Category: Corporate Law

3

Wall Street Journal Welcomes Murdoch

Today’s WSJ has an editorial welcoming its takeover by Murdoch’s News Corporation. Granted, there are some subtle warnings to Murdoch buried in the gushing words about the inevitability of change, and the powers of “creative destruction”. Thus:

Editorial independence enhances the prospects for business success. The more credible a publication is, especially one that specializes in financial and economic reporting, the more readers and advertisers it is likely to have. We like to think our readers buy the Journal because of the credibility built over a century, and we believe this is the heart of the “value proposition” that Mr. Murdoch is willing to pay $5 billion to purchase. No sane businessman pays a premium of 67% over the market price for an asset he intends to ruin.

But overall, the entire piece had a tone that reminded me of a classic scene from the Simpsons. And, thanks to Youtube, I can now share it with you.

3

Court Citation of Blogs: Updated 2007 Study

blogstickies.jpgOur terrific intern, Sam Yospe has put together an update of Ian Best’s very useful 2006 study on Courts’ citation of blogs.

Sam ran a search for court citation of law blogs in the last twelve months. I asked him to lump citations into three categories: sources of legal argument, sources of facts, and sources of documents. Here’s what he came up with.

Legal Sources

• Trenwick America Litigation Trust v. Ernst & Young, et. al., 2006 906 A.2d 168; 2006 Del. Ch. LEXIS 139

o Citation to and in depth discussion of a post appearing on Professor Bainbridge’s blog.

• U.S. v. Presley, 2006 U.S. Dist. LEXIS 95063 *

o Citation to a post on Sentencing Law and Policy Blog.

• U.S. v. Kandirakis, 2006 441 F. Supp. 2d 282; 2006 U.S. Dist. LEXIS 53243

o Cites Prawfs Blawg, discussing a post by Dan Markel.

• Boxer X, a/k/a Stanley Farley v. Harris, 2007 U.S. Dist. LEXIS 45149

o Cites a legal argument in Crime and Federalism

• Desimone v. Barrows, et. al 2007 Del. Ch. LEXIS 75

o Cites argument from Professor Bainbridge’s blog post .

o Cites argument from Larry Ribstein’s blog post at Ideoblog.

o Cites argument from a post on Eric Chiappinelli’s blog.

• In Re Tyson Foods, Inc. Consolidated Shareholder Litigation, 2007 919 A.2d 563; 2007 Del. Ch. LEXIS 19

o Cites argument fro Professor Bainbridge’s blog post.

o Cites argument from Larry Ribstein’s blog post at Ideoblog:

Factual Sources

• U.S. v. Kandirakis, 2006 441 F. Supp. 2d 282; 2006 U.S. Dist. LEXIS 53243

o Cites Sentencing Law and Policy (generally and an entry of July 31, 2006) as a factual authority (regarding how many criminal cases in which the sentences were within the Guideline were reversed as unreasonable).

• Ohio v. Foster, 206 109 Ohio St. 3d 1; 2006 Ohio 856; 845 N.E.2d 470; 2006 Ohio LEXIS 516

o Cites Sentencing Law and Policy generally for updates on Blakely and general material on sentencing.

Sources of Documents

• U.S. v. Grier, 2006 475 F.3d 556; 2007 U.S. App. LEXIS 2483

o Citation to memorandum on www.federaldefenders.org.

• U.S. v. Alvarado, 2007 U.S. Dist. LEXIS 24816

• U.S. v Martinez, 2007 U.S. Dist. LEXIS 23601

• U.S. v. Sorto, 2007 U.S. Dist. LEXIS 7937

o Citation to memorandum on Law and Sentencing Policy.

• U.S. v. Willis, 2007 479 F. Supp. 2d 927; 2007 U.S. Dist. LEXIS 23290

o Citation to legislative briefing on Law and Sentencing Policy.

Total Citations

Sentencing Law 7

Bainbridge 3

Ribstein 2

Prawfs 1

Chiappinelli 1

Federal Defenders 1

Crime and Federalism 1

Overall, if these data are accurate, this seems like a bit of a slowdown in the citation rate of blogs by Courts, maybe due to a slight lowering of the boil on the sentencing revolution. It is also worth noting that the federal and state courts have not yet felt a need to cite this Blog, which has to signal something (good) about the continuing acuity and judgment of our hard-working judges.

[Update: We missed (at least) one cite, and have made a change above.]

1

An Angel (Investor) in Devil’s Clothing

angeldevil.jpgToday, the Conglomerate’s Junior Scholars Workshop is discussing Darian Ibrahim’s The (Not So) Puzzling Behavior of Angel Investors. I’ve offered some comments to the paper here; Larry Ribstein’s comments are here; Barbara Black’s here; and George Dent’s here.

The gist of my comment notes that Darian does a terrific job of showing that so-called angel investors’ seemingly philanthropic behavior can be explained using traditional wealth-maximizing incentive theory. For example, angels may not seek to control start-ups with formal contract mechanisms because to do so would reduce those start-ups’ abilities to find later VC investments and thus repay the angel investment. If this is a good model of angel behavior, the question I had was whether the law (or society more generally) ought to treat angels differently from other investors. I look forward to Darian’s response to this comment, and the other really thoughtful critiques. If you at all interested in the law of entrepreneurs, this is a can’t miss paper and workshop. Indeed, it has already inspired a really thoughtful comment by Jeff Lipshaw. Come on by!

0

Self-Handicapping and Managers’ Duty of Care

I have recently posted my symposium essay Self-Handicapping and Managers’ Duty of Care on SSRN and Selected Works. You can read the abstract when you click through, so to convince you to download the essay, I’ll give you a taste of the introduction:

Authors commonly introduce their works in symposium issues with a few disclaiming words. They identify their scholarship as a “symposium essay,” not an “Article”; a “sketch” of an answer, not a fully-fleshed out argument. Casual readers might conclude that law professors are unusually humble and resist trumpeting the novelty and sophistication of their scholarship.

Social psychologists might instead believe that symposium authors seek to avoid reputational sanctions for publicizing arguments they have not fully dressed. Scholars try to signal an excuse for underdeveloped pieces: “I haven’t worked as hard on this paper as I would have if it were a ‘real’ article.” The goal of this excuse-making is simple: disappointed readers will attribute blame away from the author’s perceived acuity and professional reputation.

This is a symposium essay about the psychology of creating such pre-excuses for failure. Rather than focus on academics, I will examine the failings of overconfident corporate managers . . .

The piece grew out of a post I wrote here over a year ago, and will appear in the Wake Forest Law Review’s Business Law Symposium Issue.

0

Raising cash through detailed explanations of past financial foolishness

Suppose you’re an entrepreneur, trying to find new investors for a new dot-com project. What do you do to build interest and confidence?

I’ve got an idea! Why don’t you give interviews for a lengthy NYTimes piece that explains how you managed to lose $200 million of your own fortune in just a few years, because you didn’t bother to learn simple financial concepts. And then, at the end of the article, note that you’re hoping to raise some money from investors for your newest project.

“Here’s how I lost $200 million of my own through negligent management . . . would you like to give me some of your money?” It’s really hard to imagine a more effective sales pitch than that, isn’t it?

6

Fiduciary Duty and Financial Aid

loan.jpg

The financial aid scandal, sparked by NY Attorney General Andrew Cuomo’s investigation (and possibly a shut-out competitor) has already led to some settlements with lenders and universities. The basic thrust of Cuomo’s investigation is that if lenders pay administrators referral fees (whether direct or indirect) to steer students to take certain loans, that conduct is a deceptive trade practice, “in violation of New York Executive Law ‘ 63(12) and General Business Law 349 and 350 and other relevant state law.”

Universities are falling over themselves to settle with NY, as is the lending industry, in light of some bad facts: the companies have sought to influence financial aid administrators with stock, Broadway tickets, and other goodies. So this question is, literally, academic: is the alleged conduct by the university employees a violation of a fiduciary duty (loyalty) owed to students?

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5

The Most Academic Court

court2004.jpgLast weekend, I attended Wake Forest Law Review’s 20th Annual Symposium on Business Law. The topic was “The Duties of the Modern Corporate Executive,” and in a few weeks, I’ll no doubt shamelessly promote the symposium essay on self-handicapping and managers’ care that I presented. I’ll also be highlighting others’ contributions as well, especially former Conglomerate blogger Joan Heminway (Tennessee Law), who wrote about the disclosure duties of officers dealing with personal problems, a topic I once briefly mentioned here.

But enough pre-puffing. The topic of this post concerns the participation at the symposium by Delaware Supreme Court Justice Randy Holland and Vice Chancellor Stephen Lamb (New Castle County Court of Chancery). Both jurists offered terrific substantive content (Justice Holland summarizing the conference’s themes, and V.C. Lamb on DE’s perspective on managers’ duty of care and loyalty). Listening to them, I was struck at the counterexample offered by Delaware judges to the divide between academics and judges that was the topic of the blogosphere a few weeks back. At the time, it struck me that Liptak’s story was (at best) over-hyped: citation by judges in published opinions of law reviews is a really bad metric for law review influence. Opinions are a biased sample. Even were they not, judges may be avoiding citation of articles they read to protect themselves from charges of activism. Even were they not, the residual of the trend is almost certainly due to harried clerks writing opinions instead of judges.

But whatever we might make of these claims and counterclaims, I think that we’d see a different result in Delaware. The state’s judges are increasingly engaging with the academy, they often claim that they followlaw review debates, and important DE decisions cite multiple articles. At 2007’s AALS, Justice Jacobs clearly explained how and why the Delaware Supreme Court reached the result it did in Disney, and how that result reflected/pushed back against/engaged with academic literature on good faith. It is almost impossible to imagine such frank talk from a federal jurist.

So, I decided to run a quick WL search in the Delaware database, to see if I could find support for the Liptak “declining trend” hypothesis, or my “engagement” hypothesis. Predictably with such noisy data, the results were mixed.

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1

Larry Cunningham and Henry Paulson March in Time

On the day that Larry Cunningham (B.C. Law to GW Law) posted his article A Prescription to Retire the Rhetoric of “Principles-Based Systems” in Corporate Law, Securities Regulation and Accounting, to SSRN, Henry Paulson, the Secretary of the Treasure, spoke at a conference :

In particular, the Treasury secretary highlighted the U.S.’s regulatory structure, accounting industry and corporate governance structure as areas that may be in need of an overhaul.

“We should also consider whether it would be practically possible and beneficial to move toward a more principles-based regulatory system, as we see working in other parts of the world,” Mr. Paulson said in his speech.

Coincidence? Or a data point suggesting that judges’ citing law reviews is a pretty bad measure of their importance. Who needs a federal district court citation, when the Treasury Secretary is (implicitly) “but cf’ing” you?

Paulson aside, Larry’s article is interesting and well-worth the read.

0

Supreme Court Justice to Review Executive Compensation

museum.jpgChief Justice Roberts will be ruling on the issue of excessive corporate compensation.

Wearing his non-judicial hat, that is.

The overpaid executive is Lawrence Small, the Smithsonian Institution’s Secretary. His pay: $915,698, which included $90,000 in perks like a “private jet, hotel rooms, use of a private car service, catered meals . . . and a trip by his wife to Cambodia”. According to the Times’ article on the topic

“[T]he Smithsonian spokeswoman . . . said Mr. Small would wait to comment until the results of an independent review committee that Roger W. Sant, chairman of the executive committee of the Smithsonian’s board, announced Monday.

Mr. Sant, the founder of the AES Corporation in Arlington, Va., and a stout defender of Mr. Small, said the committee, to be led by Charles A. Bowsher, a former comptroller general, would review the board’s actions and Mr. Small’s expenses and report back in 60 days.

Other regents, who include Chief Justice John G. Roberts Jr. and Vice President Dick Cheney, have not commented on the compensation issue. In a March 7 response to a letter from Mr. Grassley, Mr. Cheney’s chief of staff, David S. Addington, said the Smithsonian was ‘an uncommon type of organization’ and referred the senator’s queries about its governance to the Smithsonian’s inspector general and general counsel.”

I could imagine quite a few bad stories about Small’s compensation, starting with Board capture, and ending with the lack of market discipline for a non-profit. But it seems unwise to prejudge the issue – the article, unfortunately, does not provide comparables, and I recall a recent Times story about the Met director’s high salary too. Reporters: jealous, much?

In any event, the governance of non-profits is an interesting subject, and one that Supreme Court Justices probably don’t get to think about much in their day jobs. Indeed, they don’t get to think much about ordinary corporate law either, although given SOX, the Court may have to confront such issues in the near future. You have to wonder whether the Chief’s experience with respect to the Smithsonian will make him more, or less, sympathetic to the claims of managers that they were exercising due care. In any event, the story bears watching.