ProfessorBainbridge.com

ULCA seeks Milken Institute for Business Law and Policy Director

Among other perks, you'd get to work closely with your truly:

The UCLA School of Law is seeking a highly talented, experienced individual to be the Executive Director of the Lowell Milken Institute for Business Law and Policy at UCLA School of Law.  The Institute’s mission is to bring world class policy analysis, research and educational opportunities in business law and policy to UCLA, the broader community of Southern California, the nation and the world.

The Executive Director will plan and oversee all aspects of the Institute’s programs, which are designed to support and expand research, policy analysis, and teaching (including clinical teaching) about business law and policy at UCLA School of Law.  The Executive Director will help to develop the business law curriculum, including improving and expanding the Business Law Specialization for law students.  The Executive Director will also supervise fellows, policy consultants, research assistants, student interns, and volunteers; engage in fundraising; and organize symposia and other academic programs related to the advancement of business law and policy.  The Executive Director will work closely with the Faculty Director, members of the business law faculty, and the advisory board of the Institute. 

Minimum requirements include an excellent academic record; a J.D., M.B.A. or equivalent advanced degree from a U.S. school; at least five years of successful business law practice or business experience; demonstrated management, administrative and organizational skills, with successful prior experience in fundraising or coordinating scholarly or professional conferences preferred; prior successful teaching experience and a record of publications concerning business law and policy topics preferred; and a strong record of established relationships with other business professionals and with professional organizations preferred.

 The level of appointment will be commensurate with qualifications and experience.  This is a full-time, academic, non-tenure track position. 

 Confidential review of applications, nominations and expressions of interest will begin immediately and continue until an appointment is made.  Please apply online at https://recruit.apo.ucla.edu/apply/JPF00016 by submitting a cover letter, resume, and the names and addresses for at least two professional references to the attention of: 

Edna Sasis

Office of the Dean

UCLA School of Law

Box 951476

Los Angeles, CA 90095-1476

The University of California is an affirmative action/equal opportunity employer, and seeks candidates committed to the highest standards of scholarship and professional activities and to a campus climate that supports equality and diversity.

 

Can boards do too much monitoring?

An affirmative answer is suggested by a new paper:

The high-profile scandals of the late 1990s have transformed the corporate governance landscape and increased the oversight duties of independent directors. New mandates, such as the Sarbanes-Oxley Act of 2002, have had substantial effects on corporate boards. For one thing, they dramatically increased the workload of directors serving on audit, compensation and nominating committees. In addition, the number of independent directors serving on multiple committees has expanded greatly, from 48% in 2000 to 61% in 2011.

The shift toward increased monitoring raises two important questions. First, has the increased focus on board oversight helped to improve the quality of board monitoring? Second, can board oversight become excessive and ultimately detrimental to desirable objectives?

This article focuses on three distinct aspects of oversight responsibility: design and implementation of suitable executive compensation packages; removal of underperforming CEOs; and disclosure of earnings that reflect the company’s true financial conditions. In a study of S&P 1500 companies, boards were able to perform these functions most effectively when they devoted significant resources to managerial oversight. Board oversight improved when independent directors devoted the time and resources envisaged by the new regulatory regime.

However, the most favorable conditions for innovation occurred when the board did not monitor the CEO intensely but focused on strategic advising, thereby encouraging the CEO to pursue valuable but high-risk innovation projects. Conversely, corporate innovation suffered when the board monitored intensely. Companies with such boards invested less in R&D, received fewer patents overall and received fewer influential patents as measured by the frequency of citations of the patents they received. In addition, company value was lower when the board devoted greater time to oversight.

Faleye, Olubunmi, Hoitash, Rani and Hoitash, Udi, The Trouble with Too Much Board Oversight. Sloan Management Review, Vol. 54, No. 3, pp. 52-56, Spring 2013. Available at SSRN: http://ssrn.com/abstract=2236318.

This will come as no surprise to those who read the chapter on the board's monitoring role in my Corporate Governance after the Financial Crisis.

Why Dr. Kermit Gosnell's Trial Should Be a Front-Page Story

The dead babies. The exploited women. The racism. The numerous governmental failures. It is thoroughly newsworthy.

via www.theatlantic.com

Greg Mankiw: The President's Latest Bad Idea

Apparently, President Obama's budget is going to include some kind of penalty for people who have accumulated more than $3 million in retirement accounts.  The details are not yet known, but I think we know enough to say that this is a terrible idea.

A sizable body of work in public finance suggests that consumption taxes are preferable to income taxes.  Completely replacing our tax system with a better one is, however, hard.  Retirement accounts, such as IRAs and 401k plans, are one way our tax code has gradually evolved from an income tax toward a consumption tax.  The use of these accounts should be encouraged, not discouraged.

By the way, exceeding $3 million in such accounts is not very difficult for an individual who is financially successful and frugal.  Under current law, a self-employed person can put about $50,000 a year in a SEP-IRA.  If he does that every year for 40 years, and his savings earn a return of 5 percent per year, he will retire with about $6 million.

via gregmankiw.blogspot.com

Delaware moves into B-Corp market

Usha Rodrigues:

From the Harvard Law School Forum on Corporate Governance and Financial Regulation, via Allen M. Terrell, Jr. of Richards, Layton & Finger, comes a summary of proposed amendments to the Delaware General Corporation Law. I had heard about the elimination of the vote in second-step mergers, but the public benefit corporation was news to me.

It sounds a lot like the benefit corporation legislation that's been spreading across the country (see this chart by Haskell Murray.  At first blush I was surprised to see Delaware contemplating this kind of social enterprise legislation, since it's not really a stakeholders' rights kinda state.  But on further reflection I guess a "let a thousand flowers bloom" attitude makes sense for Delaware's let-the-market-decide, opt-in attitude.  Here's the description:

In general, under the proposed legislation, a public benefit corporation would be a corporation managed in a manner that balances the stockholders’ pecuniary interests, the interests of those materially affected by the corporation’s conduct, and one or more public benefits identified in its certificate of incorporation. To this last point, each public benefit corporation would be required, in its certificate of incorporation, to identify itself as a public benefit corporation and to state the public benefits it intends to promote. The proposed legislation generally defines “public benefits” as positive effects (or minimization of negative effects) on persons, entities, communities or interests, including those of an artistic, charitable, cultural, economic, educational, literary, medical, religious, scientific or technological nature. ...

I'm not surprised to see Delaware make this move and I think there's something other than "let the market decide" going on here. 

As the leader in corporate law, Delaware has always been quick to adopt new developments so as to preserve its market share. After all, franchise taxes from business organizations are arond 20% of delaware revenues, an income stream the state will do just about anything to maintain. When LLCs became popular, for example, Delaware agressively moved to capture the dominant share of large LLCs.

Thus, as Haskell Murray observed not too long ago (2 Am. U. Bus. L. Rev. 1):

Currently, it is not crystal clear whether Delaware corporate law is flexible enough to give comfort to the social entrepreneur, but as described above, there are a number of other options for the social entrepreneur. Additionally, the Delaware legislature is traditionally extremely responsive to the needs of the market, and one suggested solution in this Article is to have Delaware amend its corporate statute to explicitly provide social entrepreneurs with the flexibility they seek.

And so, once again, we see Delaware hedging its bets. Just as it positioned itself to lead the LLC phenomenon in case LLCs displaced corporations, it is positioning itself to lead the B Corp phenomenon in case it starts to make major inroads on the choice of form.

Chateau Meyney (St Estephe) 1986 with quasi-homemade lamb and lentil stew

For dinner tonight I made a quasi-homemade lamb and lentil stew. After browning 4 lamb shoulder chops in my All-Clad 3-Quart Saute Pan with Lid, I used the same pan to braise the chops in a cheap red wine with a bay leaf, some shallot and garlic, a dozen peppercorns, and a couple of sprigs of rosemary. After about 2 hours, they were very tender. I let the chops cool until I could pull the meat into shreds, while defatting the braising liquid.

I then fried two ounces of pancetta in a teaspoon of olive oil in my All-Clad 3-Quart Saucier Pan with Lid. I briefly sautéed sone shallots and garlic in the same pan and then added 1 drained 14.5 ounce can of Muir Fire Roasted Tomatoes to the pan. I then added one 14.5 ounce can of Amy's vegetarian lentil soup to the pan, along with some frozen chopped spinach and some finely chopped frozen green beans to the mix. I added the lamb and let the soup simmer for 10 minutes. It was a little dry at this point so I added some of the defatted braising liquid to loosen it up.

I served one of my all-time favorite wines, a 1986 Chateau Meyney (last noted in 2011). I required decanting, both to get it off the heavy sediment and to let the wine aerate. At first, there was a rather funky aroma but it blew off with some time to breathe. Classic bouquet and flavor associations included prunes, cedar, leather, tobacco, and earth. It probably can go a few more years. Grade: A

CalPERS: The Pension Fund That Ate California

CalPERS’s corruption, insider dealing, and politicized investments have overwhelmed taxpayers with debt.

via www.city-journal.org

A trenchant critique of the 800-lb monster

The Dodd-Frank Say-on-Pay Strike Suits

The Dodd-Frank say-on-pay strike suits, if not yet dead, are close.

via www.dandodiary.com

They explain why. I say: It's about time.

Has Delaware loosened the definition of direct shareholder suits?

Because of the procedural hurdles applicable to derivative litigation, a key question in any shareholder-brought lawsuit is whether the suit is direct or derivative. Francis Pileggi and Edward McNally discuss a new Chancery Court decision that may have clarified the problem of sorting close cases.

Tweet of the day

I can pretty much look at dog pictures of all types all day long, but this was *almost cuteness overloadbuzzfeed.com/mjs538/the-mos…

— Glenn Greenwald (@ggreenwald) April 9, 2013

Can corporate directors take third party pay from hedge funds?

Usha Rodriques reports that:

From yesterday's Deal Professor comes Steven Davidoff on the "newest trend in activist investing": hedge funds incentivizing their directors by paying them extra if they win a seat and the company takes off.  For example, Elliott Management has nominated 5 directors for the Hess Corporation.  If any win a seat and Hess stock outperforms a peer group, the directors could make $9 million over 3 years.  Jana Partners is offering its nominees a similar deal for serving on Agrium's board, again for a potential of millions if it profits.  Plus both funds offer a $50,000 retainer, over and above whatever the directors collect from the companies themselves, likely a six-figure director fee.  

Usha doesn't address how taking such third party payments could possibly be consistent with the directors' fiduciary duties to the corporation on whose board they serve. Davidoff thinks that "as long as the arrangement is disclosed and the hedge funds don’t exert any future control over the nominees, it is unlikely that this violates any state or federal law." Clearly, as discussed below, such third party payments create a serious conflict of interest for the directors in question. Maybe you can argue that the shareholder vote electing them to the board cures that conflict (at least if the directors in question receive the affirmative vote of a majority of the disinterested shares,as to which see Portnoy v. Cryo-Cell Intern., Inc. 940 A.2d 43 (Del.Ch.2008) (holding that, under Delaware's corporate election law, ratification has to be accomplished by a vote of the disinterested shares; that is, even if one assumes that the election of the nominee on the management slate by the electorate is a ratification of that nominee's placement on that slate by way of the agreement under challenge, the nominee would have to win a majority of the shares not subject to the agreement)).

But I'm not convinced a generic vote to elect directors ratifies this sort of conflict of interest. Delaware law on conflicted interest transactions, after all, talks about disinterested shareholder approval of "a transaction," which I would understand to mean a specific vote on the specific conflicted transaction. Cf. Restatement (Third) of Agency sec. 8.06, which provides in pertinent part that "the principal's consent concerns either a specific act or transaction, or acts or transactions of a specified type that could reasonably be expected to occur in the ordinary course of the agency relationship." To be sure, directors are not agents, but their fiduciary duties are quite similar. 

Finally, given that:

Corporate officers and directors are not permitted to use their position of trust and confidence to further their private interests. While technically not trustees, they stand in a fiduciary relation to the corporation and its stockholders. A public policy, existing through the years, and derived from a profound knowledge of human characteristics and motives, has established a rule that demands of a corporate officer or director, peremptorily and inexorably, the most scrupulous observance of his duty .... The rule that requires an undivided and unselfish loyalty to the corporation demands that there shall be no conflict between duty and self-interest. [Guth v. Loft, Inc., 5 A.2d 503, 510 (Del. Ch. 1939)]

It seems to me that the burden ought to be on proponents of such arrangements to come up with a clear and convincing explanaton of why they're legal.

Even if these arrangements are legally valid, I thinkthey are a terrible idea. Davidoff notes two common arguments made against them:

The first is that the hedge fund directors are not independent. Because the directors are being paid by the hedge fund, they will be loyal to the hedge fund, rather than the company.

The second is that by paying these directors large sums over three years, the hedge fund nominees will aim for short-term performance and not care what happens to the company in the longer term.

They both strike me as eminently sensible. In addition, as he also notes:

There is no doubt that this kind of pay arrangement sets up two classes of directors doing the same job but being paid very different amounts. It could not only create resentment, but disagreement over the path of the company. And it also has the potential to begin a second arms race in director compensation, something probably best avoided.

If this nonsense is not illegal, it ought to be.

‘Don’t Shoot My Dog’ Law

The natural enemy of the family dog is the local cop. Some of the stories we hear about cops shooting dogs, man, it’s like they don’t even try to deal with the animal reasonably. They shoot first and put the leash on later. I get that some people are just irrationally afraid of dogs, but cops are armed and in stressful situations. And since “dog murder” isn’t really a thing, there’s no incentive for cops to hold their fire.

We’ve reported in the past about how jury awards are going up when cops are found to recklessly kill family pets. But money cannot replace the companionship of a best friend.

Now, one state is trying to take more decisive action by requiring cops to learn how to deal with “short, hairy children”….

The Denver Post (gavel bang: ABA Journal) reports that a bill called the “Don’t Shoot My Dog” law is making its way through the Colorado State Senate.

The bill would require police officers to undergo training on how to deal with dogs.

via abovethelaw.com

It's about damned time.

Does corporate social responsibility pay? The crunchy granola kind seems to.

Most efforts to measure the effect of corporate social responsibility look at outputs, mainly firm performance using various metrics. Another way of looking at the problem, however, is to focus on inputs; sepcifically, are your customers willing to pay more. As such, this paper is very interesting:

Many companies have made significant investments in socially responsible products. Environmentally safe cleaning products, fair trade coffee, and sustainable seafood are just a few examples. In this paper, we conduct a meta-analysis of eighty-three published and unpublished research papers across a large number of product categories and countries and using different data collection methodologies to better understand differences in willingness to pay for socially responsible products. We use two dependent variables: the percentage premium people are willing to pay and the proportion of respondents who are willing to pay a positive premium. We find that the mean premium is 17.3% and that this percentage is lower for durable than for non-durable goods and higher for goods where the behavior benefits humans (e.g., labor practices) than animals (e.g., bigger cages) or the environment. On average, 60% of respondents are willing to pay a positive premium and this does not vary by whether the good is durable. Further, along with products that benefit humans, products that benefit animals are shown to increase the number of people willing to pay a premium compared to environmentally friendly goods. Implications for retailers, manufacturers, and future research are discussed.

In other words, people will pay a premium for organic fair trade coffee beans but not for electric cars. Which might help explain why why Fisker Automotive is hovering on the edge of Chapter 11.

The paper also called to mind Rod Dreher's theory about crunchy conservatism. As his book, Crunchy Cons: How Birkenstocked Burkeans, gun-loving organic gardeners, evangelical free-range farmers, hip homeschooling mamas, right-wing nature ... America (or at least the Republican Party):

"Ewww, that's so lefty," Dreher's editor at his old National Review job sneered when Dreher said he was picking up some locally grown organic produce. And what's with the sandals I'm wearing, he then thought; am I going liberal? Not a bit, he concluded, though if associating with liberals could help him have healthy, flavorful food and a beautiful, durable home; be involved in his children's education; protect and nurture the environment and other species; and live with religious integrity, then associate, befriend, and work with liberals he would. That made him a crunchy con(servative), and since leaving NR and NY for Dallas, he has just become crunchier--and met scads of comrades, including literary patron saints G. K. Chesterton, Russell Kirk, E. F. Schumacher, and Wendell Berry and articulate representatives of the types recorded in his book's expansive subtitle.

Perhaps the reason that the paper's findings skew the way they do is that crunchy cons are willing to pay for select types of CSR, thereby increasing the target customer base for those types but not for others. But that, of course, is just rank speculation.

I was appalled too

I was what -- appalled, chagrined, not surprised, when I saw that the Easter Sunday NYT had no reference to the holiday (that I saw; I didn't read the whole thing) except a magazine piece by some crazy ex-nun about how she still longed for her "ex", i.e. Jesus, but not really (it was a little hard to understand). What can one say. It's the NYT.

via rightcoast.typepad.com

The problem with how insider trading cases are prosecuted

Insider-trading prosecutions are easy to bring but difficult to defend against. Accused traders and portfolio managers, looking at decades-long prison terms, come to understand that a much-reduced sentence awaits them if they cooperate with prosecutors. The key is to testify that they let the boss know that their trading moves were based on prohibited tips—such as an impending announcement of the success or failure of new-product testing, or a coming tender offer—and that the boss responded knowingly and with an admonition not to spread the secret around.

Emails can be subpoenaed—and their shorthand discussions often lend themselves to damning interpretations—but documentary evidence of such exchanges isn't required. After all, illegal information is received and then passed along in secret, often by word-of-mouth or perhaps with only a knowing nod. And that's why this kind of "I told him" evidence is so highly valued.

In the sardonic description of such testimony, the witnesses not only sing—they also compose. As part of the deal-making, prosecutors must tell the witness that if he is caught lying, the deal will be revoked. Not surprisingly, few such deals fail to ensnare the higher-ups, and few are revoked. Everyone pretends that the system produces justice rather than career advancement and the institutional accretion of governmental power.

Might the average person find something wrong with an inducement to such cooperation in which prosecutors offer witnesses reduced prison time in exchange for favorable testimony? Logic, legal ethics and consistency all say yes.

via online.wsj.com