ProfessorBainbridge.com

Lamb and Quinoa Pilaf with Château Gruaud-Larose (St. Julien) 2004

Let's start with the pilaf (serves 4):

• 1 lb ground lamb
• ½ red onion diced
• 6 ounces finely chopped cremini mushrooms
• 1 tablespoon tomato paste
• 3-4 garlic cloves, minced
• ½ tablespoon grated ginger
• ½ tablespoon red curry paste
• 2 cups water
• 1 tablespoon Lea & Perrins Worcestershire Sauce
• 1 cup Della Quinoa Rice Blend
• 1-½ ounce dried currants
• 4 ounces dried apricots, diced
• 1 14.5 ounce can diced tomatoes, drained
• ⅓ cup slivered almonds, toasted

I started by browning the lamb over medium heat (6 on a 10 point scale) in my All-Clad 5.5-Quart Dutch Oven. While the lamb was cooking, I seasoned it with a pinch of kosher salt, a couple of grinds of black pepper from my Turkish pepper mill, and ½ teaspoon of red curry powder. When it was done I moved the lamb to a paper-towel lined plate to drain.

I mopped up the fat from the lamb, being sure not to disturb the fond, and added some olive oil to the dutch over (maybe half a tablespoon by eye). I then added the onion to the pan (with a small pinch of salt) and sautéed it over medium heat (4 on a 10 point scale) until it softened. I then added the mushrooms and sautéed them until they had given up their liquid and softened. I made an open spot in the center of the pan and added the tomato paste, garlic, ginger, and curry paste. I let them fry for about 30 seconds and then stirred them into the onion/mushroom mixture, and let them cook another 30 seconds or so. 

Next I added the water and Worcestershire sauce to the pan, turned the heat up to high, and deglazed the pan, scraping up the fond. When the liquid came to a boil, I added the rice-quinoa blend, reduced the heat to 3, covered the pan, and let it simmer for a total of 15 minutes.

After the rice and quinoa had been cooking for about 8 minutes I added the currants, apricots, and tomatoes.

At the 15 minute mark, I removed the lid, stirred in the lamb, and reduced the heat to low (1). I let the lamb heat through and then gave it a taste. It needed a bit more of a punch, so I added 4 dashes of Tabasco, a ½ teaspoon more Worcestershire sauce, and ½ teaspoon Thai fish sauce to really punch up the unami element.

I stirred in the almonds and served it with an arugula-based side salad.

To accompany the pilaf, I poured a 2004 Château Gruaud-Larose. Long time readers, of course, know that this is one of our house favorites. This is the first bottle we've tried from the 2004 vintage and it was delicious.

Deep ruby to purple, it has thrown some sediment but not a lot. I decanted it about 30 minutes before dinner. Huge bouquet of currants, cherries, prunes, and cedar. The last glass (with about 90 minutes breathing time) had a whiff of the humidor. Lovely. On the palate, the attack is youthful with lots of red and black fruit. The finish is fairly long and introduces more earthy, leathery, woody elements. Impeccably balanced. Enough tannins remain to support another decade of aging. I plan to drink my remaining 3 bottles at 3 year intervals over that period. (Unless I buy more, which I am tempted to do.)

Grade: 93

Foxen Steel Cut - Bien Nacido Vineyard Chardonnay (Santa Maria Valley) 2012

We're watching the second day of the NFL draft. For dinner tonight I made grilled chicken breasts with an arugula/fennel salad out of the new Paleo Perfected cookbook. Primo. I've been cooking out of this book for a couple of weeks and every recipe has been outstanding, but this one is especially good. (Hint: Add the fennel fronds to the dressing and spoon a little dressing over the chicken before serving.) I poured this Foxen Chardonnay, which made a great match for the dinner, probably because isn't swimming in oak.

On the nose, there's an interesting--but very hard to pin down--herbal note, as well as honeydew melon, orange, Meyer lemon. The palate follows. Long finish. The absence of over-powering oak and bright acidity made it much more food friendly than most California Chardonnays.

Grade: 91

Pine Ridge Stags Leap District Cabernet Sauvignon 2003

We had steak and potatoes for dinner tonight while watching the NFL draft (lots of tweets about that). The Pine Ridge was a great match.

I suspect that this wine is at the tail end of its prime drinking age, but it was still very enjoyable tonight. Lots of sediment; needed decanting. Good ruby color, however. Big bouquet. Prunes, berries, earthy, leather, tobacco, spice. Ditto the palate.

Grade: 90

The corporate backlash against North Carolina: Will liberals start to love Citizens United?

From the National Post:

When North Carolina’s legislature passed a law requiring transgender people to use public restrooms corresponding to the sex specified on their birth certificate, rather than their current gender identity, some of the protest was typical and expected. ...

But some of the most effective protest — the law may yet fail, for both legal and political reasons — came from less obvious quarters. Titans of corporate America, including executives with Google, Apple and Facebook openly voiced their disagreement with state-sanctioned gender discrimination. PayPal and Deutsche Bank cancelled expansion plans in Raleigh, for a combined 600 jobs. An unnamed technology company cancelled a planned 1,000 jobs, according to the Greater Raleigh Chamber of Commerce, which put the economic fallout from the law in the tens of millions of dollars, plus perhaps $5-million in lost tourism. ...

Together, these companies made a business case for equality on the tricky terrain of gender politics. There are many reasons. Partly this protest is an effort to protect brands whose value depends on acceptance by a younger and more progressive demographic. Partly it is to protect members of their own workforce and the political climate in which they live. Partly it forestalls government regulation of the same issues. And partly, perhaps, they felt it was the right thing to do.

The irony, of course, is that these corporations would have much less ability to influence North Carolina politics if the liberal opponents of Citizens United had gotten the law changed to limit corporate political activity.

Activist hedge funds come to Japan

From Japan Today comes an interesting column by Yvan Allaire and Francois Dauphin:

Now foreign investors, holding over 30% of their shares, are unrelenting in their pressure for Japanese companies to adopt American-style governance. New governance codes have been written and Japanese stock exchanges are pushing for their implementation. Foreign money managers and institutional investors stand to benefit from changes in the ethos of Japanese companies which would make them more like American companies in their devotion to shareholder value creation.

That may be the inevitable outcome of a globalized financial market but Japanese promoters of this new governance orthodoxy did not quite understand that “good” governance provides the lever, the entry point for activist hedge funds and their cohort of supporters. These funds thrive, and can implement their standard recipes, only where publicly listed companies have no controlling shareholders and when they can robe themselves with the mantle of defenders of “good” governance.”

And they are now coming to Japan in droves. ...

We analyzed all U.S. activist events of the years 2010 and 2011, some 290 campaigns by 165 activist hedge funds targeting 259 firms. In order to benchmark what happened with these 259 targeted companies, we set up a random sample of 259 companies selected to match the targeted companies in terms of industry classification and market value. (See our article “The Game of ‘Activist’ Hedge Funds: Cui Bono”, International Journal of Disclosure and Governance, advanced online publication, 31 December 2015).

What do the activist hedge funds want? As they keep their stakes in a company for a relatively short time (less than 2 years on average), they push for moves that will generate a quick boost in stock prices. Their standard moves are always a variation or combination of the following:

—Get their nominees on the board, usually as a first step to their next moves;
—Push for a sale of the company;
—Advocate selling assets, division, including spin-offs;
—Demand cuts in all costs to generate cash;
—Call for any “excess” cash to be used to buy back shares or to increase dividend pay-out.

We found pretty clear evidence that the much vaunted “improvements” in operating performance (ROA, ROE, Tobin’s Q) result mainly from some basic short-term financial maneuvers (selling assets or divisions, cutting capital expenditures, buying back shares, etc).

In general, the stock’s performance of targeted companies over a three-year span barely matches the performance of a random sample of companies. But the activist hedge funds, by timing their entry and exit of a stock, by benefiting from the “control” premium on getting companies sold off, may well achieve highly positive results. ...

Our research does not provide any evidence of the superior strategic sagacity of hedge fund managers but does point to their keen understanding of what moves stock prices in the short term. Indeed, in none of the 259 cases studied did hedge funds make proposals of a strategic nature to enhance the long-term performance of the firm.

Japan’s corporate governance reforms of recent years drew the attention of shareholder activists. Their activities might be touted in some quarters as beneficial, but actually the impact of their tactics, when applied on a massive scale, should concern society, governments, pension funds and other institutional investors with pretense of a long-term investment horizon.

 

It's stupidity like this that prevents Wikipedia from being a credible reference tool

Ted Wells' Wikipedia page has been vandalized, obviously by some New England Patriots fan:

I've got a Revlon corporate law question

Suppose a board of directors of a corporation incorporated in Delaware initiates a Revlon auction by initiating an active bidding process seeking to sell itself. After a special committee of independent and disinterested directors conducts a fair and reasonable process, the company gets two offers. After consulting with independent financial advisors, the special committee recommends that the board reject both offers as inadequate. What standard of review applies if a shareholder and/or one of the offerors sues the board for breach of fiduciary duty? What result?

Would your answer change if the confidentiality agreement signed by both bidders includes a don't ask don't waive 3-year standstill provision?

 

Why are public corporations disappearing and what are the consequences?

Kevin LaCroix explores some reasons why we're seeing a decline in the number of public corporations and then looks at some of the consequences. A very good analysis of a very important issue. Recommended.

Alex Tabarrok: "The Number of Publicly Traded Firms Has Halved"

He observes that:

In the past twenty years [the] U.S. has lost almost 50% of its publicly traded firms [from 6,797 in 1997 to 3,485 in 2013, AT]. This decline has been so dramatic, that the number of firms these days is lower than it has been in the early 1970s, when the real gross domestic product in the U.S. was one third of what it is today. This phenomenon has been a general pattern that has affected over 90% of U.S. industries.

A rather stunning finding from Grullon, Larkin and Michaely.

The total number of firms has dropped far less than the number of publicly traded firms, so in part this is probably due to laws affecting publicly traded firms in particular such as Sarbanes-Oxley. But there has also been a small drop in the total number of firms (depending on year measured) and concentration ratios have increased which suggests that competition might have fallen. (I wish the authors had looked more closely at the entire size distribution). Have international firms risen to offset the decline of publicly-trade firms? The authors discuss but discount the role of globalization. I don’t see, however, how their findings of small effects on output competition are consistent with big labor market effects. Nevertheless the bottom line is that as concentration rates have increased so have profits, as a recent CEA report also argues.

Is this all the after-effects of the Great Recession? I hope so but the decline in the number of publicly traded firms is also consistent with the research on long-run declining dynamism (including my own research on regulation and dynamism) which shows that startup and reallocation rates have been trending down for thirty years.

The drop in publicly held firms reported here is consistent with other reports, so let us take it as given. And I agree with Alex that there are multiple factors at work here:

1. Lingering effects of the Great Recession, during which some estimates claim as many as 170,000 businesses failed. 
2. Consolidation. M&A activity has recovered from its 2008 lows and is resulting in a decline in the number of companies as more are combining than being created.
3. The first two factors meant that in  recent years many startups switched their exit strategy from an IPO to a sale to an established company.
4. Secular stagnation.
5. Regulation.

We all have home field biases, of course, but I tend to think the regulatory aspect has had a crushing effect on public corporations. Firms that were public went dark, while privately held firms decided to remain private or to sell to an acquirer rather than go the IPO route:

During the first half of the last decade, evidence accumulated that the U.S. capital markets were becoming less competitive relative to their major competitors. The evidence reviewed herein confirms that it was not corporate governance as such that was the problem, but rather corporate governance regulation. In particular, attention focused on such issues as the massive growth in corporate and securities litigation risk and the increasing complexity and cost of the U.S. regulatory scheme.

Tentative efforts towards deregulation largely fell by the wayside in the wake of the financial crisis of 2007-2008. Instead, massive new regulations came into being, especially in the Dodd Frank Act. The competitive position of U.S. capital markets, however, continues to decline.

This essay argues that litigation and regulatory reform remain essential if U.S. capital markets are to retain their leadership position. Unfortunately, the article concludes that federal corporate governance regulation follows a ratchet effect, in which the regulatory scheme becomes more complex with each financial crisis. If so, significant reform may be difficult to achieve.

Corporate Governance and U.S. Capital Market Competitiveness (October 22, 2010). UCLA School of Law, Law-Econ Research Paper No. 10-13. Available at SSRN: http://ssrn.com/abstract=1696303

ClassCrits IX: The New Corporatocracy and Election 2016

I cannot imagine an academic law conference I would have less interest in attending or at which I would be less welcome. Since YMMV, however, here's the rundown. If you go, don't forget to check all of your privileges at the door.)

Happiness, law students, lawyers, and scambloggers

Michael Simkovic writes:

Professor Paula Franzese of Seton Hall law school is something of a patron saint of law students. Widely known for her upbeat energy, kindness, and tendency to break into song for the sake of helping students remember a particularly challenging point of law, Paula has literally helped hundreds of thousands of lawyers pass the bar exam through her video taped Property lectures for BarBri.

Paula is such a gifted teacher that she won teacher of the year almost ever year until Seton Hall implemented a rule to give others a chance: no professor can win teacher of the year more than two years in a row. Since the rule was implemented, Paula wins every other year. She’s also incredibly generous, leading seminars and workshops to help her colleagues improve their teaching.

Paula recently wrote a book encouraging law students to have a productive, upbeat happy, and grateful outlook on life (A short & happy guide to being a law school student).

Paula’s well-intentioned book has rather bizarrely been attacked by scambloggers as “dehumanizing”, “vain”, “untrustworthy” and “insidious.” The scambloggers are not happy people, and reacted as if burned by Paula’s sunshine. 

Point 1. I can empathize with many of the scambloggers' complaints. A lot of law schools did puff their job numbers, bar passage rates, and so on. And a lot of law schools happily took the money of people who never should have been accepted in the first place.

Point 2. But I can also empathize with the view that the scambloggers are a surly lot whose sole enjoyment seems to come from stewing in their own misery. The law professor scambloggers-- in addition to mainly being a bunch of failed academics--seem to be an equally dour and miserable lot (is their a causal link to the fact that they're all mostly to the left of Bernie Sanders? But I digress.).

Now, however, we come to an issue on which I must at least partially dissent. He also writes:

Happiness and success tend to go together. Some people assume that success leads to happiness. But an increasing number of psychological studies suggest that happiness causes success. (here  and here) ....

Happiness research is very much a mixed bag. Largely because it depends in large part on self reporting of happiness, but also because of the well known phenomenon that only positive results tend to make it into the literature. When I drilled down into the happiness literature on productivity, for example, a few years ago, it quickly became apparent that the was no evidence of causation and very little evidence of correlation:

A Concurring Opinions post by Michelle Harner seems to invoke the idea that happy workers are more productive workers:

Employing a workforce that enjoys coming to work, is comfortable communicating throughout the firm and portrays that positive image to the outside world potentially holds real value.

It makes some intuitive sense, I suppose. As I detail in my article, Privately Ordered Participatory Management, however, the evidence does not support that hypothesis:

Over two decades ago, Nobel economist Kenneth Arrow opined that “the empirical evidence, such as it is, points to very little relation between the morale of workers and their performance.” Kenneth J. Arrow, The Limits of Organization 76 (1974). The intervening years have done little to change that conclusion. A more recent literature review likewise concluded that there is “simply no direct connection between job satisfaction and subsequent productivity.” Edwin A. Locke et al., Participation in Decisionmaking: When Should it be Used?, 14 Org. Dynamics 67, 71 (1986). Accord Thomas A. Kochan et al., The Transformation of American Industrial Relations (rev. ed. 1994) (same); Oliver E. Williamson, The Economic Institutions of Capitalism 270 (1985) (same); Tom Juravich, Empirical Research on Employee Involvement: A Critical Review for Labor, 21 Lab. Stud. J. 51, 56 (1996) (based on research to date no proof that “happy workers are necessarily more productive”); Charles D. Watts, Jr., In Critique of a Reductivist Conception and Examination of “The Just Organization,” 50 Wash. & Lee L. Rev. 1515, 1518 (1993) (“I do not see the propagation of just or participative organizations that one would expect if these benefits [i.e., increased job satisfaction etc...]” were as significant as the proponents of participatory management suggest); cf. Alan Hyde, In Defense of Employee Ownership, 67 Chi-Kent L. Rev. 159, 201 (1991).

Because that article was written circa 1997, of course, there may be more recent research. And so there is. But the more recent research is consistent with my rather pessimistic view:

Job satisfaction has traditionally been thought of by most business managers to be key in determining job performance. The prevailing thought is if you are satisfied and happy in your work, you will perform better than someone who isn’t happy at work. 

Not so, according to a research project by Nathan Bowling, Ph.D., an assistant professor of psychology at Wright State. His findings, which will be published soon in the Journal of Vocational Behavior, show that although satisfaction and performance are related to each other, satisfaction does not cause performance. 

“My study shows that a cause and effect relationship does not exist between job satisfaction and performance. Instead, the two are related because both satisfaction and performance are the result of employee personality characteristics, such as self-esteem, emotional stability, extroversion and conscientiousness,” he explained.  

Bowling, who specializes in industrial and organizational psychology, said his findings are based on reviewing data from several thousand employees compiled over several decades. His subjects, mostly in the United States, involved several hundred different organizations. 

Bowling said the public, and even researchers, can get confused over the relationship between job satisfaction and job performance. “Just because two things are related doesn’t mean that one causes the other. For example, there is a relationship between the amount of ice cream sold on a given day and the crime rate for that day. On days when ice cream sales are high, the number of crimes committed will also tend to be high. But this doesn’t mean that ice cream sales cause crime. Rather, ice cream sales and crime are related because each is the result of the outdoor temperature. Similarly, satisfaction and performance are related because each is the result of employee personality.”

Why does this matter? In the first place, firm HR efforts to boost employee morale may be unproductive. In the second place, some liberal labor theorists argue that the government ought to try to promote worker happiness so as to promote competitiveness. With President Obama apparently about to go on a competitiveness kick, it may prove necessary to once again nip the happiness fable in the bud.

Today would have been Larry Ribstein's birthday

I miss him. It was a great loss both professionally and personally. My short essay Larry Ribstein, RIP, 2 JOURNAL OF LAW (2 THE POST) 433 is here.

Fried on "Rationalizing the Dodd-Frank Clawback"

Jesse Fried has posted a very interesting and persuasive article on executive compensation clawbacks:

On July 1, 2015, the Securities and Exchange Commission (SEC) proposed an excess-pay clawback rule to implement the provisions of Section 954 of the Dodd-Frank Act. I explain why the SEC’s proposed Dodd-Frank clawback, while reducing executives’ incentives to misreport, is overbroad. The economy and investors would be better served by a more narrowly targeted “smart” excess-pay clawback that focuses on fewer issuers, executives, and compensation arrangements.

Fried, Jesse M., Rationalizing the Dodd-Frank Clawback (April 12, 2016). Available at SSRN: http://ssrn.com/abstract=2764409

It'd be interesting to see his analysis frame applied to the new compensation clawback rule for banks.

Foxen 7200 Volpino (Santa Ynez Valley) 2012

For dinner tonight I made Michael Chiarello's Italian Meatloaf and roasted Italian cauliflower. Both were very easy and delicious recipes. With it we had the 2012 Foxen Volpino,which is a blend of 78% Sangiovese and 22% Merlot. Despite its youth, the Volpino had a developed bouquet of black cherry, blackberry, and plum. On the palate, I tasted the same fruit flavor associations plus some spice, earth, and leather. Bright acidity and a firm tannic backbone suggest that it has some aging potential, but it is hard to resist now. This is one of the better Cal-Ital wines. Grade: 90

My "Corporate Governance after the Financial Crisis" now in paperback with new conclusion

The first decade of the new millennium was bookended by two major economic crises. The bursting of the dotcom bubble and the extended bear market of 2000 to 2002 prompted Congress to pass the Sarbanes-Oxley Act, which was directed at core aspects of corporate governance. At the end of the decade came the bursting of the housing bubble, followed by a severe credit crunch, and the worst economic downturn in decades. In response, Congress passed the Dodd-Frank Act, which changed vast swathes of financial regulation. Among these changes were a number of significant corporate governance reforms.

Corporate Governance after the Financial Crisis asks two questions about these changes. First, are they a good idea that will improve corporate governance? Second, what do they tell us about the relative merits of the federal government and the states as sources of corporate governance regulation? Traditionally, corporate law was the province of the states. Today, however, the federal government is increasingly engaged in corporate governance regulation. The changes examined in this work provide a series of case studies in which to explore the question of whether federalization will lead to better outcomes. In it, I analyze these changes in the context of corporate governance, executive compensation, corporate fraud and disclosure, shareholder activism, corporate democracy, and declining U.S. capital market competitiveness.

This paperback edition includes a new conclusion updating the key arguments.