ProfessorBainbridge.com

Antinori Pian Delle Vigne Brunello Di Montalcino 1999

As it nears its teenage years, this brilliant wine has arrived at the peak of maturity. The tannins are resolved and silky smooth. There is still quite a lot of youthful fruit but there's also suggestions of leather, minerals, and tobacco that are the markers of a mature wine. Fans of traditional Brunello will complain that this wine smacks of a modern, international style with its new oak and ripe fruit. As for me, however, I would happily take any bottles they have sitting around. On my palate, it combines the best of classic Brunello with the best of the New World winemaking techniques. Grade: A-

I've got two bottles left in my cellar. I plan to drink them both within the next 2-3 years. I don't think it'll make it much past driving age.

How much longer will we put up with paramilitary SWAT cops acting like stormtroopers?

Another glaring example of excessive use of force by our increasingly militarized police forces:

Stephanie Milan, 18, was relaxing in her family’s living room Thursday watching the Food Network when a heavily armed squad of Evansville police officers arrived on the front porch.

Dressed in full protective gear, police broke the storm door of the home at 616 East Powell Ave. — the Milans’ front door was already open on the hot summer day. They also broke a front window. They tossed a flashbang stun grenade into the living room that made a deafening blast. A short distance away, a local television crew’s cameras were rolling. The police had invited the station to videotape the forced entry of the residence.

Stephanie Milan said she managed to remain calm because she knew her family hadn’t done anything wrong. Still, she was stunned and confused.

After speaking to Milan and her grandmother, Louise, police determined those inside the house had nothing to do with their investigation.

MSNBC speculates that:

It's possible the Milans, or specifically Stephanie, were targets of "swatting," a particularly nasty prank by which the perpetrator — often through hoax 911 calls — tricks a SWAT team into raiding a house of his choosing.

Last July, Parry Aftab, a prominent Internet security advocate, became the victim of such an attack. Police swarmed her northern New Jersey home after pranksters placed a 911 call through a computer that cloned her number and said a man had killed four people and was holding another hostage in her house.

Cops hyped up on adrenaline and testosterone have killed family pets by the hundreds. Eventually they're going to start killing innocent civillians. Maybe then we'll finally wake up and start stripping these paramilitary thugs of their powers to launch Gestapo-like raids.

Davidoff replies re money market funds

Steven Davidoff sent along this reply to my post about why a floating NAV for money market funds is a bad idea:

I take your point that pricing according to NAV will create both tax and accounting problems.  But I wasn’t advocating for that as a solution (it may very well be the one, but that is another discussion and you make an excellent point against).  What I was saying is that right now money market funds are designed to run perfectly and never fail, yet they are inherently unstable akin to banks.  I believe this makes issuers less likely to rely on them for funding and depositors less likely to use them. Now, the solution to this problem is to make the system more stable.  This could take the form of an NAV pricing requirement, but it could also be a capital requirement, or it could be another proposal like Jeff Gordon’s dual class shares proposal which seems to solve much of the tax and accounting problems. I’m sure that you could also come up with something if you put your mind to it. While nothing is very certain finance seems to be rather good at finding creative solutions to problems, and I am not sure why this shouldn’t be the case here, but perhaps I am too optimistic.  In any event, the ultimate point is that the inherent instability of these funds is a remaining problem that should be addressed before another fund inevitably breaks the buck, and that in the meantime the industry is only hurting itself.

Henry Manne's take on the SCOTUS Obamacare decision

Law and economics guru Henry Manne kindly authorized me to share his thoughts on the Obamacare outcome:

This may sound like heresy, but I am rather fond of today's opinion on Obamacare (perhaps, to make full disclosure, because I predicted that the Court would not find it unconstitutional). I certainly would prefer a system under which Congress is constrained all the way around, commerce, taxing, necessary and proper or what have you.  But that is not at the moment the world we live in.  But you will excuse me for saying that I believe we are a lot closer to that world today after this opinion than we would have been had this court said something like Scalia's dissent.  That would simply have been too dramatic a shift for the polity, and the Court would have found itself in real political jeopardy in years to come.  And, if you think back through post-Marbury Constitutional history, the Court has never been a particularly courageous institution.  Punt has been their usual strategy for dealing with really critical issues. 

But look, we now have a majority of the Supremes agreeing with Roberts' limitations on the Commerce Clause (and that, after all, is where the real constitutional fight has been for over 75 years) and putting real restraint on the idea of forcing states to do something by conditioning it on federal money (the thing that let the feds into speed limit controls and a lot of their educational ands welfare junk).  The taxing power is not nearly as liable to turn into the next opening for federal powers.  First of all, if a thing is recognized as a tax, no one wants credit for it (NB the Obama folks' efforts to avoid calling this one a tax); second of all, if this does open a new constitutional avenue for the exercise of federal powers, it will take many decades to find out what it really means in practice, and it may, for reasons unimaginable right now, prove to be a dead letter. Will every mandate have to be initiated in the House of Representatives as tax bills do? Hmm, that would be a pretty severe restraint right there. Will it have to be "proportional" among the states, whatever that means?  Meanwhile we have put real teeth back in the Commerce Clause, which is exactly where restraint needed to be.  And the Supreme Court is free to fight its little battles at the margin, where its powers are not seriously threatened.

Damilano Barbera d' Asti 2009

Intense purple. Potent bouquet suggesting black cherry, blackberry, and plums. On the palate, the entry is quite peppery and spicy. The mid-palate calls to mind earth and minerals. The finish is suggestive of rich black fruits. Vanilla and light smoke suggest it's seen new oak barrels. A big, high alcohol (14%) example of the modern international style of Barbera. It's a wine designed for Robert Parker's palate, not fans of traditional Barbera styles. But WTF, I like it. Grade: B++

Say on Pay Myths

I just read a very important paper, challenging the mythology that has grown up around say on pay. Larcker, David F., McCall, Allan L., Ormazabal, Gaizka and Tayan, Brian, Ten Myths of 'Say on Pay' (June 28, 2012). Available at SSRN: http://ssrn.com/abstract=2094704

Abstract: Say on pay is the practice of granting shareholders the right to vote on a company’s executive compensation program at the annual shareholder meeting. Under the Dodd-Frank Act of 2010, publicly traded companies in the U.S. are required to adopt say on pay. Advocates of this approach believe that say on pay will increase the accountability of corporate directors and lead to improved compensation practices.

In recent years, several myths have come to be accepted by the media and governance experts. These myths include the beliefs that:

1. There is only one approach to “say on pay."
2. All shareholders want the right to vote on executive compensation.
3. Say on pay reduces executive compensation levels.
4. Pay plans are a failure if they do not receive high shareholder support. 
5. Say on pay improves “pay for performance."
6. Plain-vanilla equity awards are not performance-based.
7. Discretionary bonuses should not be allowed.
8. Shareholders should reject nonstandard benefits.
9. Boards should adjust pay plans to satisfy dissatisfied shareholders.
10. Proxy advisory firm recommendations for say on pay are correct.

We examine each of these myths in the context of the research evidence and explain why they are incorrect. We ask:

* Should the U.S. rescind the requirement for mandatory say on pay and return to a voluntary regime?

Readers familiar with my work on say on pay will not be surprised to learn that my answer to that question is "no." See, e.g., Remarks on Say on Pay: An Unjustified Incursion on Director Authority. Available at SSRN: http://ssrn.com/abstract=1101688:

Proponents of H.R.1257 or similar federal legislation entitling shareholders to vote on executive compensation must carry their burden of proving three distinct claims: First, that there is an executive compensation problem justifying legislative intervention. Second, say on pay is an effective solution to the problem. Third, that any such legislative intervention should be imposed at the federal level. 

If any of these claims fail, the case for a federal say on pay law collapses. In these remarks, I hope to demonstrate that none of the three holds up to close examination.

Cited by Delaware Vice Chancellor Laster in Louisiana Municipal Police Employees’ Retirement Systems v. Pyott,

A citation in the text of the opinion (not a mere footnote) referred to “friend of this blog” Professor Stephen M. Bainbridge’s article entitled A Convergence of Good Faith and Oversight, 55 UCLA L. Rev. 559 (2008) (discussing the re-interpretation of Caremark as a good faith case and the potential liability risks to directors that result.)  See Slip op. at 50. Professor Bainbridge is often cited in Delaware corporate decisions.

via www.delawarelitigation.com

Thanks to Francis Pileggi for flagging this citation of my work. I plan a long post on this case soon.

The Research Handbook on the Economics of Corporate Law

I'm pleased to report that The Research Handbook on the Economics of Corporate Law is now available. I contributed a chapter on director primacy to the Handbook.

The Introduction by Claire Hill and Brett McDonnell is available on line from SSRN:

Abstract: This essay is the Introduction to the Research Handbook on the Economics of Corporate Law. After briefly surveying the origins of modern economic analysis of corporate law, it analyzes leading developments in recent decades. Major developments in the law and economics of corporate law have in some cases followed from developments in the law, including changes in fiduciary duty standards, the growth of shareholder activism, the increasing role of independent directors, changes in executive compensation, a new emphasis on various gatekeepers, federalization of corporate governance rules, and globalization. Other developments have followed from trends within economics, including some new ideas in the theory of the firm, greater emphasis on empirical research, a focus on market failures due to incomplete information, the growth of behavioral economics, and some increased emphasis on comparative institutional analysis. The essay speculates that future developments may include a new focus on systemic risk in light of the financial crisis and greater use of empirical research methodologies other than regression analysis. The essay concludes with an overview of the contributions to the volume, which is divided into five Parts: corporate constituencies, insider governance, gatekeepers, jurisdiction, and new theory.

I've read many of the chapters and think this is a very important contribution to the literature. I commend it highly to lawyers, judges, corporate governance professionals, and others interested in both law and policy in this area.

Mark Hodak replies to Nancy Pelosi's condescending dismissal of Obamacare opponents

Well, Ms. Pelosi, many of us were in fact more concerned about a dramatic and potentially unconstitutional expansion of government power over the most private part of our private lives than we were dazzled by the promise of unfettered access to low cost health care. We were serious about that concern. We didn’t deserve to be treated like dirt to be brushed off.

via hodakvalue.com

Erna Schein Sainte Fumée (California) 2008

This blend of 62% Syrah, 24% Petite Sirah, 14% Petit Verdot is an intensely deep purple, which at age 3+ has thrown almost no sediment. Blackberry, blueberry, and plum notes dominate both the bouquet and palate. In addition, there is a mineral note on the fairly long finish. I find it a bit rustic, but as the fabulous painting reproduced on the label suggests, it makes a great match for grilled steak. Despite its considerable heft, I do not believe this is a vin de garde. I've got 4 bottles left in my cellar and plan to have consumed them all by 2016-ish. Grade: B+

What he said, with bells on

It's a quick reaction, but both the upholding of the legality of PCAOB in the Free Enterprise case and the mandate in this case suggests that although this is a Court that worries - possibly excessively - about structural niceties, a serious outlawing of a major government program is something that will be ventured very, very rarely.  Some critics, including yours truly, think that this is one of the reasons why the obsession of some legal scholars with constitutional law, given its limited bite, is so strange.

via www.theconglomerate.org

Count me among those who also find it more than a bit odd.

Congratulations to Lucian Bebchuk

Bebchuk was named to the list of 100 most influential people in finance and risk management:

LUCIAN BEBCHUK
PROFESSOR
HARVARD LAW SCHOOL
Co-author of the book “Pay Without Performance,” Bebchuk has criticized huge compensation packages for corporate executives in years when their companies lose money or even go bust.

Of course, IMHO, Bebchuk's criticisms are mostly misplaced. See Stephen M. Bainbridge, Executive Compensation: Who Decides?. Texas Law Review, 2005. http://ssrn.com/abstract=653383:

Abstract: Pay Without Performance: The Unfulfilled Promise of Executive Compensation by Harvard law professor Lucian Bebchuk and UC Berkeley law professor Jesse Fried is an important contribution to the literature on executive compensation. Bebchuk and Fried's positive account of executive compensation is entirely managerialist; i.e., they argue that top management of public corporations so thoroughly control the board of directors that the former are able to extract compensation packages from the latter far in excess of that which would obtain under arms'-length bargaining. In this review essay, I argue that Bebchuk and Fried overstate the extent to which management controls the compensation process. I also argue that they have not made a convincing case for the reforms to corporate governance they propose.

See also Stephen M. Bainbridge, Director Primacy and Shareholder Disempowerment. Harvard Law Review, Vol. 119, 2006. http://ssrn.com/abstract=808584:

Abstract: This essay is a response to Lucian Bebchuk's recent article The Case for Increasing Shareholder Power, 118 Harvard Law Review 833 (2005). In that article, Bebchuk put forward a set of proposals designed to allow shareholders to initiate and vote to adopt changes in the company's basic corporate governance arrangements. 

In response, I make three principal claims. First, if shareholder empowerment were as value-enhancing as Bebchuk claims, we should observe entrepreneurs taking a company public offering such rights either through appropriate provisions in the firm's organic documents or by lobbying state legislatures to provide such rights off the rack in the corporation code. Since we observe neither, we may reasonably conclude investors do not value these rights. 

Second, invoking my director primacy model of corporate governance, I present a first principles alternative to Bebchuk's account of the place of shareholder voting in corporate governance. Specifically, I argue that the present regime of limited shareholder voting rights is the majoritarian default and therefore should be preserved as the statutory off-the-rack rule. 

Finally, I suggest a number of reasons to be skeptical of Bebchuk's claim that shareholders would make effective use of his proposed regime. In particular, I argue that even institutional investors have strong incentives to remain passive.

Chief Robert's gambit

Tom Smith of Right Coast:

Rarely do I call something a must read, but Sean Trende's latest is one. I think it's pretty darn persuasive. The wins for limited government under something like our Constitution in the ACA case strike me as bigger than the losses. Add to this (I'm not sure yet; I have to actually read the thing) Roberts may be correct on the merits.  The Obomination may be legal as a tax and precedent may require reading it that way.

If I were Kennedy, I think I would feel like (as Justice O'Connor might put it) the bronc had the bit in its teeth and someone had to go out and lasoo it, with respect to the powers of the federal government, I mean. I expect more libertarian noises from him in the future.Trende is right that a lot of important decisions are coming up and the Court now seems freer to act without crippling accusations of political bias.

The spending clause part of the decision is enormously important, isn't it? I don't have my arms around it either, but it would seem to put very substantive limits on the power of federal government over the states, compared to where things were yesterday. And by 7-2 as well. This also means Texas can opt out of Obamacare and if that happens, doesn't it just fall apart as a budgetary matter? If Obama is reelected, that could lead to a very peculiar standoff.

And it does tee the whole mess up for a national election.  Let the people decide, etc., etc. If we all vote for this, we probably deserve what we get. Well, maybe not readers of this blog, but most people.

via rightcoast.typepad.com

It's given me some cause for hope.

A Taste of Government-Run Healthcare

If Obamacare works as well as the FDA, we're all in deep trouble, as this powerful essay by Richard Epstein explains.

And so now the government really can make us eat broccoli

The Supreme Court on Thursday upheld the vast majority of President Barack Obama's historic health care overhaul, including the hotly debated core requirement that virtually all Americans have health insurance.

via www.wtop.com

They'll just have to make the broccoli mandate look a little bit like a tax. And so a little bit more of our freedom died today.