ProfessorBainbridge.com

Dealing with Trump's conflicts of interest (the DGCL 144/SOX 406 analogy)

Milan Markovic writes On Trump and Divestment:

I, like many, am very concerned that the President-Elect's business interests will interfere with the performance of his duties as President.  While Trump may sincerely believe that the conflicts of interests posed by his sprawling business empire can be managed by, for example, allowing his children to run his company, virtually every decision involving a foreign nation in which he has investments will inevitably be subject to skepticism, undermining faith in the Presidency and the government as a whole.  This is to say nothing of the matters that the Trump Organization currently has pending before the NLRB and other agencies. 

Nevertheless, I respectfully disagree with Richard Painter and others who have argued that total divestment is the only solution to Trump's very serious conflicts.  Indeed, divestment would hardly eliminate the conflicts and could even make them worse. 

Divestiture or liquidation of one's assets, followed by transferring the proceeds to a blind trust, is the appropriate recourse for individuals whose wealth consists largely of liquid assets such as stock.  For example, former Treasury Secretary and Goldman Sachs banker Hank Paulson liquidated his Goldman stock prior to joining the government.  Of course, the mere fact that Paulson divested his Goldman holdings hardly ensures that he did not favor Goldman's interests while serving in the Treasury.  Lost in all of the discussion of Trump's financial conflicts is that relational conflicts - which are ubiquitous in government circles - can be just as serious.  

Let's assume that Trump does indeed decide to liquidate his substantial holdings.  Three things are certain. 1) As Professor Bainbridge has argued, divesting from a business empire like Trump's will necessitate a lengthy process that likely cannot be completed within the course of a few months and without significant displacement of employees.  2) Some assets and holdings likely cannot be divested at all because of transfer restrictions and alike in membership / joint venture agreements whereas for those assets that are sold, Trump can likely avoid paying hundreds of million dollars in taxes by obtaining a certificate of divestiture.  3) Among the bidders for Trump assets will be foreign entities, including foreign government-owned entitities. On this last point, were one inclined to try to curry favor with Trump, paying above market price for one of his hotels would probably a better strategy than planning a holiday party at one of those same hotels. ...

Rather than pushing for total divestment, which Trump has heretofore resisted and would not eliminate his conflicts of interest, an alternative approach would be for Trump to provide a full accounting of his holdings and to transfer all of his interests (and those of his family) into a voting trust to be managed by an unaffiliated and walled-off third party.

Where we disagree is that I don't think an independent voting trustee is necessary (I also don't think it's something Trump would agree to do). See my earlier post, which proposed that:

In Trump's case, this means:

1. He resigns from all positions with his businesses.
2. He puts all of his shares in the companies he owns into voting trusts and appoints one of his children, probably Ivanka, as trustee.
3. Any members of the Trump family that take formal or informal positions in the White House must resign from any positions they hold in the Trump organization. They should sign confidentiality agreements pursuant to which they commit not to share confidential information with any member of the Trump family, including spouses or children.
4. Any members of the Trump family who do not hold positions in the White House should also sign confidentiality agreements, agreeing not to seek access to confidential information and agreeing not to use any confidential information they may learn from government sources.
5. Senate Ethics Rules provide that:
   
   1. "If a Member’s spouse or immediate family member is a registered lobbyist, or is employed or retained by such a registered lobbyist or an entity that hires or retains a registered lobbyist for the purpose of influencing legislation, the Member shall prohibit all staff employed or supervised by that Member (including staff in personal, committee, and leadership offices) from having any contact with the Member’s spouse or immediate family member that constitutes a lobbying contact as defined by section 3 of the Lobbying Disclosure Act of 1995 by such person."
   2. Trump should adopt a similar rule for West Wing employees having any contact with members of his family who are not themselves west Wing officials.
6.  Any contacts between Trump and anyone affiliated with his business--including his children--should be publicly disclosed.
7. All West Wing employees-including Trump-should adopt a clean desk rule when Trump business affiliates--including his children--are in the building.
8. Any contacts between anyone in the West Wing and any foreign official doing business with the Trump business organization should be disclosed.

In addition, Walter Olson addresses the issue and concludes that "Congress will affirmatively need to 'decide what it is willing to live with in the way of Trump conflicts'—and it should draw those lines before the fact, not after."

Walter argues that even if Trump adopts my proposal, problems would remain under the Emoluments Clause:

... especially those surrounding favorable treatment that a presidentially owned business may not have sought out but which may nonetheless constitute “presents.” Congress should expect to ramp up the expertise it can apply to these problems, and (absent divestiture) assign ongoing committee responsibility to tracking them. And it should issue clear guidelines as to what it is willing and not willing to approve. Such a policy will not only signal that lawmakers are taking their constitutional responsibilities seriously, but could also benefit the Trump Organization itself by clarifying how it needs to respond if and when foreign officials begin acting with otherwise inexplicable solicitude toward its interests.

I will freely confess that I have trouble enough spelling emoluments, let alone saying anything meaningful about what it requires, but even just as a purely prudential matter I think it would be useful for Congress to put its imprimatur on whatever plan Trump comes up.

There is a corporate law analogy here to situations under Delaware General Corporation Law section 144 in which approval of a conflict of interest by independent directors or shareholders cleanses the conflict (technically it transfers the burden of proof to the plaintiff to show waste).

There is also an analogy to Sarbanes-Oxley section 406 and the rules thereunder, which impose a comply or explain obligation with respect to adoption by a corporation of "a code of ethics for its principal executive officer, principal financial officer, principal accounting officer or controllers, or persons performing similar functions. [4]  The SEC defines a code of ethics as written standards that are reasonably designed to deter wrongdoing and to promote: 1) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; 2) full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the SEC and in other public communications made by the issuer; 3) compliance with applicable governmental laws, rules and regulations; 4) the prompt internal reporting to an appropriate person or persons identified in the code of violations of the code; and 5) accountability for adherence to the code."

Politico article on Paul Atkins, who apparently has liberals and shareholder activists scared

Here

Interview with Jonathan Adler on "Business and the Supreme Court"

I was privileged to be asked for a blurb on Jonathan Adler's edited volume Business and the Roberts Court, which I thought was an exceptional contribution to the literature:

"It is commonplace for politicians, journalists, and the public at large to debate whether the Supreme Court is 'pro-business.' As the essays in this outstanding volume demonstrate, however, this is not just the wrong question-it is an inherently incoherent question. One cannot analyze Supreme Court decisions by simply totting up wins and losses from a single term, as many mindless end-of-term articles try doing. Instead, one must take a longer view over many terms. But even if one does so it is rarely obvious that specific decisions can be easily categorized as pro- or anti-business. Accordingly, the contributors to this volume bring to bear a much more sophisticated set of tools to analyze how the Supreme Court affects business. It will therefore require a place on the bookshelf of any lawyer, judge, or academic who cares about the relationship of law and business." -Stephen M. Bainbridge, William D. Warren Distinguished Professor of Law, UCLA School of Law

There's an interesting interview up on SCOTUSblog with Adler about the book. Money quote:

Question: What does it mean for the Supreme Court to be “pro-business”? What sort of definitional and conceptual parameters need to be recognized to begin to answer that question? Then again, are such labels more problematic than helpful?

Adler: That’s really the whole point of the book. In our age of 140-character assessments, there is a push to place a hashtag label on institutions and decisions. But such labels, like “pro-business,” often obscure as much as they reveal. As I discuss in the introduction, there are many different ways one could define “pro-business,” from a willingness to hear business-related cases to a commitment to doctrines that benefit business groups to actual favoritism. More importantly, if we really want to understand how the court approaches specific issues and resolves cases, we need to get beyond the labels and look at the content of the court’s work. Hopefully, this book makes a valuable contribution to that enterprise.

Adler also offers thoughts on how a Trump nominee will affect the court in business cases and various other aspects of the topic. Good read.

Related articles

[Jonathan H. Adler] Business and the Roberts Court

Or, perhaps, the SEC has been captured by the mutual fund industry

Stewart Brown:

Regulatory agencies are created to act in the public interest but often end up acting in the interests of those regulated. This is known as regulatory capture. The theory of regulatory capture may be given both a broad and narrow interpretation. Under a broad interpretation, a group of entities seeking regulatory favor or “a special interest” affect state intervention in various areas, including taxation, monetary policy and legislation. Under a narrow interpretation, special interest groups manipulate regulators directly.

Mutual fund assets in the U.S. currently exceed $16 trillion, and these assets generate more than $100 billion per year in revenue to firms that manage mutual funds. Thus, there are ample incentives and financial means for investment management firms to influence the political and regulatory process. The potential for a regulatory employee to be hired by a special interest is one means by which a special interest can influence regulators directly. And not surprisingly there is a busy and well-documented revolving door between the Securities and Exchange Commission and the financial services industry.

My recent paper, available here, shows that the SEC has been effectively captured in both a broad and narrow context. Broadly, the investment management industry has succeeded in manipulating advisory fees, distribution fees and soft-dollar commissions. In a narrow context, the Commission has slow-walked the disclosure of information crucial to investors and has failed to reform the fund distribution system in spite of clear abuses and documented evidence that distribution fees are deadweight costs.

Looks like the Obama SEC has been captured by a handful of institutional investors

Keith Paul Bishop reports:

More than six decades ago, the late Professor Marver H. Bernstein published his theory of regulatory capture in Regulating Business By Independent Commission (Greenwood Press 1955).  According to his theory, agencies follow a life cycle of birth, maturity and old age.  As an agency enters senescence, it inevitably becomes captive to the groups that it regulates.

The Securities and Exchange Commission’s recently issued universal proxy proposalappears to provide some support for the notion that a small cadre of institutional investors has captured the agency.  According to the SEC, the proposal’s genesis was a 2013 recommendation of the Investor Advisory Committee followed by a rulemaking petitionsubmitted by the Council of Institutional Investors.  What isn’t apparent from the SEC’s release is the substantial overlap between these two groups.  In fact, the following members of the CII are associated with individuals serving on the IAC.

AFL-CIO

California Public Employees’ Retirement System (CalPERS)

California State Teachers Retirement System (CalSTRS)

CFA Institute

Readers of the SEC’s proposal also wouldn’t know that when the IAC made its recommendation, Joseph Dear was CalPERS’ Chief Investment Officer as well as a former Chair of the CII.  Anne Simpson, a CalPERS officer, currently serves as a member of the IAC.  Thus, it is no surprise that the SEC’s proposal also cites a letter from CalPERS in support of support for SEC action. The IAC’s current Vice Chair, Anne Sheehan, serves as Director of Corporate Governance at CalSTRS.  She was married to Mr. Dear and also served twice as Chair of the CII.

Maybe what the Trump SEC needs is an independent voice--perhaps one from academia?--who is critical of institutional investors.

Bootleggers instead of quacks? The case of hedge fund regulation

There's a really quite interesting and provocative analysis of hedge fund regulation posted at the CLS blog by Jeremy Kidd of Mercer University’s Walter F. George School of Law:

In 1999, Bruce Yandle, emeritus dean and professor of economics at Clemson University, proposed a public-choice economics version of the old saying, “politics makes strange bedfellows.”[2] It was called the Bootleggers and Baptists Theory. He argued that lasting regulations require the cooperation of two groups: the so-called Baptists, who provide vocal, morality-based policy arguments in favor of the regulations, and the bootleggers, who provide the money necessary to enact and defend the regulations. The name comes from the coalition that supported bans on the sale of alcohol on Sunday—Baptists because they believed it immoral to drink on the Sabbath, bootleggers because the bans limited competition and increased their profits—but the principle applies to a broad range of regulatory issues. In fact, once one grasps the principles of the theory, it becomes difficult to ignore evidence of bootleggers everywhere.

The formula is simple: government regulation that achieves its stated goals poorly, if at all, combined with benefits for competitors of the regulated entity. A good example could be the regulation of hedge funds under Dodd-Frank,

In the wake of the financial meltdown of 2008 to 2009, there was no shortage of Baptists arguing that something had to be done to minimize systemic risk, largely by reforming the market structures that were believed to have contributed to a dangerous accumulation of risk. ...

Who are the bootleggers ...? Two possibilities seem plausible. One is large, traditional financial institutions. The investment vehicles provided by traditional firms are rough substitutes for the services of hedge funds. They are likely to be less risky but also offer lower returns. If regulations lower hedge fund returns, traditional investments with their lower risk become attractive again. The other, related possibility is larger hedge funds that wish to limit competition from smaller rivals.  

I am really looking forward to reading the underlying paper. On a quick glance, it seems like a potentially powerful extension and interstitial enhancement of Roberta Romano's analysis of SIX as quack corporate governance and my analysis of Dodd-Frank as the same. Indeed, I view it as highly complementary by providing an alternative explanation for why the rules Dodd-Frank developed were so badly designed and providing an elaboration on my argument that Dodd-Frank was motivated by interest groups with something other than the public interest in mind. RECOMMENDED

Some Thanksgiving gear recommendations

You'll need a boning knife for your turkey. This one is the best. https://t.co/zdRrUNwsW2

— Professor Bainbridge (@ProfBainbridge) November 23, 2016

You're also going to need a carving knife for your turkey tomorrow. This one is the best. https://t.co/GACFfRRwTJ

— Professor Bainbridge (@ProfBainbridge) November 23, 2016

You're going to need a good knife sharpener to keep your knifes ready. This is the best. https://t.co/YPNw2RIQWo

— Professor Bainbridge (@ProfBainbridge) November 23, 2016

Should you brine your Thanksgiving turkey? Should you stuff it? How should you roast it?

It depends. Do not brine a ButterBall or similar brand turkey, because it has already been injected with a salt and spice treated fluid. People will tell you not to brine a frozen bird or one that's been water cooled. But Alton Brown actually defrosts his frozen turkeys by submerging them in a brine, which is good enough for me.

Here's my recipe for a fresh (or defrosted) 14-lb bird:

Make six ice packs by filling quart zip-lock bags with water and freezing over night.

Put 8 pounds of ice and three ice packs in a cooler.

Start brine with 3 quarts filtered water, 2 12-oz. beers, and 1 cup bourbon in a large pan or Dutch oven.

Bring to a boil.

Add 1 cup pickling salt (it dissolves better), 1/2 cup brown sugar, 1 tablespoon garlic powder, and 1 tablespoon onion powder. Stir until dissolved. Remove from heat and allow to cool slightly.

Put the following into a cheesecloth bag: 1 tablespoon whole black peppercorns, 1 bayleaf, 1 sprig rosemary, 1 sprig sage, 3-4 garlic cloves. Add bag and 2 halved lemons to brine. Pour brine into cooler and stir until temperature drops to icy.

Put thoroughly rinsed bird into brine. Make sure it is fully submerged. if not, add additional water into which you have dissolved 4 tablespoons of pickling salt per quart.

Allow to sit overnight. First thing in the morning you need to check temperature of the water. If it's above 40 degrees, add more ice packs. (Don't add ice, which would dilute brine.)

Remove bird from cooler and very thoroughly rinse it. Rinse out cooler and fill with 2 gallons icy water. Return bird to cooler for 30 minutes. Remove, rinse again, drain, and pat thoroughly dry. Do not stuff with stuffing. (Ditto re Alton Brown.) Instead add 1 sliced onion, 1 sliced apple, 1 sliced lemon, a bay leaf, and a few garlic cloves to the cavity.

Preheat the oven to 500 degrees. I start with the bird breast side down in a roasting pan with a rack. After 30 minutes, I flip the bird over and reduce the heat to 350 degrees. After about 90 minutes, I use an instant read meat thermometer to take the bird's temperature. Make sure the probe does not touch the bones. I want the thigh meat to hit 170 degrees. Carryover heat will bump it up 5-10 degrees.

Let turkey rest at least 30 minutes before carving. Do not skip this step.

If you make a pan gravy with the drippings, note that they will be saltier than those from an unbridled bird. Use a low sodium stock and taste carefully before adding any additional salt to the gravy. Note that using Wonder flour to thicken the gravy rather than making a roux is a useful shortcut.

Here's my turkey gear:

The first wall Trump needs to build is an ethics wall

President-Elect Donald Trump has a unique and difficult problem. Most recent Presidents have come to the office after years of government service with assets that consist mostly of real estate, stocks, bonds, etc... They have not had a distinct business empire of the sort Trump has built.

Many people are calling on Trump to divest his business, including the WSJ editorial board:

Mr. Trump’s best option is to liquidate his stake in the company. Richard Painter and Norman Eisen, ethics lawyers for George W. Bush and President Obama, respectively, have laid out a plan, which involves a leveraged buyout or an initial public offering. 

Mr. Trump could put the cash proceeds in a true blind trust. The Trump children can keep the assets in their name, and he can transfer more to them as long as he pays a hefty gift tax. Finally, Mr. Trump should stipulate that he and his children will have no communication about family business matters. 

The alternatives are fraught, perhaps even for the Trump Organization’s bottom line: Thanks to a Clinton Administration precedent, Presidents can face litigation in private matters—so the company will become a supermagnet for lawsuits. Rudy Giulianilamented on television that divestment would put the Trump children “out of work,” but reorganizing the company may be better for business than unending scrutiny from the press. Progressive groups will soon be out of power and they are already shouting that the Trump family wants to profit from the Presidency.

The political damage to a new Administration could be extensive. If Mr. Trump doesn’t liquidate, he will be accused of a pecuniary motive any time he takes a policy position. For example, the House and Senate are eager to consider tax reform—and one sticking point will be the treatment of real estate, which will be of great interest to the Trump family business. Ditto for repealing the Dodd-Frank financial law, interest rates and so much more.

But I suspect PEOTUS Trump will continue to resist doing so. For one thing, divesting a business as complex as Trump's is not something one can do in a hurry. As a leading guide to corporate divestitures explains, this is a lengthy, complex, and fraught process:

Second, Trump has a perfectly legitimate desire to pass his business on to his children. Requiring him to divest would deny him the ability to do so. It would also set an unfortunate precedent that would discourage business men and women from seeking office in the future, creating even greater dominance of government by a permanent political class that cycles from government jobs, to public office, to lobbyist firms, and over again.

Third, Trump is stubborn and likes to tweet his enemies (NB: I meant tweak, but tweet was a happy accident so I'm leaving it). There will be a strong temptation for him to keep his business just to give the finger to progressives. So a plan devised by Painter--who supported Hillary in the last election and vilified Trump in op-eds--and ex-Obama aide Eisen is probably going to be rejected just because of who's behind it.

At the same time, however, it is clear that Trump's business empire is a fertile source of conflicts of interest. There will be many cases--trumped up (pun intended) or not--where he will be accused of creating pay to play scenarios. And so on.

There is an alternative. It's not ideal, but it would reduce the potential for conflicts of interest and enable Trump to pass his business on to his kids.

First, he needs to take a hard look at his sprawling empire and identify the core pieces--the family jewels, if you will--that he wants to pass on. The non-essential rest should be sold off and the proceeds put into a blind trust.

Second, he needs to create an insulation wall separating his political activities from those of the organization. Such walls were formerly known in colloquial legal speech as “Chinese walls.” As a California appellate judge aptly noted, however:

“Chinese Wall” is [a] piece of legal flotsam that should be emphatically abandoned. The term has an ethnic focus that many would consider a subtle form of linguistic discrimination. Certainly, the continued use of the term would be insensitive to the ethnic identity of the many persons of Chinese descent. . . .

Aside from this discriminatory flavor, the term “Chinese Wall” is being used to describe a barrier of silence and secrecy. . . . [But] “Chinese Wall” is not even an architecturally accurate metaphor for the barrier to communication created to preserve confidentiality. Such a barrier functions as a hermetic seal to prevent two-way communication between two groups. The Great Wall of China, on the other hand, was only a one-way barrier. It was built to keep outsiders out—not to keep insiders in.

In law firms, terms such as “ethical wall” or “ethical screen” are emerging as alternatives. In the present context, however, the term “insulation wall” seems superior. First, it does not connote the professional responsibility aspects associated with the ethical wall terminology. Second, it provides a more exact “architecturally accurate metaphor” than does ethical wall.

Key features of such a wall typically include organizational and physical separation of persons with access to information especially likely to be abused from persons who do not need such access. Prohibitions against and penalties for discussing confidential matters with unauthorized personnel or in locations where such discussions could be overheard are also an important part of the insulation wall. Likewise, procedures for preventing unapproved personnel from accessing confidential information and files, delinking approved personnel compensation from trading profits and regular training of personnel on their legal and commercial responsibilities.

In Trump's case, this means:

1. He resigns from all positions with his businesses.
2. He puts all of his shares in the companies he owns into voting trusts and appoints one of his children, probably Ivanka, as trustee.
3. Any members of the Trump family that take formal or informal positions in the White House must resign from any positions they hold in the Trump organization. They should sign confidentiality agreements pursuant to which they commit not to share confidential information with any member of the Trump family, including spouses or children.
4. Any members of the Trump family who do not hold positions in the White House should also sign confidentiality agreements, agreeing not to seek access to confidential information and agreeing not to use any confidential information they may learn from government sources.
5. Senate Ethics Rules provide that:
   
   1. "If a Member’s spouse or immediate family member is a registered lobbyist, or is employed or retained by such a registered lobbyist or an entity that hires or retains a registered lobbyist for the purpose of influencing legislation, the Member shall prohibit all staff employed or supervised by that Member (including staff in personal, committee, and leadership offices) from having any contact with the Member’s spouse or immediate family member that constitutes a lobbying contact as defined by section 3 of the Lobbying Disclosure Act of 1995 by such person."
   2. Trump should adopt a similar rule for West Wing employees having any contact with members of his family who are not themselves west Wing officials.
6.  Any contacts between Trump and anyone affiliated with his business--including his children--should be publicly disclosed.
7. All West Wing employees-including Trump-should adopt a clean desk rule when Trump business affiliates--including his children--are in the building.
8. Any contacts between anyone in the West Wing and any foreign official doing business with the Trump business organization should be disclosed.

Washington is full of power couples that have faced conflicts of interest (Diane Feinstein springs to mind). The press has allowed them to work out reasonable solutions. People ought to give Trump a chance to create an ethics wall that will separate his family's business interests from his new position as POTUS.

Oh by the way, releasing his tax returns--at least on a going forward basis once he enters office--would be a good place to start.

What wine shall we drink for the first Thanksgiving of the Trump era?

Many years ago I did one of my first blog posts on what wine to drink at Thanksgiving, suggesting Zinfandel should be your choice:

In the first place, the turkey is not what determines the choice of wine for Thanksgiving dinner. All those powerful sweet flavors (yams with little marshmallows) competing with equally potent savory flavors (herbed stuffing) are what has to drive your choice. Zinfandel's spicy berry flavors and mellow tannins are going to match up to the classic Thanksgiving fare than would, say, the steely tannins and currant and cedar flavors of a good Cabernet Sauvignon. In the second place, the dark meat of a good free range turkey has plenty of flavor to stand up to a zinfandel. In the third place, if you want to show off the wine, roast turkey - like roast chicken - is an great blank canvas against which the wine will show brilliantly (this is something I do not recommend for Thanksgiving, when I think the wine should be a condiment rather than the star, due to the presence of all those other dishes with their complicated flavors, but its worth keeping in mind).

In a 2004 TCS column I elaborated, observing that:

Assuming a gathering of friends but not of wine snobs, you want good wines that will complement the food but not be the star attraction. Anyway, star attraction wines -- well aged clarets, cabernets, or burgundies -- don't mesh well with Thanksgiving Day. 

Granted, roast turkey would go well with most wines. Turkey is not quite as much of a blank canvas as roast chicken, as it has stronger flavors and a firmer texture, but it still will work well with most wines. 

Instead, the problem children at the table are all the other things we eat at Thanksgiving. You have a lot of strong and diverse flavors with which to deal. Worse yet, you've got both sweet and savory items, sometimes in the very same dish: herbed stuffing, yams with those little marshmallows, cranberry in some form, and (lord help us) Jello molds. No fine claret or burgundy should have to compete with little marshmallows.  

Which led me back to Zinfandel and a Ridge Lytton Springs or Geyserville Zinfandel-based wine with some age on it has been my standard Thanksgiving wine for many years.

But this year the WSJ suggests going a different route and I'm more or less persuaded:

Our radical plan to make Turkey-Day even more delicious? Pair your Thanksgiving meal—from start to finish—with sparkling wines: Champagne, Prosecco or Cava. Here’s how to pull it off. ...

Sparkling wine happens to be particularly well-suited to the Thanksgiving table—and I’m not only talking about the pre-dinner toast. The bubbles provide a lively counterbalance to the rich flavors and general heaviness of the meal (although they won’t necessarily counteract the turkey-induced tryptophan fatigue). Think Prosecco or Cava. Or, better yet, think rosé Champagne, which has the weight of a red wine with the liveliness of a white—and bubbles that lend a more festive note.

I'm on board with the bubbles. But then the article goes off the rails by recommending all sorts of foreign wines. And that's where I get off the train. As I observed all those years ago:

While lots of countries have some sort of thanksgiving holiday, Thanksgiving -- with a capital T -- is a quintessentially American holiday. So I start narrowing down the field with a basic proposition: Only American wines on the Thanksgiving table. 

This has been my hard and fast rule for many years. And that seems especially appropriate this year with all the talk of nationalism in the air. Even a Davos-loving, globe trotting, citizen of the world should be okay with a little wine chauvinism. 

This gives us a lot of choices. Schramsberg rose would be a nice choice for the main meal, with their cremant for dessert. J Schram would be a great choice if you're going to push the boat right out. Argyle (Oregon) and Iron Horse would be good choices too.

But here's a real wild card: Sparkling red zinfandel. Long time readers readers will recall my love affair with Australian sparkling shiraz:

Now we come to my favorite fast food and the ideal match. I love NY- style pepperoni pizza with extra cheese. It's a tough match for wine. You've got the bread of the crust, the acidic and often rather sweet tomato sauce, the salty meat, the rich and unctuous cheese. You need an acidic wine to slice through the fats, big flavors to stand up to the salt and tomatoes, and something to scrub the palate. In my book, the ideal match is a good Australian sparkling shiraz. It has all the requisite attributes. Indeed, if you can literally feeling your arteries clogging as you eat a good pizza, you can also feel a good sparkling red wine cleaning them out. It's the roto-rooter of Wine matches.

The same qualities would make an interesting (although perhaps too forward) match for Thanksgiving. Sadly, there aren't a lot of US versions, but Schug and Picchetti make sparkling red Zinfandels in the style of Australian sparkling shiraz. 

As I assessed the state of my cellar, however, there was one obvious choice: 2012 Sea Smoke Sea Spray LD sparkling wine. It's mostly Pinot Noir, which makes a nice match for this meal. Medium weight with nice strawberry and black cherry fruit, with toast and nuts on the finish. This is the late disgorged version, which ramps up the yeast flavors and adds a lot of complexity. Good acidity and tons of very small bubbles refresh the palate.

Memo to UK PM Theresa May: Employee Voice Doesn't Add Much to the Boardroom

The Corporate Law and Governance blog reports that:

The Prime Minister, the Rt Hon Theresa May MP, delivered a speech today at the CBI annual conference: see here. The Prime Minister said some more about the forthcoming green paper on corporate governance, in particular the Government's position on worker representation on boards. Worker representation - if that is taken to mean the direct appointment of a worker or trade union representative to the board - will not be mandatory. Here's an extract from the speech:

...

First, while it is important that the voices of workers and consumers should be represented, I can categorically tell you that this is not about mandating works councils, or the direct appointment of workers or trade union representatives on Boards. Some companies may find that these models work best for them – but there are other routes that use existing Board structures, complemented or supplemented by advisory councils or panels, to ensure all those with a stake in the company are properly represented. It will be a question of finding the model that works.

Second, this is not about creating German-style binary boards which separate the running of the company from the inputs of shareholders, employees, customers or suppliers. Our Unitary Board system has served us well and will continue to do so. But it is about establishing the best corporate governance of any major economy, ensuring employees’ voices are properly represented in Board deliberations, and that business maintains and – where necessary – regains the trust of the public.

There is nothing anti-business about this agenda. Better governance will help companies to take better decisions, for their own long-term benefit and that of the economy overall. So this is an important task. We will work with you to achieve it, and I know you will rise to the challenge".

Voice and representation but not necessarily board membership? How's that supposed to work?

In any case, as I discussed in my article, Privately Ordered Participatory Management: An Organizational Failures Analysis (September 1997), available at SSRN: https://ssrn.com/abstract=38600, there are significant costs to employee voice/representation while the benefits are most uncertain:

Michael Dooley opines that workers will be indifferent to most corporate decisions that do not bear directly on working conditions and benefits: “As to the majority of managerial policies concerning, for example, dividend and investment policies, product development, and the like, the typical employee has a much interest and as much to offer as the typical purchaser of light bulbs.” Dooley’s argument is supported by a number of empirical studies. John Witte’s case study, for example, found that workers who did not desire participation often cited a lack of managerial expertise as the reason. John Cotton’s review of the literature concluded that participatory management is most effective when it is directed at “one’s everyday work, not [at] deciding policy issues of the entire organization.” Sagie and Koslowsky found that “subordinate participation in tactical decisions (those dealing with working methods), as opposed to strategic decisions (those dealing with the initiation of a new product or service), was a better predictor of an increase in change acceptance, work satisfaction, effectiveness, and time allotted to work.” All of which tends to suggest that employee representatives add little except increased labor advocacy to the board.

So my advice would be to give it a miss.

Richard Booth on Appraisal Arbitrage

Interesting post

The burgeoning LLM in Compliance

LLM Guide reports that there's growing interest in LLM programs focusing on corporate governance:

Thanks to infamous scandals such as the fraudulent loss reportage at Enron in 2001, as well as the financial crisis of 2008 and ensuing recession, concern about corporate malfeasance is high.

But that means that legal regulation is also on the upswing--and so are jobs that require a legal knowledge of corporate compliance.

"On the corporate and finance end, after the financial crisis in 2008, there were so many additional regulations put in place, such as Dodd-Frank [Wall Street Reform and Consumer Protection Act of 2010], and those “regulations have really had an impact on how companies do business," says Pam Kroh, director of graduate programs at Widener University Delaware Law School, which offers a corporate law regulatory analysis and compliance LL.M. concentration, as well as an LL.M. in corporate law and finance. ...

Officials say that these LL.M. programs are growing in popularity in response to a field that's expanding to meet new compliance requirements triggered by financial reforms such as Dodd-Frank, which brought about the greatest change to the United States' financial regulations since the Great Depression. Just as healthcare compliance programs grew in popularity as a field in response to the Affordable Care Act of 2010—“Obamacare”—corporate compliance programs are now expanding to meet the demand for professionals who understand how to help companies avoid the scandals and snafus that have dogged the financial world in recent decades. ...

Kroh from Widener says that students who pursue an LL.M. in corporate compliance are typically already practicing lawyers, working for companies such as Walmart or Johnson & Johnson, and are looking for that extra boost to their skills and expertise that they may not have received in their prior schooling.

I'm going to be teaching a corporate governance course next year that focuses on compliance issues. And I think UCLA could easily put together an LLM in compliance, which would also make a good complement to the Milken Institute. Using mostly existing courses we could offer an initial curriculum that for entrants with a US JD would look like this:

Fall	Spring
The Law of Governance, Risk Management, and Compliance*	Advanced Corporation Law
Accounting for Lawyers	Executive Compensation
Legislation and Regulation	Cybersecurity Law
Securities Markets and Corporate Value	Regulation***
Banking and Financial Regulation**	Internal Investigations**

*: New course (Geoffrey Miller's casebook would be ideal)

**: New course

***: Anderson Business School course co-listed

Additional courses that could be developed with existing faculty might include:

Business Immigration

Employment and Workforce Compliance Law

Commercial Law Compliance

Environmental Compliance

Information and Technology Compliance

Ethics for the Business Lawyer

White Collar Crime

I think I'll run this up the flag pole.

What might a Trump SEC do?

The latest #CorpGov Bulletin! https://t.co/0jzIqi8TZj Thanks to @BarbaraKimmel @RAHecker @NACD #corpgov #appointments

— Corporate Governance (@CorpGovBulletin) November 17, 2016

U.S. state securities regulators gird for action during Trump era https://t.co/JI6w8Jy0dg (via @Reuters)

— NACD (@NACD) November 17, 2016

An endorsement

@ProfBainbridge Seriously, Bainbridge to the new administration. Straight-shooter respected on all sides. Rule of law would breath easier.

— Prof David Yosifon (@DavidYosifon) November 17, 2016