ProfessorBainbridge.com

What is a merger?

2/ @VolunteerTwit also linked to a video in which she and some colleagues discussed that issue. I'm going to have my fall M&A class watch it. It's quite good. https://t.co/NAzfUrwLhJ

— ProfessorBainbridge.com (@PrawfBainbridge) July 15, 2020

Bainbridge on Bishop on Bebchuk on Stakeholder Capitalism

Keith Paul Bishop writes:

Harvard Law School Professor Lucian Bebchuk is an eminent scholar of corporate governance with whom I often disagree.  He, for example, favors SEC rules requiring public companies to disclose their political spending.  See Lucian Bebchuk & Robert Jackson, Shining the Light On Corporate Political Spending, 101 Georgetown L. J. 923-967 (2013).  I do not. Id. (citing my opposition to SEC rulemaking).  I was therefore pleased to see that I agree with many of his conclusions about stakeholder capitalism.

Ditto. Bishop continues:

Stakeholder capitalism is the idea that the shareholder primacy paradigm for corporate governance should be supplanted by a commitment to serving other constituencies, such as customers, employees, and society in general.  This notion is not new, several states have had so-called "other constituencies" statutes on the books for many years, but Delaware (the home of most publicly traded corporations) does not.  (Interestingly, the original purpose of these statutes was to insulate management from hostile takeovers.)  More recently, states, including California and Delaware, have enacted laws allowing for the incorporation of businesses with explicit social or public benefit purposes.  

In a forthcoming article, Professor Bebchuk and Roberto Tallarita examine the current enthusiasm for so-called stakeholder capitalism.  After taking a hard look at stakeholderism and its proponents' claims, the authors conclude that stakeholderism "would impose substantial costs on stakeholders and society, as well as on shareholders".  Some may be surprised that they believe that corporate leaders and their advisors support stakeholderism at least in part because they seek to obtain "insulation from hedge fund activists and institutional investors".  Based on their analysis, they counsel "If stakeholder interests are to be taken seriously, stakeholderism should be rejected."  The entire article is available here. 

I've got an article in the works on corporate purpose, in which I also endorse their analysis.

Tom Lin on Private Misconduct by CEOs: Does Corporate Law Have a Role in Policing It?

In his private life, a Fortune 500 CEO commits a truly heinous act. It has no connection to the company or the CEO's professional life, except in that newspaper accounts will mention that the CEO is President of Acme.

Has the CEO breached his fiduciary duties to the company and its shareholders. Did the board of directors breach their oversight (aka Caremark) duties by failing to monitor the CEO's private life?

I have dabbled in this area before. In my 2011 post, Can the Berkshire board be held liable for Sokol's trades?, I addressed a question posed by Kevin LaCroix in connection with the case of former Berkshire-Hathaway executive Sokol who resigned after purchasing Lubrizol stock in advance of recommending that Berkshire acquire Lubrizol. LaCroix asked:

Can the directors – or any one of them (say, for example, Buffett) possibly be held liable for failing to take actions that allegedly could have prevented supposed harm to the company?

At the time, my answer was no:

Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart 833 A.2d 961 (Del.Ch. 2003), strikes me as being on all fours with the Sokol case. The Stewart case arose out of Martha Stewart's insider trading troubles. Plaintiff claimed that "the director defendants and defendant Patrick breached their fiduciary duties by failing to ensure that Stewart would not conduct her personal, financial, and legal affairs in a manner that would harm the Company, its intellectual property, or its business." (970-71) In other words, plaintiff claimed that the MSO directors failed to fulfill their Caremark duties by failing to prevent Stewart from engaging in insider trading.

The Chancellor opined that:

The “duty to monitor” has been litigated in other circumstances, generally where directors were alleged to have been negligent in monitoring the activities of the corporation, activities that led to corporate liability.Plaintiff's allegation, however, that the Board has a duty to monitor the personal affairs of an officer or director is quite novel. That the Company is “closely identified” with Stewart is conceded, but it does not necessarily follow that the Board is required to monitor, much less control, the way Stewart handles her personal financial and legal affairs.

And he continued by observing that "it is unreasonable to impose a duty upon the Board to monitor Stewart's personal affairs because such a requirement is neither legitimate nor feasible. Monitoring Stewart by, for example, hiring a private detective to monitor her behavior is more likely to generate liability to Stewart under some tort theory than to protect the Company from a decline in its stock price as a result of harm to Stewart's public image."

Maybe you could argue that Sokol's conduct is somewhat less personal, because he traded in stock of a company he knew he would be pitching to Berkshire as a takeover candidate. OTOH, however, Sokol is far less “'closely identified' with" Berkshire than Stewart was with MSO.

So I think there is zero chance that a Caremark claim against the directors of Berkshire-Hathaway.

For more on Caremark claims see my articles The Convergence of Good Faith and Oversight and Caremark and Enterprise Risk Management.

In my 2004 post, Latest Hollinger News, I examined claims arising out of Lord Black's labyrinthine empire - among them the sale of some assets to Canadian media group CanWest for $1.8bn in 2000. I explained that:

According to minutes of a board meeting four months earlier, directors were told Lord Black and others would receive a total of $53m in non-compete fees and that further payments would go to Ravelston, his private company. Cardinal claims there was never any independent analysis of the size or need for these payments. The claim .... alleges that investors lost out through "misappropriation of corporate assets as well as self dealing - arrangements, for example, where company executives sold company assets to other companies where they had an interest".

In self-dealing claims such as this one, the shareholders have a cause of action against the directors or officers who misappropriate corporate assets or pursue conflicted interest transactions. The claim against the non-participating directors is more complex. Most self-dealing transactions do not require director approval as a matter of law, although many corporate conflict of interest policies go beyond what the law requires. Instead, approval by the disinterested directors provides a partial safe harbor if the transaction is challenged by a shareholder (such approval shifts the burden of proof from the director with the conflict of interest to the shareholder). Ordinarily, the failure of the directors to make an informed decision in this regard is invoked merely to vitiate the safe harbor rather as grounds for an independent cause of action against the approving directors. Yet, under Smith v. Van Gorkom, directors' duty of care requires that when they make a decision they do so on an informed basis. Likewise, the Caremark decision plausibly could be interpreted as imposing an affirmative duty on directors to investigate conflict of interest transactions and to ensure that the conflicted directors do not take advantage of the corporation.

The Hollinger lawsuit thus could be distinguished from the recently dismissed case against Martha Stewart (blogged here). In the Stewart case, the shareolders' suit alleged that Martha Stewart Omnimedia's disclosure documents routinely stressed the importance of Martha Stewart to the company's success. After the controversy over Stewart's trading in ImClone stock broke, MSO's stock price dropped precipitously, ultimately bottoming out at a 65% loss. The suit alleged Caremark violations by MSO directors and execs (click here for a discussion of Caremark), who allegedly failed to "ensure that Stewart would not conduct her personal, financial, and legal affairs in a manner that would harm the Company, its intellectual property, or its business." In dismissing, Chancellor Chandler explained that: (1) plaintiff had failed to allege facts that would have put the board on notice of potential wrongdoing; and (2) the Delaware precedents speak to wrongdoing in a corporate capacity, not in an exec's personal life. Based on what we know thus far about the suit against the Hollinger board, it sounds like both of those criteria will be satisfied. Because the alleged misconduct involved self-dealing with corporate assets and because it is alleged the directors were aware - even approved ex post - of some of the transactions, a strong case is already made out that the board had a duty to investigate and make an informed decision as to the proper course of action.

Tom Lin has posted an article, Executive Private Misconduct (June 11, 2020), available at SSRN: https://ssrn.com/abstract=3624533, that takes an in-depth look at this issue. In particular, he sweeps quite broadly to pick up not just the Caremark issues, but a number of other relevant theories of liability on which either the executive and/or the board of directors could be sued (unsuccessfully in most cases).

ABSTRACT Executives misbehave. In recent years, the world has been outraged and appalled by the shocking misbehavior of corporate executives. Some of their behavior have been plainly unethical; others have been deeply offensive; and still others have been simply criminal. Regardless of the misbehavior, such executive private misconduct—when made public—has frequently damaged their public reputations, harmed their company’s market values, destroyed investor portfolios, and raised serious legal and policy issues.

This Article provides one of the first comprehensive examinations of ex- ecutive private misconduct and its wide-ranging effects on law, business, and society. It begins by providing context for how we got here. It investigates how the unfolding #MeToo movement, shifting social understandings of public and private, and changing corporate social expectations have all fostered a new landscape that is less tolerant of executive private misconduct. Next, it examines why legal gaps and tensions in current business law complicate executive private behavior discussions. It reveals how corporate law principles of fiduciary duties and securities law principles of disclosures were not structurally designed to confront the hard issues and questions raised by executive private misconduct. Moving from causes to consequences, this Article next examines the larger implications of executive private misconduct on corporate governance, corporate policies, and corporate purpose. Finally, this Article recommends pragmatic next steps for corporate stakeholders, regulators, and policymakers in a changing business environment. Specifically, it proposes a new baseline framework for working through perplexing executive private misconduct issues, along with concrete business policy reforms concerning nondisclosure agreements, mandatory arbitration, and annual misconduct reports. Ultimately, this Article seeks to provide an original, workable roadmap and compass for conceptualizing, navigating, and addressing executive private misconduct and its impact on law, business, and society.

Tom concludes--I think correctly--that "The two bodies of law and regulation that govern much of American business—state corporate law and federal securities law—were largely designed to address the professional obligations and duties of executives and not the private matters of their personal lives."

With respect to the Caremark duty issues, with which my blog posts were mainly concerned, Tom doesn't discuss the Martha Stewart case, which strikes me as a bit odd, especially since he discusses that case in the preceding section on the executive's duty of loyalty. Nevertheless, I agree with his conclusion that "the law and business conventions suggest that such monitoring [i.e., board monitoring of an executive's private life] may be unnecessary and undesirable."

This is an extremely useful addition to the literature and highly recommended.

Do the Socially Responsible Walk the Talk?

I've spent part of the summer working on a law review article on the Business Roundtable's August 2019 statement on corporate purpose. A new paper by Professors Raghunandan and Rajgopal is going to feature prominently as support for mu argument that the statement is mostly puffery:

Several companies and funds claim to be socially responsible. We confront these high-minded ideals with the data in two settings. In the first setting, we examine the August 2019 declaration by the Business Roundtable (BRT) that a corporation’s purpose is to deliver value to all stakeholders, rather than to solely maximize shareholder value. Relative to within-industry peer firms, publicly listed signatories of the BRT statement (i) commit environmental and labor-related compliance violations more often (and pay more in compliance penalties); (ii) have higher market shares; (iii) spend more on lobbying policymakers; (iv) report lower stock returns alphas and worse operating margins. Investors can vote with their feet to enforce managers’ statements on corporate purpose. Hence, in the paper’s second setting, we study the largest ESG ETF and mutual fund, respectively: the KLD 400 Social ETF and the FTSE4Good US Select index. There is barely any correlation between the initial list of stocks in these funds and additions thereto with “fundamental” ESG data, which we measure using federal environmental and labor-related compliance violations. A key takeaway of our study is that investors ought to be vigilant when assessing claims of stakeholder-oriented practices by firms and ESG funds.

Raghunandan, Aneesh and Rajgopal, Shivara, Do the Socially Responsible Walk the Talk? (May 24, 2020). Available at SSRN: https://ssrn.com/abstract=3609056 or http://dx.doi.org/10.2139/ssrn.3609056

My new casebook Advanced Corporation Law is in galley

I'm very excited to announce that I've gotten the galleys for my forthcoming casebook on Advanced Corporation Law. It will be coming out in the fall for Spring 2021 adoptions.

This text is designed for use in an advanced course in corporate law and governance. It assumes that students have taken a basic course in Corporations or Business Associations.

Corporate governance has been much in the news in recent years and lawyers are devoting increasing amount of attention to it. The passage of major federal legislation in 2002 (the Sarbanes-Oxley Act a.k.a. SOX) and 2010 (the Dodd-Frank Act) were particularly important developments, generating much new law and, as a result, much new legal work. Curiously, however, the law school casebook market has largely ignored these trends.

Corporate governance is regulated by many of the same laws covered in the basic Business Associations course, but increasingly is also regulated by laws¾such as SOX and Dodd-Frank¾that get short shrift in the typical Business Associations casebook and course. In contrast, those laws are the core focus of this text.

Unlike the more basic topics that dominate Business Associations, which are a product of state corporate law with a minor federal overlay, corporate governance is regulated by a much more complex body of law that emanates from multiple regulators. Many of the rules of corporate governance come from traditional state corporate and federal securities law sources, but many more come from sources such as stock exchange listing standards or rules issued by the Public Company Accounting Oversight Board and similar quasi-governmental bodies. All of these are grist for the mill in this text.

Importantly, however, lawyers practicing in the corporate governance space must be knowledgeable not only about the law but also best practice. As Sir Adrian Cadbury observed in connection with the United Kingdom’s adoption of the so-called Cadbury Code, it is tempting for managers to obey the letter of law while ignoring the deeper purposes behind it. Sound corporate governance structures thus must be informed as much by best practices as well as formal legal rules.

Likewise, this text assumes that mastering the relevant law requires situating it in an understanding of the contemporary business environment. The legal issues governing executive compensation makes little sense, for example, if one does not understand the political and economic debate over CEO pay. Similarly, to cite just one more example, mastering the high-profile issues respecting shareholder rights will be much easier if the students are familiarized with the changing demographics of shareholders and the rise of activist hedge funds.

Notice that I refer to this book as a text rather than a casebook. Although the text includes many canonical cases presented in the traditional format, the case method is not the only—or even always the best—way of teaching students to draft workable contracts and disclosure documents, conduct due diligence, or counsel clients on issues that require business savvy as well as knowing the law. Accordingly, the book also relies on textual explication, sample documents, and problems to build student transactional skills.

This approach is driven by my belief that, because lawyers plan at least as often as they litigate, advanced business law course texts need to adopt a transaction planner’s perspective. Most law school casebooks—even in the corporate law area, where the authors ought to know better—have an inherent bias towards litigation perspectives due to their emphasis on cases. I avoid that by using additional sources, such as law review articles and regulatory materials, and by including numerous problems—typically at the start of a block of material—requiring students to think about how the materials will affect real world transactions and planning.

The text assumes familiarity with some basic law and economics tools—such as transaction costs and agency costs—that are commonly used in many business law classes. Indeed, the central theme of this text is the agency costs resulting from the separation of ownership and control in public corporations. The appendix offers a brief overview of these tools for the benefit of those students who have not encountered them previously.

Yours truly quoted by Korn Ferry re being an M&A acquirer in COVID-19

From Briefings Magazine:

After lying low at the start of the outbreak, well-stocked firms are hunting for merger deals. Could that speed up any recovery? ...

Stephen Bainbridge, a UCLA law professor who specializes in M&A, says leaders are often overly optimistic about their ability to turn around businesses in deep trouble—and end up creating more financial problems than solving them. “Merging a failing company into a healthy one could get the healthy company in trouble,” says Bainbridge. “It could end up being dragged down.”

Or, as Bainbridge says, “Successful mergers depend on the ability to build a new team and integrate cultures in a way that gets buy-in from everyone as quickly as possible, and that’s going to be incredibly hard to do over Zoom.”

Leo Strine must be more important than the Queen of England

I was recently reading a new paper from Leo Strine and noticed the amazing number of titles he now holds:

Michael L. Wachter Distinguished Fellow in Law and Policy at the University of Pennsylvania Carey Law School; Ira M. Millstein Distinguished Senior Fellow at the Millstein Center at Columbia Law School; Senior Fellow, Harvard Program on Corporate Governance; Henry Crown Fellow, Aspen Institute; Of Counsel, Wachtell Lipton Rosen & Katz; former Chief Justice and Chancellor of the State of Delaware.

My first thought was, how do you decide which title to list first? But then I noticed something. CJ Strine's titles add up to 60 words. In contrast, the Queen only needs 33 words:

Elizabeth II, by the Grace of God, of the United Kingdom of Great Britain and Northern Ireland and of her other realms and territories Queen, Head of the Commonwealth, Defender of the Faith.

And she reigns over a Commonwealth of 54 nations with a total population of 2.4 billion people!

Guest post by Bryce Tingle on teaching remotely

Our latest guest blogger is Bryce Tingle, N. Murray Edwards Chair in Business Law Director Financial Markets Regulation Programme, School of Public Policy Faculty of Law, University of Calgary.

I have a tremendously creative brother who manages the communications of the vast provincial health authority — most of the advice has come from him.

 

My experience with teaching online is very similar to yours.  I had an engaged, motivated class of students in Corporate Finance for the first two months and then after we moved online, they became passive and disinclined to participate. I have personally long believed that the single most boring cultural artifact we have developed as a civilization is the webinar, so it was with chagrin that I eventually realized webinars is what I was offering the students.  

 

Based on my experience this spring, I am recording my lectures for the fall and letting students listen to them asynchronously.  Each of the recorded lectures is no more than 15 minutes — which has meant splitting each week's lectures into smaller parts.  If I can’t stand to watch a lecture that’s longer than 15 minutes at a go, I can’t imagine my students will manage it.

 

At my brother’s recommendation, I used my iPhone to record videos of me lecturing.  (My brother advises that when the subject is sitting still, even iPhones that are several years old shoot video that is indistinguishable from high-end cameras.  He did recommend that I get a high-quality microphone to plug into the phone, as the sound on cell phone videos is poor.)

 

I found the usual things when I reviewed the first few lectures: I say “umm” and pause way too much; I don’t think my head presents a compelling object to stare at for hours on end; and it is boring to watch any person engage in a monologue.  Consequently, I have adopted the following plan:

 

1. I use the voice app of the iPhone to record my lectures (no video);

 

2. I send the sound file of each lecture to my RA this summer (we were provided with student help to move our courses online — and to ameliorate a terrible labour market for summer jobs).  The first thing he does is extensively edit the sound file to remove “umms”, pregnant pauses, sentences that end so poorly they must be redone, etc.

 

3. He then uses vyond.com to animate the videos.  My brother recommended Vyond as the simplest animation software to use.  Based on my experience so far, the animated videos — likely because they involve movement and change — are much easier to watch than a talking head.  I should note that my RA has no experience in computer graphics and had never used Vyond before.  He picked it up quite quickly.

 

4. These videos will be posted on a password-protected website (created and hosted on Squarespace in less than a day).

 

5. I will likely only spend an hour each week with the students synchronously on Zoom.  The in-person class will allow them to ask questions, we will work through problems together (which is part of how I normally teach), and I will have them take a quiz on the readings each class.  I am not going to record the classes for both privacy reasons and because I think that encourages students to skip class with the dubious plan of watching the recording later.  

 

6. I am concerned that the strong tendency of even good students this fall will be to let things slide.  What I saw this spring is that students have difficulty motivating themselves when they are at home all day.  This is why I am introducing a weekly quiz on the readings.  Their over-all performance on the quizzes over the semester will be worth something like 20% of their final grade.  I want to give them an incentive to stay current on the readings and to attend our synchronous online classes.  I am using Tophat to administer the quizzes.

 

7. In my Entrepreneurial Law class, I usually have each student do a paper on a startup of their choice (drawn either from a list of books or one they have encountered in real life).  This year, I am going to have each of them do up a 10 minute presentation and randomly select one or two each week to give their presentation over Zoom.  I think it will be helpful for students to be engaged if I am not the only one talking.

Matt Finkin on what employers can do if employees refuse covid-19 vaccinations

My former UIUC colleague Matthew Finkin has an interesting article on workplace law with respect to vaccinations. He writes:

Employers may be liable under state law to employees and customers who are infected by workers when legally adequate precautions against infection have not been taken.

Moreover, under federal law, employees can refuse to perform work if they have a reasonable apprehension of death or serious injury when there is a reasonable belief that no less drastic alternative to refusing to perform that work is available. ...

To the extent the communication of a disease can be eliminated or much reduced by inoculation by a safe and effective vaccine, it follows that employers would adopt policies requiring employees be vaccinated. Employers may also wish to reduce their medical insurance cost and to reduce the possibility of lost work time and sick leave. This, too, could entail a mandatory vaccination.

Even so, such actions may confront legal challenges on the part of applicants and incumbent employees based on:

• •  religious objection,

  •  objection due to the applicant or employee’s specific medical condition, or

  •  objection based on ethical or ideological grounds.

It makes a good read.

Teaching Remotely in the COVID-19 Era: In Defense of the Lecture (but with tweaks)

UCLAW is holding the first of a series of Zoom colloquia on teaching remotely. As the law school’s most vocal defender of the lecture and critic of the Socratic method, I’ve been asked to give a 2- to 3-minute talk about lecturing during Covid-19. As regular readers know, brevity is not my strong suit. Thinking about that problem, I recalled the Congressional practice of including extended remarks in the Congressional record. Hence, these thoughts.[1]

Why Lecture?

When I joined the Illinois faculty 20 years ago, I began a long struggle with the problem of pedagogy. Like a lot of newly minted law professors of a certain age, I thought Professor Kingsfield (look him up) was the standard to which I had to aspire. But Kingsfield never had to teach Securities Regulation at 3 p.m. on a Friday afternoon to a class consisting of third-year students in their last semester of law school.

Suffice it to say that it was not a success. Perhaps I lacked a certain gravitas or was just too cherubic for my own good. Being a fairly laid-back guy informed with laissez-faire sensibilities probably didn’t help.

I began reflecting back on my own law school experience. As I pondered the various teachers I had in law school, it occurred to me that there were only two whose style had been truly Kingsfield-like. One was my contracts professor, Bob Scott, whose command of the classroom was amazing. He could hide the ball and then, like a great magician, pull it out of your ear. Interestingly, however, in the courses I took from Professor Scott in my second and third years of law school he did a lot more talking than he had in first year contracts.

The other Kingsfield-like teacher I had at Virginia was my torts professor, who should probably remain nameless. His idea of snappy Socratic dialogue was to respond to every student statement with “so what?” or “who cares?” The only thing I learned in that class was that the Coase theorem answered any question, which admittedly has served me well.

In contrast, most of my professors used what I’ve come to call the soft Socratic style. Instead of cold calling students, they used panels of students who were on call for a few days per semester. Instead of grilling a specific student at length, each student would be tossed a few questions and then the professor moved on to the next. Students were never told that they had given a wrong answer, let alone told to go and call their mothers as they would never become a lawyer. At most, the professor gently guided the student towards the proper conclusion.

In my early years at Illinois, I frequently sat in on classes taught by colleagues who were said to be great Socratic teachers. Oddly, however, in most of those classes, Socrates did almost all of the talking. Just as at Virginia, the dominant pedagogic style was soft Socratic. In preparing for this lecture, for example, I went back and dug out an evaluation I wrote of one of my Illinois colleagues:

His style is very soft Socratic. He tosses an occasional question out there and waits for answers. If nobody responds, he answers the question himself.

He started today’s session by picking up the thread of a discussion from yesterday. After reviewing the material by lecture, he started the new material. As before, he relied on volunteers. He got some participation, but it wasn’t particularly interactive. Students made a comment, he made a comment, and went on.

In fairness, back in those days you could have said much the same thing about my classroom style.

You see, I knew I was not then and never would be Kingsfield-like, but I was still trapped in the mindset that no self-respecting law professor could depart from the Socratic method. So, I too became a soft Socratic teacher. But doubts kept intruding. Were the students who were not “on call” prepared? What did they get out of listening to a colleague answer a question but not having to struggle with it, since I typically moved on to another student or lectured if the student struggled?

It is [said] that [the Socratic method] teaches students how to “think like lawyers.” This claim would, of course, require some evidence. For example, in most countries, including other common law countries, law is not taught via anything like the Socratic method. Yet presumptively their lawyers think like, well, lawyers. So somehow they learned. ‘Thinking like a lawyer’ is a matter of learning how to reason and argue, in some ways that lawyers share with everyone else, and in other ways that are peculiar to lawyers (e.g., arguments from authority are not fallacious in the law). But why think that one learns how to do this by being grilled Socratically as opposed to reading examples of lawyerly thinking and hearing lectures explaining lawyerly arguments?[2]

I eventually came to two conclusions. First, if students couldn’t think like lawyers by the time they got to me in their second or third year of law school, there was very little I could do to help them except suggest another line of work.

Second, the Socratic method doesn’t really teach you to “think like a lawyer.” At best, it teaches you to think like a litigator.

Consider a typical law student who accepts a [transactional] job at a large firm. She has spent perhaps ninety-five percent of her time in law school reading and discussing cases and law review articles. Once in practice, she will go days or weeks at a time without picking up a case or a law review article. Instead, her days will be filled with drafting, reviewing, and marking up transactional documents, negotiating language with opposing counsel, participating in conference calls, and composing memos, emails, and letters to colleagues and clients.[3]

“Thinking like a lawyer,” as Kingsfield and his ilk would have our graduate do is not very conducive to success in that environment.

In his book, The Terrible Truth About Lawyers, Mark McCormack, founder of the International Management Group, a major sports and entertainment agency, wrote that “it’s the lawyers who: (1) gum up the works; (2) get people mad at each other; (3) make business procedures more expensive than they need to be; and now and then deep-six what had seemed like a perfectly workable arrangement.” McCormack further observed that, “when lawyers try to horn in on the business aspects of a deal, the practical result is usually confusion and wasted time.”  He concluded: “the best way to deal with lawyers is not to deal with them at all.”

All of which is why I emphasize not only doctrine but also economics and business. Transactional lawyers must understand the business, financial, and economic aspects of deals so as to draft workable contracts and disclosure documents, conduct due diligence, or counsel clients on issues that require business savvy as well as knowing the law.

I want my students to understand that successful transactional lawyers build their practice by adding value to their clients’ transactions. Instead of thinking like Kingsfield, I want them to learn where the value in a given transaction comes from and how they might add even more value to the deal.

I had always lectured some. I defy even Professor Scott to teach the Capital Asset Pricing Model Socratically. As my teaching became more oriented towards transactions, and business and economics became more important, and identifying sources of value in the underlying deals out of which the cases arose became the key task, grilling law students seemed less and less effective.

Gradually, bit by bit, I freed myself from the trappings of the soft Socratic method. Away with panels! Away with volunteers! Away with questions! Up with PowerPoint!

Once I went through the 12 step program and became what Brian Leiter calls a “recovering Socratic teacher,” I noticed that I had some interesting company. Leiter, for example, has written that: “There is no evidence—as in ‘none’—that the Socratic Method is an effective teaching tool. And there is much evidence that it’s a recipe for total confusion.”[4]

In her 1997 book, Becoming Gentlemen, Lani Guinier blasted the Socratic Method for forcing female students to adopt a style that many found alien to them. Former Secretary of Labor Robert Reich, wrote in a 1998 essay that the method had “morphed beyond recognition” into an exercise in intellectual arrogance in which the professor always had the right answer.

Even so, at first, lecturing was my dirty little secret. I felt like a deacon sneaking out of town to get a snootful. What if my colleagues found out?

Gradually, however, word leaked out … and nothing bad happened. My classes were full to the bursting. Deans patted me on the back for getting good evaluations. Promotions and raises kept coming.

And then came the Rutter Award.

Tweaking

In sum, the advantages of the lecture are that it gets students through complex materials efficiently and models how non-litigator lawyers work, among other things. Those same benefits obtain online. The new problem is that one has to pay greater attention to the chunks in which one lectures online because of attention-span/zoom fatigue potential problems.

There is data suggesting that the typical college student’s attention span in class is about ten minutes. I recall seeing data—but cannot now find it—suggesting that the typical attention span of university students in remote learning is about 7 minutes. Note that part of the popularity of TED talks may be the 18 minute limit, which ensures they do not tax the participants’ attention span. This suggests a need to find ways of breaking remote lectures into segments of no more than 10 minutes, with some alternative activity in the breaks.

Pop ungraded quizzes might be a good way of checking student comprehension and also a segment break activity. Having some sort of feedback is especially important because one cannot see the students’ faces (due to privacy choices most make) and thus cannot assess their attention level. Zoon’s poll function is an obvious option. I’m also looking for others.

Another possibility I am considering is assigning a few students ahead of each class to each give a short presentation on a topic relevant to the lecture that day.

Congratulations to Columbia Law, the Millstein Center, and Leo Strine

I once wrote that:

When any Chief Justice of the Delaware Supreme Court speaks on a corporate law topic, lawyers and academics who toil in that doctrinal vineyard listen. When that Chief Justice is Leo Strine, they listen especially closely. The “well-respected” Chief Justice after all is the “[w]underkind of U.S. corporate law” and has been “recognized among academics, practitioners, and other judges” as an “intellectual leader” of the Delaware judiciary.

Stephen M. Bainbridge, Corporate Social Responsibility in the Night-Watchman State, 115 Colum. L. Rev. Sidebar 39, 39 (2015).

I remain a greater admirer of now retired CJ Strine, who--perhaps excepting only the late Chancellor William Allen--has made more and better law than any jurist in my lifetime (although even mighty Homer nods occasionally).

I am therefore quite envious of Columbia Law School and its Millstein corporate governance program, which today announced that "Former Delaware Supreme Court Chief Justice Leo E. Strine, Jr. will join the center as the Ira M. Millstein Distinguished Senior Fellow."

While at Columbia, Strine will collaborate with the Millstein Center in a variety of ways, including conducting research in the areas of business law and corporate governance, speaking at academic events, and engaging with business leaders. In conjunction with joining Columbia Law School, Strine will hold a joint affiliation with the University of Pennsylvania Carey Law School, where he has been named the Michael L. Wachter Distinguished Fellow in Law and Policy. ...

Reflecting on his joining Columbia Law School, Strine said, “For years, I’ve been honored to work with the outstanding business law faculty at Columbia on a variety of projects and to participate in their classes and programs sponsored by the Millstein Center. I’m excited to work even more closely with them, including because the law school, in general, and the Millstein Center, in particular, recognize how important fair economic and corporate governance systems are for the proper functioning of our society.”

To be on the same faculty as CJ Strine would be a treat for any corporate law scholar. I must admit to feeling more than a little jealous of the folks at Columbia. But maybe we can entice the CJ to visit Los Angeles  occasionally.

Should we worry about California's ban on singing in Church? Maybe a little.

FoxNews recently reported that:

Faith leaders are speaking out after California Gov. Gavin Newsom banned singing and chanting in houses of worship last week due to a surge in coronavirus cases following weeks of protests.

“Places of worship must, therefore, discontinue singing and chanting activities and limit indoor attendance to 25 percent of building capacity or a maximum of 100 attendees, whichever is lower,” the new guidelines read as state health officials recommend churches have members sing online from their homes.

Over on FB, I offered a snarky comment intended to show derision:

I don't think even the Soviets tried to ban singing at the few churches they allowed to operate.

To which a friend who is no fan of FoxNews responded:

Your loyal "good angel" here ... wondering if you really disagree, or if this is just a snarky post? (And you know what I'm going to say if it is just a snarky post.). The reality of the world right now is that singing, in closed spaces, is probably really risky to the people present, and by extension to lots of other people. And we know that, while many institutions would be thoughtful about masks and spacing, some would not; and so a clear rule -- no singing at in-person events -- might be the only way to get compliance and enforcement. So, given that, isn't this the right call, despite Fox News' always-alarmist coverage and your (witty?) framing? And, if it is the right call, why post about it this way, which will cause people to come to the wrong conclusion about your views?

He is learning (although clearly not accepting) that I will always go for snark and sarcasm. It's a failing, I admit. So let me be serious:

The Catechism of the Catholic Church (1324) tells us that celebrating the Mass is the “source and summit” of our Christian life. This is so because, as John O'Brien wrote, "The Mass is the renewal and perpetuation of the sacrifice of the cross in the sense that it offers [Jesus] anew to God . . . and thus commemorates the sacrifice of the cross, reenacts it symbolically and mystically, and applies the fruits of Christ’s death upon the cross to individual human souls." Government regulation that impacts how the Mass is conducted is thus regulation not of some peripheral matter but of the very core of our faith.

Singing isn't the only element of Catholic worship that poses a transmission risk:

• The traditional way of receiving the Eucharist was for the priest to place the wafer on the believer's tongue, which the believer then swallows. (Hand to mouth transmission risk.)
• We have the option of the priest placing the wafer in the believer's hand, which the believer then eats. (Hand to hand to mouth transmission.)
• We take Communion in the form of the wine from a communal cup.
• We dip our fingers into common basins of holy water and dab it on our forehand and torso while making the sign of the cross.
• There are numerous points in the Mass in which the congregation all recites out loud. E.g., the Kyrie, the Gloria, and the Creed.
• During the Sign of Peace, we shake hands and bless one another.

Is singing is the riskiest of those practices? So shall we let the government regulate all of these practices? I'm making a slippery slope argument, of course, but some slopes are slippery. The government started out by closing churches. Then they put various limits on how churches can reopen.

For the government now effectively editing of the liturgy and the way it is performed strikes me as raising substantial free exercise issues, especially given the slippery slope on which they seem to be launched.

Concern about these issues is not limited to the MAGA crowd. Over on Twitter, Richmond law professor Kurt Lash wrote that "California has just banned singing and chanting in places of religious worship. In addition to being hilariously unconstitutional, it is another reminder to be thankful for the current Supreme Court’s movement in the direction of securing religious freedom."

I would add that the Catholic Church has been really good about voluntarily tweaking its rituals to accord with best scientific practices. Surely the Church, in consultation with medical experts, is better positioned than some bureaucrat to adjust the liturgy.

So in this case, I used snark as a shorthand way of calling attention to the problem.

Can a corporation be insane?

Mihailis Diamantis has posted an article to SSRN entitled The Corporate Insanity Defense and also posted a summary to the Oxford corporate governance law blog:

... there are some criminal corporations whose deep or unpredictable disfunction presents a special challenge. These corporations are much less likely to respond constructively to criminal sanctions. In a forthcoming article—The Corporate Insanity Defense—I argue that criminal law needs a different approach for these corporations, one that emphasizes compulsory expert treatment rather than standard forms of punishment. 

It's an interesting article, but I start from a premise founded on the aphorism famously attributed to Edmund, First Baron Thurlow: "Corporations have neither bodies to be punished, nor souls to be condemned." Applying the criminal law to corporate entities fits poorly with most of the basic purposes of criminal law.

• Deterrence: Corporations can act only through persons. It is those corporate agents who must be deterred. Entity level punishment will be less effective as a deterrent than direct punishment of the responsible corporate actors.
• Retribution: You can't send a corporation to jail. But you can send the responsible corporate actors to jail.
• Rehabilitation. Lacking a body and soul, the corporation has nothing that can be rehabilitated. But bad human actors can be rehabilitated.
• Restitution: Obviously, the corporation can provide restitution to those it harmed. But that would require directing corporate fines and penalties to the victims of wrongdoing rather than the government.

We should seriously rethink corporate criminal liability, which effectively amounts to vicarious liability, and replace it with direct liability for the individuals who are responsible for the wrongdoing.

Why does Elon Musk keep poking the bear?

Bloomberg reports that:

Elon Musk provoked the U.S. Securities and Exchange Commission in the course of taking a victory lap on Twitter over Tesla Inc.’s surging share price.

The chief executive officer first taunted short sellers in a string of tweets, writing that the electric-car maker would “make fabulous short shorts in radiant red satin with gold trim.” That’s an apparent reference to jokes he’s repeatedly made about sending “short shorts” to investors who bet against Tesla’s shares, such as hedge fund manager David Einhorn.

Musk then tweeted a cryptic but profane play on the agency’s initials, prompting Ross Gerber, a fund manager who regularly engages with him on Twitter, to write back: “Dangerous.”

Herewith the tweet:

SEC, three letter acronym, middle word is Elon’s

— Elon Musk (@elonmusk) July 2, 2020

One begins to think that Musk is not playing with a full deck. Yes, he's a billionaire who has built (depending on how you count) three or four successful (-ish) businesses. 

But the SEC notoriously lacks a sense of humor. As Mark Cuban discovered, being a billionaire does not insulate you from the SEC starting a weak enforcement case and just keep coming and coming. They can be beaten, as Cuban did, but at high cost.

Being Musk's security lawyer must require massive doses of Pepcid.

Duck breasts sous vide with green peppercorn sauce and smashed new potatoes with duck fat and a Twomey 2014

Along with an obligatory pre-made salad from Yummy.com, we had duck and potatoes.

Duck Breasts

• 2 duck breasts
• salt and pepper

Fill a large stock pot or other food safe container with warm water. Insert your Joule sous vide into the container and set to 135°.

Score the skin of the breasts in a diamond pattern. Season with salt and pepper. Seal each breast in its own 6"x10" 3mil bag using your Weston vacuum sealer. Cook for 90 minutes. Remove and pat dry.

Heat your All-Clad 10-inch nonstick skillet on the medium high to high setting (I used 9 out of 10). Add duck breasts skin side down and turn heat down to 7. Cook several minutes so that the skin gets brown but NOT black. Flip and cook 1 more minute.

Smashed new potatoes

• 1 pound baby red potatoes, quartered
• 2 garlic cloves chopped roughly
• big pinch salt
• 1 tablespoon butter
• ¼ dairy*
• salt and pepper

Put the potatoes and garlic in a large pot and cover with water. Add salt. Bring to a boil, reduce heat slightly and cook at a fast simmer for about 18 minutes. Drain and return to pan. Add butter and dairy. Using a potato masher, smash and mix the potatoes. You're doing this roughly simultaneously with searing the duck breasts. Add a few spoonfuls of rendered duck fat to the potatoes (to taste). Season with salt and pepper.

*: For daily you could use heavy cream, sour cream, or crème fraîche. As it happened, however, I had some crema on hand and used that.

Green Peppercorn Sauce

• 1 tablespoon unsalted butter
• 1 small shallot minced finely
• 1 garlic clove minced finely
• 1 ½ tablespoons brandy
• 1 cup chicken stock
• 1 ½ tablespoons dried green peppercorns
• 1 teaspoon dried chives
• 1 teaspoon dried Italian parsley flakes
• 2 tablespoons dairy (see above)
• 1 tablespoon Dijon mustard
• salt and pepper

Melt butter in a small saucepan over medium heat. (I used my All-Clad 1 quart.) Add shallot. Cook 1 minute. Add garlic. Cook 30 seconds. Add brandy and crank heat to high. Bring to boil and allow to reduce to a glaze. Add chicken stock, return to the boil, and reduce heat to medium-high. Add peppercorns, chives, and parsley. Cook over a fast simmer 5 minutes.

Remove from heat. Add dairy and mustard. Whisk to combine. Return to burner set over lowest setting and keep warm.

Twomey (Napa Valley) 2014

A Merlot from the same folks who make Silver Oak. Blackberry and blackcurrant. Medium body. A bit of a lightweight for Napa. Grade: B