Category: Culture

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The Babe Ruth of Good Business Today

baberuthOne hundred years ago this week, on July 11, 1914, George Herman (“Babe”) Ruth made his major league debut, for the Boston Red Sox at two-year old Fenway Park. Over the course of his baseball career, The Great Bambino set many records, including leading the league in home runs for twelve seasons; most total bases in a season (457); and highest slugging percentage for a season (.847). In all, he hit 714 home runs, a record that stood until 1974, when Hank Aaron of the Atlanta Braves claimed the title. But that is not why the Babe is immortal.

Other home run kings have achieved nothing like Ruth’s iconic status. Many decade-leading hitters—such as Harry Davis, Gavy Cravath, or Jimmie Foxx—are barely known. Even falling short of Ruth’s stature are the two players who passed him in home runs, Aaron and Barry Bonds (Pittsburgh Pirates and San Francisco Giants), who took the top spot in 2007. Nor is Ruth’s immortality due entirely to the fact that he also excelled as a pitcher: for forty-three years he held the record for consecutive scoreless innings pitched in World Series play and his overall win-loss ratio (.671) remains the seventh best of all time.

Ruth’s immorality, rather, is due to how, through such extraordinary feats, he changed the game of baseball. He brought power to the sport at a time when typical strategy was to move players around the bases one small hit at a time. While baseball was thriving as an American pastime before he played, the Babe’s bold style, vast generosity, and utter unpretentiousness won the public’s adulation. His deep sense of ethics helped to rescue baseball from the damage done by the miscreant players who threw the 1919 World Series.  His strength and optimism gave hope to millions during the Great Depression. Ruth made baseball a richer sport with a wider and enduring following, which is why we all recognize his name a century after his rookie year. And people venerate the Babe despite his many bad personal habits, such as gluttony, promiscuity, and pugnaciousness.

In American business, we have likewise enshrined transformative figures like Ruth despite faults. Andrew Carnegie, John D. Rockefeller, and Cornelius Vanderbilt built the nation’s infrastructure while J. P. Morgan and Henry Ford forged its business structures and methods. We condemn the cheaters to memory’s hell—from Charles Ponzi to Bernie Madoff—or at least purgatory, as with Michael Milken. We remain ambivalent about the likes of Jay Gould and others still derided as robber barons. Read More

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Happy 4th to The Persons of the Divided States of America

shredded flag“Person means a natural person, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated business association, joint venture, governmental entity, or other organization.”

That is from the definitions section of a commercial agreement I happened to be reading today for a consulting assignment.  That type of definition appears in millions of commercial contracts–purchase agreements, merger agreements, loan agreements, leases, licenses, you name it.

In the commercial world, among business lawyers and clients, it is commonly assumed that whenever we reference persons we mean to include every form of organization people have created.   That familiar usage might make the holdings in cases such as Holly Hobby or Citizens United seem natural, with corporations having many of the same rights and duties as people have.

On the other hand, we use the term this way in the business context where the issues being addressed concern commercial obligations and powers, liabilities and indemnities and purchases and sales–not free speech or free exercise of religion.  Moreover, the presence of such definitions in these agreements, despite ubiquity, underscores that it is more natural for persons to be seen only as natural persons, not organizations.

Hard liners on both sides of debates about corporate rights and duties show stupidity, arrogance, or mendacity when declaring either, on the right, “of course corporations are persons” or, on the left, “of course corporations are not persons.” In fact, organizations are not natural persons.  But for some purposes, they should be treated as natural persons are and for others they should not.  (See here for some additional thoughts on Hobby Lobby drawing on the example of Berkshire Hathaway.)

Context is key and hard liners tend to forget context.  In the talk these days about these two SCOTUS cases, it looks as if the Divided States of America is increasingly peopled by hard liners. Alas, that’s not something to celebrate this Fourth of July.

Facebook’s Hidden Persuaders

hidden-persuadersMajor internet platforms are constantly trying new things out on users, to better change their interfaces. Perhaps they’re interested in changing their users, too. Consider this account of Facebook’s manipulation of its newsfeed:

If you were feeling glum in January 2012, it might not have been you. Facebook ran an experiment on 689,003 users to see if it could manipulate their emotions. One experimental group had stories with positive words like “love” and “nice” filtered out of their News Feeds; another experimental group had stories with negative words like “hurt” and “nasty” filtered out. And indeed, people who saw fewer positive posts created fewer of their own. Facebook made them sad for a psych experiment.

James Grimmelmann suggests some potential legal and ethical pitfalls. Julie Cohen has dissected the larger political economy of modulation. For now, I’d just like to present a subtle shift in Silicon Valley rhetoric:

c. 2008: “How dare you suggest we’d manipulate our users! What a paranoid view.”
c. 2014: “Of course we manipulate users! That’s how we optimize time-on-machine.”

There are many cards in the denialists’ deck. An earlier Facebook-inspired study warns of “greater spikes in global emotion that could generate increased volatility in everything from political systems to financial markets.” Perhaps social networks will take on the dampening of inconvenient emotions as a public service. For a few glimpses of the road ahead, take a look at Bernard Harcourt (on Zunzuneo), Jonathan Zittrain, Robert Epstein, and N. Katherine Hayles.

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Trashing, Defending, and Deferring to Yeshiva University

University bashing is in fashion, from the broad-gauged film Ivory Tower to particular attacks on given schools. Some critiques usefully expose problems that need correcting with constructive solutions on offer.  But others seem to trash the academy for other reasons, as with a recent diatribe against Yeshiva University, which seems more calculated to exacerbate the school’s problems than help it find solutions.

In an  expose-style that seems to blow the school’s financial challenges out of proportion, Steven Weiss, who acknowledges having been expelled from Yeshiva in 2002, portrays Yeshiva’s leadership since that year variously as gullible, myopic, conflicted, or greedy.  This piece stung because I am a graduate and former faculty member of Yeshiva’s law school (Cardozo) and I know and have worked with some of the people vilified in the story.  While I am not familiar with all of the factual background of the University’s recent experience, Weiss’s story seems awfully one-sided and therefore the story, as much as the facts about Yeshiva, causes concern.

I share Weiss’s praise for Yeshiva’s former president, Rabbi Norman Lamm, whom I knew, worked with, and admired.  Lamm, and later his VP for business affairs, Sheldon Socol, led Yeshiva from the brink of bankruptcy in 1975 to fiscal soundness and renewed its status for academic excellence and cultural distinction.  (Rabbi Lamm told me how, when he was about to declare bankruptcy, his hand shook so intensely that he could not sign the papers.)

But Weiss then makes a foil out of Lamm,  painting a golden era that ended after 2002 when he passed the baton to Richard Joel, the current president, who has faced a different set of challenges that entices Weiss’s wrath.  In Weiss’s telling, after Lamm’s retirement and Joel’s succession, it’s been all downhill for Yeshiva and its students.  Joel, whom I knew as an able administrator and gentleman when he served as Dean of Business Affairs at Cardozo, certainly has a different style than the rabbi-scholars such as Lamm who preceded him.  But Weiss exaggerates in inexplicably inflammatory tones how this style difference has played out, in a story misleadingly headlined “How to Lose $1 Billion: Yeshiva University Blows Its Future on Loser Hedge Funds.” Read More

Endless Replay, Continued

My post on surveillance creating an “endless replay” has some more playful applications, as well. Consider the “Groundhog Date” now marketed by Match.com: “Partnering with an LA based company … that matches people to dates using facial recognition software, users will be asked to send in pictures of their exes, which will be used to determine who they will be matched with on the site.” Critics are aghast at the prospect of outsourcing our humanity. However habitual our actions may be, no one wants to be typecast as a typecaster.

Surveillance, Capture, and the Endless Replay

Global opposition to surveillance may be coalescing around the NSA revelations. But the domestic fusion centers ought to be as big a story here in the US, because they exemplify politicized law enforcement. Consider, for instance, this recent story on the “threat” of “Buy Nothing Day:”

Fusion Centers and their personnel even conflate their anti-terrorism mission with a need for intelligence gathering on a possible consumer boycott during the holiday season. There are multiple documents from across the country referencing concerns about negative impacts on retail sales.

The Executive Director of the Intelligence Fusion Division, also the Joint Terrorism Task Force Director, for the D.C. Metropolitan Police Department circulated a 30-page report tracking the Occupy Movement in towns and cities across the country created by the trade association the International Council of Shopping Centers (ICSC).

Yes, police were briefed on the grave threat of fake shoppers bringing lots of products to the till and then pretending they’d forgotten their wallets. Perhaps the long game here is to detain members of the Church of Stop Shopping to force them to make Elves on the Shelf for $1 an hour.

More seriously: no one should be surprised by the classification of anti-consumerist activists as a threat, given what Danielle Keats Citron & I documented, and what the ACLU continues to report on. But we do need more surprising, more arresting, characterizations of this surveillance. Fortunately, social theory provides numerous models and metaphors to counter the ideology of “nothing to hide.”
Read More

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The Hand of God

78px-FIFA_World_Cup.svgWith the World Cup underway, I thought I would reprint a post I did at the start of the Cup four years ago that holds up pretty well.

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As the World Cup begins (and a groove on my couch awaits), the thought occurred to me that the Justices are more comparable to those officials than (as Chief Justice Roberts famously said) to baseball umpires. Consider the following:

1. Umpires rarely change the outcomes of a game. Soccer referees do all the time.

2. Baseball is a rule-bound game. Soccer gives the referee lots of discretion (whether to award a penalty kick or not, whether to red card somebody or not, etc.)

3. Soccer fans often accuse the ref of being biased. You rarely hear that about umpires.

4. An umpire can have his call corrected by his colleagues. There is no appeal from a soccer referee’s decision.

Which of these sounds more like a Supreme Court Justice?

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A Toast to 50 Cent’s New Series: Power

The rap artist 50 Cent, whose real name is Curtis Jackson, is producing a new series on STARZ called Power. Famed for his entrepreneurial skills in hip-hop and business, not to be overlooked is his important contribution to contract law and knowledge.  Thanks to an intense dispute with his girlfriend a decade ago, students and lawyers have been treated to a saga 50 Cent endured that illuminates the nature of contracts—of legally enforceable bargains. In a tribute to his latest venture, herewith an account of this case from my book, Contracts in the Real World: Stories of Popular Contracts and Why They Matter (Cambridge University Press 2012).

Jackson secured his first recording contract in October 2003. It came with a $300,000 advance.  To boost his professional image as a rapper, he bought a Hummer and a Connecticut mansion once owned by boxer Mike Tyson. The mansion boasted a state-of-the-art recording studio and the rapper hired a full-time caretaker and professional cleaning crew to maintain it.    In 2004 Jackson bought another house in Valley Stream, the small village in New York’s Nassau County where his grandmother lived; in December 2006, he added to his real estate holdings a $2 million house at 2 Sandra Lane, Dix Hills, on Long Island, New York. By then, he had sold tens of millions of recordings, toured the world, and amassed hundreds of millions of dollars in net worth, as chronicled in his 2005 autobiographical film, “Get Rich, or Die Tryin.”  

This success came after hard knocks. Jackson had dealt crack cocaine as a teenager. In 1995, at age 20, he was released from jail and became involved with Shaniqua Tompkins in his hometown of Jamaica in Queens, New York. The two had a son, Marquise, out of wedlock in 1996. Jackson and Tompkins had no money and no real home—living with his grandmother or hers.     In May 2000, Jackson nearly died when he was shot nine times during a gangland ambush. He was in the hospital for weeks, followed by months of rehab spent at his mother’s house, near the Pocono Mountains in Pennsylvania. Though before the shooting Jackson had been negotiating with Columbia Records, the record company stopped returning his calls.

Jackson, however, persevered. In November 2001, he launched a recording company, Rotten Apple Records. The rising rap star Eminem brought Jackson’s 2002 self-produced record to the industry’s attention.  As a result, Interscope Records offered Jackson the 2003 deal that propelled him to fame and fortune. With money flowing in and Jackson leading the high life, Tompkins asserted her right to a share. But Jackson’s relationship with Tompkins was tumultuous. They did not always live together and fought often, sometimes physically.

When Jackson bought the Dix Hills house in 2006, both agreed it was the best place to raise Marquise, then almost 10-years-old, and Tompkins pled with Jackson to put it in her name. Though Jackson promised to do so, he never did. After the relationship soured, Jackson tried to evict Tompkins from the Dix Hills house.  During that battle, the house burned to the ground under circumstances that authorities considered suspicious. The house had been insured against fire, but the policy lapsed for non-payment of the premium a few weeks before. In response to Jackson’s eviction lawsuit, Tompkins asserted a claim of her own: that the two had a contract entitling her to $50 million. Read More

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Signing off

AFC-cover      Thanks to all for having me back to Concurring Opinions.  I’ve enjoyed the visit immensely.

During my stay, I blogged about the conception of my new book, America’s Forgotten Constitutions: Defiant Visions of Power and Community (Harvard, 2014).  I discussed ideas of constitutional formation and reorganization, alternative theories of popular consent, and certain black nationalists’ view of the Fourteenth Amendment (and even guns and self-defense).  I analyzed Cliven Bundy’s theory of rancher sovereignty, which is shared by many who rallied to his armed defense against the Bureau of Land Management (here and here).  I advocated the creation of a new national office, the Tribune of the People, whose sole responsibility would be defending civil and human rights. Finally, I discussed the Supreme Court’s recent decision on legislative prayer as an example of institutional withdrawal, as issues of prayer were thrown back to the hurly-burly of the public sphere.

News about America’s Forgotten Constitutions can be followed on my author’s page, book blog, facebook, or twitter.  On September 18, 2014, during the week celebrating the U.S. Constitution, I’ll be giving a noontime book talk and signing at the National Archives (more details later).  I hope to see you there.

I am working on a variety of other research projects, including books and papers exploring presidential leadership over individual rights, war-dependent forms of constitutional argumentation (to be published by Constitutional Commentary in the fall), and popular theories of law found in poetry and fiction (my latest, “‘Simple’ Takes On the Supreme Court” is hot off the press).  My papers can be downloaded here.

So long!

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What Everyone Should Remember about Buffett’s Views on Executive Compensation

Intelligent and well-meaning as they are, critics of Warren Buffett’s decision to have Berkshire Hathaway abstain from voting as a shareholder of Coca-Cola on the latter’s executive pay proposal suffer from two problems.  Some, like Joe Nocera of the New York Timesseem to believe that, since Buffett is powerful and historically a strong vocal critic of executive compensation, he is obliged to cast Berkshire’s vote against it.  When he explained last weekend that directors may not always vote against proposals with which they disagreed others, including Vitaliy Katsenelson at the Institutional Investor, lamented that directors may not always stand up for what they believe.

These positions are a combination of misreading history and naïve. Buffett has always stressed that, as costly to shareholders as executive compensation may be, in raw amounts and in terms of conflicts of interest, they pale in comparison to the vastly larger costs to shareholders of other conflicts between executives and shareholders, especially on acquisitions.  No rational investor should believe that directors are unabashed devotees of the shareholder interest at every turn.  Here is an excerpt from remarks Buffett made as discussant at a Cardozo Law School conference I hosted in 1997, the themes of which he has repeated for two decades:

As a stockholder, I’m really only interested in the board accomplishing two ends. One is to get a first class manager and the second is to intervene in some way when even that first class manager will have interests that are contrary to the interests of the owners.

I think there are great difficulties in achieving both of those ends. I’ve been a director of, counting them up, seventeen publicly owned companies, not counting ones which we control (which probably shows a very dominant, masochistic gene) (laughter). But over that time I’ve wrestled with just these couple of problems and there may be processes that would improve them.

The first one: getting the first class manager. I have never seen in those seventeen cases – and I’m not aware of it in other cases – where a question of mediocrity or worse and the evaluation of change has been made in the presence of a chief executive. It just doesn’t happen. So, I think absolutely to have any chance of having that one solved, you have to have regular meetings of evaluation of chief executives, absent that chief executive. If they are rump meetings or something of the sort – if they’re not regularly scheduled – there is just too much tension created. Because a board may be a legal creation, but it’s a social animal. It is very difficult for a group of people without a very strong leader to all of a sudden, spontaneously decide that they’re going to hold some meetings elsewhere and discuss whether this person who may be a perfectly decent individual, really should be batting clean-up.

So, I think there should be a lot of emphasis on process in terms of evaluation of a CEO. I don’t know how you create a greater willingness on the part of directors to really bounce somebody that they would bounce if they owned 100% of the company or if their family was dependent on the income from the business and so on. I just have not seen it in corporate America.

If you get that first class chief executive – which is a top priority – he doesn’t have to be the best in the world, just a first class one. And I may agree with Jill to some extent – you may be able to turn a five into a five-and-a-half or something by having him consult with lots of other CEOs and get a lot of advice from the board. But my experience is that you don’t turn a five into an eight. I think you’re better off getting rid of the five and having him find something else to do in life and going out and acquiring an eight.

The second problem is: even a first class chief executive has some interests that are in conflict with the shareholders. One is his or her own compensation. The second one gets into the acquisition category. There are psychic benefits to an executive of running a bigger show or just having more action or whatever that can be in conflict with the shareholders, even though that executive may be first class in other respects. The nature of acquisitions is that they get to the board at a point where if you turn them down you are rejecting the chief executive, you are embarrassing him in front of his troops, you’re doing all kinds of things. So, it just doesn’t happen.

I have seen board after board approve deals that afterwards the board members say, “you know, I really didn’t think it was a very good idea but what could we do about it?” And there should be a better mechanism. But I’m not sure what it is. There should be a better mechanism, though, for a board to make those important decisions where a first class chief executive can have an absolutely different equation than the shareholders, weighing all of the personal economic and non-economic considerations. There should be a mechanism that enables the board to bring independent judgment on those in a way that doesn’t put the CEO in a position virtually where he or she has to resign or is embarrassed in front of the troops. And I would welcome any discussion on those matters.

The compensation question where the first class executive could be in conflict with the owners, I think it gets abused some but I don’t think that it amounts to that much when compared with the other two questions – getting the right one and also the question of acquisitions. I think it costs shareholders some money that’s unnecessary, and I think that a lot of the compensation schemes have been quite illogical, but I don’t think that they are overwhelming in terms of evaluation.

On compensation, I can turn purple in meetings. But in the end, the big, dumb acquisitions are going to cost shareholders far, far more money than all of the other stuff.