  A couple of  weeks ago, though, at the OJ (as previously highlighted by your humble correspondent), a recent Chicago Law Review editor said much the same thing: once his journal takes an article from a “specialty” field, the bar is much higher for other pieces in the same field.  Because I enjoy pointless sword fights and extremely bad Scottish accents, I’ll call this the “Highlander effect”: there can be only one specialty article per volume. 

It’s easy to understand the institutional dynamic that produces the Highlander effect.  ...  Articles editors typically have diverse interests--often by design, in order to maximize the board’s capacity to evaluate a range of topics.  Given a limited number of publication slots,  some combination of log rolling and feelings of fairness to others’ preferences means that boards will rarely be able to accept multiple pieces that would satisfy some “outlier” preference.

This scarcity has a number of undesirable effects.  For one, it produces a race to the “submit” button -- exactly the race lamented by our OJ commentator.  It adds significantly to the randomness of placement results, reducing their signaling value.  Or, alternatively, it produces repeated submissions of essentially the same piece to multiple boards, another practice rightly decried at the OJ as wasting journal resources (and, y’know, recidivism is pretty annoying for us authors, too).  Conceivably it raises significant conflict issues for peer reviewers submitting in the same cycle (or narrows the pool of unconflicted reviewers).

I've reached a point of general frustration with law reviews. Getting jerked around on publication by third or, worse yet, second year law students. Being obliged to request expedited consideration as though I were a supplicant asking royalty for a favor. Having some wet behind the ears editor practically rewrite my article. Not getting paid. Frak the law reviews and the horse they came in on. Books or self-publish on Kindle.

More evidence of Congressional insider trading

The same economists who discovered what looks like evidence of insider trading by members of the Senate in the 1990s have repeated their study for members of the House of Representatives. Dan Froomkin reports:

Four university researchers examined 16,000 common stock transactions made by approximately 300 House representatives from 1985 to 2001, and found what they call "significant positive abnormal returns," with portfolios based on congressional trades beating the market by about 6 percent annually.

What's their secret? The report speculates, but does not conclude, it could have something to do with the ability members of Congress have to trade on non-public information or to vote their own pocketbooks -- or both.

I've written about the legal aspects of Congressional insider trading, most recently and most comprehensively in Insider Trading Inside the Beltway, whose abstract follows:

A 2004 study of the results of stock trading by United States Senators during the 1990s found that that Senators on average beat the market by 12% a year. In sharp contrast, U.S. households on average underperformed the market by 1.4% a year and even corporate insiders on average beat the market by only about 6% a year during that period. A reasonable inference is that some Senators had access to – and were using – material nonpublic information about the companies in whose stock they trade.

Under current law, it is unlikely that Members of Congress can be held liable for insider trading. The proposed Stop Trading on Congressional Knowledge Act addresses that problem by instructing the Securities and Exchange Commission to adopt rules intended to prohibit such trading.

This article analyzes present law to determine whether Members of Congress, Congressional employees, and other federal government employees can be held liable for trading on the basis of material nonpublic information. It argues that there is no public policy rationale for permitting such trading and that doing so creates perverse legislative incentives and opens the door to corruption. The article explains that the Speech or Debate Clause of the U.S. Constitution is no barrier to legislative and regulatory restrictions on Congressional insider trading. Finally, the article critiques the current version of the STOCK Act, proposing several improvements.

BTW, as a self-identified Republican (albeit of what some folks call the RINO variety), it would ill behoove me to comment on this aspect of the findings:

The study found some significant difference based on party membership and seniority, with the Democratic sample beating the market by nearly 9% annually, versus only about 2% annually for the Republican sample.

Instead, I'll just let it speak for itself.

I should note that there is at least one study finding that the Congressional trading advantage disappeared post-2004. But even so, there remains no justification for the loophole that allows Congressmen to inside trade with impunity.

Ribstein on Jackson on Corporate Speech

Larry Ribstein weighs in on Lucian Bebchuk acolyte Robert Jackson's proposal "to, among other things, majority shareholder voting on corporate speech decisions." Larry opines that:

The main point to emphasize here is that there is no special free speech reason to protect shareholders from managerial control of corporate speech.  If anything, the arguments cut the other way.  Government control of corporate speech surely raises some voices, and therefore some ideas, above others.  And legislators and regulators seek to promote their own interests, which is the First Amendment’s main concern.

The bottom line is that First Amendment should constrain government regulation not only directly of corporate political speech, but also of the governance processes that produce it. The SEC’s 14a-8 ruling and Bebchuk and Jackson’s proposals would move securities regulation toward a confrontation with the First Amendment that has been brewing since 1933.  See my article with Butler, Corporate Governance Speech and the First Amendment, 43 U. Kans. L. Rev. 163 (1994).

It's a good read, so go check it out.