Category: Corporate Finance


Buffett + Heinz = Classic Application of Classic Lessons

Today’s report that Berkshire Hathaway, Warren Buffett’s company, along with 3G, will acquire Heinz, the venerable food products concern, reflects the acquisition criteria that Buffett has articulated for 20 years.  Essays explaining and outlining those criteria have appeared in my book, The Essays of Warren Buffett: Lessons for Corporate America, since its first publication in 1997.  Some excerpts follow (as they will appear on pages 211-214 of the forthcoming third edition):


We believe most deals do damage to the shareholders of the acquiring company. Too often, the words from HMS Pinafore apply: “Things are seldom what they seem, skim milk masquerades as cream.” Specifically, sellers and their representatives invariably present financial projections having more entertainment value than educational value. In the production of rosy scenarios, Wall Street can hold its own against Washington.

In any case, why potential buyers even look at projections prepared by sellers baffles me. We never give them a glance, but instead keep in mind the story of the man with an ailing horse. Visiting the vet, he said: “Can you help me? Sometimes my horse walks just fine and sometimes he limps.” The vet’s reply was pointed: “No problem—when he’s walking fine, sell him.” In the world of mergers and acquisitions, that horse would be peddled as Secretariat. 

At Berkshire, we have all the difficulties in perceiving the future that other acquisition-minded companies do. Like [them] also, we face the inherent problem that the seller of a business practically always knows far more about it than the buyer and also picks the time of sale—a time when the business is likely to be walking “just fine.” Read More


NBLSC Call-for-Papers

From our friends sponsoring the National Business Law Scholars Conference (NBLSC), scholars please take note of the following  Call-for-Papers:

The NBLSC will be held on Wednesday, June 12th and Thursday, June 13th at The Ohio State University Michael E. Moritz College of Law in Columbus, Ohio. This is the fourth annual meeting of the NBLSC, a conference which annually draws together dozens of legal scholars from across the United States and around the world.

All on-topic submissions are welcome and the sponsors will attempt to provide the opportunity for everyone to actively participate. Junior scholars and those considering entering the legal academy are especially encouraged to participate.

To submit a presentation, email Professor Eric C. Chaffee at with an abstract or paper by April 15, 2013. Please title the email “NBLSC Submission – {Name}”. If you would like to attend, but not present, email Professor Chaffee with an email entitled “NBLSC Attendance”. Please specify in your email whether you are willing to serve as a commentator or moderator. A conference schedule will be circulated in late May.

Conference Organizers: Barbara Black (University of Cincinnati); Eric C. Chaffee (University of Dayton); Steven M. Davidoff (The Ohio State University).


Young Business Law Scholar Call for Papers

The Center for Law, Economics & Finance (C-LEAF) at The George Washington University Law School has announced its third annual Junior Faculty Business and Financial Law Workshop and Junior Faculty Scholarship Prizes.  This year’s Workshop will be held on April 5-6, 2013 at GW in Washington.

The Workshop supports and recognizes the work of young legal scholars in accounting, banking, bankruptcy, corporations, economics, finance and securities, while promoting interaction among them and selected senior faculty. By providing a forum for the exchange of creative ideas in these areas, C-LEAF aims to encourage new and innovative scholarship.

I’ve participated in both previous Workshops and can attest that participants have benefited from the exchange of ideas and getting acquiainted with newer scholars.  About 100 papers are submitted and the C-LEAF faculty select about 10 for presentaiton.  At the Workshop, senior scholars comment on each paper, followed by a general discussion.

Three papers receive Junior Faculty Scholarship Prizes of $3,000, $2,000, and $1,000, respectively. All prize winners will be invited to become Fellows of C-LEAF.  C-LEAF makes no publication commitment, but chosen papers are featured on its website as part of the C-LEAF Working Paper series.   Read More


Amazing New Corporate Law & Econ Book

If you are interested in corporate law, especially economic analysis of it, you likely will enjoy an impressive new book collecting original pieces by 30 prominent corporate law scholars. Edited by Claire Hill and Brett McDonnell of the University of Minnesota, the book canvases every important topic in corporate law.

After an overview that traces the history of the economic analysis of corporate law, the book addresses corporate constituencies, governance, gatekeepers, government oversight and a few other hot topics not classified.

Within constituencies, topics consider the directors’ role, the roles of other corporate actors, including shareholders, creditors, employees, and other stakeholders along with broader notions of the public interest. 

Internal governance looks at fiduciary duties, shareholder litigation, outside directors, shareholder activism and executive compensation.  

Gatekeeper pieces address lawyers and auditors, as well as rating agencies,  research analysts, D&O insurers and investment banks.

Jurisdiction looks at both domestic federalism as well as comparative perspective.

Unclassified topics address self-dealing, behavioral economics, and market efficiency.

The scholars are the following professors:

Ahdieh,   Atanasov, Bainbridge, Black, Blair, Bodie,  Ciccotello,  Clarke, Cunningham, Darbellay, Davidoff, Fairfax,  Ferri, Fisch,  Frankel, Gilson, Griffith, Hill, Kraakman, Langevoort, Lee, McDonnell, Painter, Partnoy, Smith,  Thomas,  Thompson, Walker, and Whitehead.  

The table of contents to this impressive volume follows. Get it while it’s hot!!

Read More

The Corporate University: Recent Developments

There are many memorable images in Rob Nixon’s book Slow Violence and the Environmentalism of the Poor. Describing the “risk relocation” that is a prime function of the global economy, he offers this vision of Nigeria:

Often, as a community contends with attritional assaults on its ecological networks, it isn’t granted equitable access (or any access at all) to modernity’s basic infrastructural networks . . . . Like those Niger Delta villages where children for decades had no access to electricity for studying at night, while above their communities Shell’s gas flares created toxic nocturnal illumination. Too dark for education, too bright for sleep: modernity’s false dawn. (42)

Exxon is now “a corporation so large and powerful — operating in some 200 nations and territories — that it really has its own foreign policy.” As Steve Coll observes, the US “gives Chad only a few millions dollars a year in aid, while Exxon’s taxes and royalties can be worth as much as $500 million.” Had Exxon directed only 10% of its 2008 profits to political expenditures that year, it would have spent “more than every candidate for President and every candidate for Senate spent at the last election.” In a surprising number of contexts, corporations enjoy far more freedom of action, and secrecy, than states.

Is it any wonder, then, that universities are beginning to shift allegiance, to pursue the agenda of corporate donors instead of public values? Conferences like EduFactory have chronicled the long history of the corporate university; Philip Mirowski has critiqued it in books and edited collections. But it feels like we are on the verge of a phase change, an irreversible acceleration of dynamics once muted and slowed by the ancient cultural identity of the university. Consider these developments:

1) Martha McCluskey has described “economics scholars simultaneously acting as academic experts on the public interest and as sellers of this expertise to the highest private bidder.” She has chronicled a number of troubling aspects of a recent report on fracking issued by the “Shale Resources and Society Institute” (SRSI) of SUNY Buffalo:
Read More


Stanford Law Review, 64.4 (2012)

Stanford Law Review

Volume 64 • Issue 4 • April 2012

The Tragedy of the Carrots:
Economics and Politics in the Choice of Price Instruments

Brian Galle
64 Stan. L. Rev. 797

“They Saw a Protest”:
Cognitive Illiberalism and the Speech-Conduct Distinction

Dan M. Kahan, David A. Hoffman, Donald Braman, Danieli Evans & Jeffrey J. Rachlinski
64 Stan. L. Rev. 851

Constitutional Design in the Ancient World
Adriaan Lanni & Adrian Vermeule
64 Stan. L. Rev. 907

The Copyright-Innovation Tradeoff:
Property Rules, Liability Rules, and Intentional Infliction of Harm

Dotan Oliar
64 Stan. L. Rev. 951

Testing Three Commonsense Intuitions About Judicial Conduct Commissions
Jonathan Abel
64 Stan. L. Rev. 1021

Derivatives Clearinghouses and Systemic Risk:
A Bankruptcy and Dodd-Frank Analysis

Julia Lees Allen
64 Stan. L. Rev. 1079


Stanford Law Review, 64.3 (2012)

Stanford Law Review

Volume 64 • Issue 3 • March 2012

The Material Foundations of Corporate Culture: Goldman’s Lessons for Silicon Valley

Two resignation letters rocked Wall Street and Silicon Valley this week. Greg Smith elegized a once-great Goldman Sachs, now reduced to “ripping eyeballs out” of clients. (The industry sure has changed since the 90s, when the goal was to rip off the whole face of the client. I guess Dodd-Frank is working.)

On the West Coast, James Whittaker explains “Why I Left Google.” His complaints are more measured than Smith’s: “The old Google made a fortune on ads because they had good content. It was like TV used to be: make the best show and you get the most ad revenue from commercials. The new Google seems more focused on the commercials themselves.” Whittaker laments that the company has become obsessed, Ahab-like, with the social web’s whale, Facebook.

On one level, it’s not fair to compare the companies: the engineers at Google have contributed far more to society than finance’s “money-massagers.” Goldman represents the terminal phase of a liquidationist capitalism unmoored from social value. But its culture did not rot overnight. Rather, legal and material factors accelerated decay. Silicon Valley’s managers and regulators should take notice: the same process could happen there.
Read More


Stanford Law Review, 64.2 (2012)

Stanford Law Review

Volume 64 • Issue 2 • February 2012

National Security Federalism in the Age of Terror
Matthew C. Waxman
64 Stan. L. Rev. 289

Incriminating Thoughts
Nita A. Farahany
64 Stan. L. Rev. 351

Elective Shareholder Liability
Peter Conti-Brown
64 Stan. L. Rev. 409

Harrington’s Wake:
Unanswered Questions on AEDPA’s Application to Summary Dispositions

Matthew Seligman
64 Stan. L. Rev. 469

Boumediene Applied Badly:
The Extraterritorial Constitution After Al Maqaleh v. Gates

Saurav Ghosh
64 Stan. L. Rev. 507


Veil Piercing Is Probably Not the Most Litigated Issue in Corporate Law

I was reading through Bob Thompson’s excellent year-in-review list of corporate law scholarship, and was struck the number of articles discussing veil piercing.  With a few exceptions, each of those articles claims, based on Bob’s opus, that veil piercing is the “most litigated issue in corporate law.”  Heck, even Wikipedia’s page on the veil makes that assertion.

In Disputing Limited Liability,* Christy Boyd and I disagree that veil piercing is really dominates corporate litigation.  As we noted:

“[Robert] Thompson [in his Cornell Law Review Article] compared the incidence of the term “veil piercing” in opinions to the incidence of terms like “hostile takeover,” declining to broaden the search to more common terms like “fiduciary duty” Id. at 1036 n.1. But, as this Article will show, “litigated” cases begin with complaints. Westlaw‘s pleadings database contains 2071 federal and state complaints potentially making veil piercing allegations between 2000 and 2005. A similar search for “(loyalty disloyalty) /s (director* officer)” returned 2405 complaints.”

Now, as Bob kindly wrote me in response, our argument is somewhat unfair.  After all,we’re counting different things, at different times, before different courts.  But still, I don’t think there’s much evidence at all that the veil is really the most litigated issue in cases that generally deal with corporate law problems.  (I say “generally” because a truly narrow definition of “corporate law” would, in my view, be limited to problems that the internal affairs doctrine covers, and in some states would consequently would exclude veil piercing altogether).  On the other hand, I don’t think Christy and I have made the case that classic loyalty claims are the most commonly litigated issue either.  The problem of generalizing to find the “most litigated issue” turns out to be complex.

The problem, as always, turns on sample selection. Most state court dockets are plainly inaccessible – and state court opinions are collected in a much more biased way than federal opinions.  As a Westlaw representative told me in 2009, they tend to collect non-Supreme state court opinions from urban centers, focusing on material that they believe will be of interest to lawyers, or when the court clerk has brought an opinion to their attention. The result is that our understanding of the practice of an individual state’s corporate law are biased by the black-sheep opinions we can see.  Why would we think that drawing any inferences from that dataset could let us answer the question of “what is the most litigated corporate law issue”?  I’d prefer to trust practice bulletins – trying to track what corporate lawyers believe to be common problems.  In those materials, veil piercing is relatively rarely discussed.  However, since practice bulletins may be dominated by the defense bar, one has to account for the fact that most veil piercing cases are actually brought against very small companies, who might not be represented, and certainly are unlikely to be represented by an attorney with sufficient time on her hands to contribute to a Bar newsletter.  Thus, in general I think we can learn very little from veil piercing’s relative presence in opinions, or relative absence in the Bar literature.

An exception is Delaware, which has a robust docketing system, a court practice of writing opinions in almost every case, and thorough Westlaw coverage of both the Chancery’s and Supreme Court’s outputs.  Now I’m not the most attentive reader of that stream of data, but my sense is that corporate litigation in Delaware is heavily biased toward fiduciary & M&A claims, while veil piercing almost never comes up.  Here again we have to be careful about generalizing: Delaware, being notoriously hostile to veil piercing allegations, probably isn’t the place we’d want to go to know how most state courts act.  But if Delaware & Nevada host the majority of corporations in this country which will generate corporate litigation (arguably, they do), and if both jurisdictions are veil friendly, I don’t see how it’s possible to conclude that veil piercing litigation is all that common.  Or to put it another way: we have no idea what the most common litigated corporate law issue is, but it probably is not veil piercing.

Veil piercing cases are, however, highly colorful, which may explain the doctrine’s continuing attraction for scholars.


[Update: Steve Bainbridge writes about this post “A better question might be “who gives a sh*t?”.  Nice.  Very nice. I suppose I care, mildly, because it might be that attention better spent on other issues in corporate law, like someone’s … nontraditional … theories of director primacy, has instead been diverted to veil piercing on the theory that piercing is more practically important than it is.  And because if if you search the web, you’ll find dozens of companies puffing this exact claim to sell you their incorporation products and advice.  Or it might be that the question is worth asking simply for love of the game.]

* DLL happens to be on Bob’s corporate law articles of 2011 list.  In case you were wondering if I am trying to bias the electoral pool by blogging about the article, shame on you. I would never stoop so low.