October 30, 2014
icon What Does The World Series Mean For Baseball Analytics?
Posted by David Zaring

Congratulations to the Giants on winning the World Series, one of the two least statistically inclined teams in baseball, the other, of course, being the Royals.  Indeed, with the possible exception of the Red Sox, the teams that have won the World Series since the sabermetric revolution have all been rich (as are the Red Sox, so it is hard to characterize them as solely stats-driven), traditionally strong in scouting, or random.

What does this tell us about baseball analytics?  Over the next week, I predict you'll hear:

  • It tells us nothing, short series are random, and the fact that a moneyball team has never won the World Series is a product of chance.
  • It tells us nothing, everyone uses statistics now, and therefore teams that say they are not moneyball teams are, in fact, moneyball teams.
  • What about the Red Sox, doesn't that show that moneyball works, even though short series are random?

I like looking at sports through stats.  It is way more thoughtful than "he wanted it more," or "you gotta make that play."  I'm actually not positive it's much more predictive than just looking at net spends or surveys of experts.  But what do I know?  Everyone uses moneyball now.

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October 27, 2014
icon The SEC's Anti-No-Admit Policy Only Goes So Far
Posted by David Zaring

It is one data point, but the cases where the the SEC would settle without requiring an admission of guilt or statement of facts were always likely to be those civil suits following criminal cases that did not go well.  Rengan Rajnaratnam, Raj's brother, proved to be the one inside trader defendant that the Manhattan USAO could not convict.  So the SEC is picking up sticks as well, in exchange for $840,000 bucks and a "let's just move on" kind of attitude.  It's the kind of case where seeking an admission would likely just make the defendants dig in their heels, as I suggested here.  And indeed, here's Rengan's lawyer, sounding threatening:

“The S.E.C. elected to offer, and Rengan elected to accept, a no admit/no deny settlement,” said Daniel Gitner, a lawyer for Mr. Rengan. “Rengan is moving on to the next phase of his life. If the S.E.C. has further comment, so will we.”

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October 23, 2014
icon The Coming Global Prohibition On Securitization
Posted by David Zaring

Okay, the headline was made to draw in the reader.  Non-banks will be allowed to securitize to their heart's content, and banks will likely basically continue to do the same.  However, the Basel Committee orchestrated a meeting in Tianjin between central bankers (they do monetary policy) and bank supervisors (they do safety and soundness),and came up with, among other standards, an approach to the ability of banks to hold collateralized debt obligations, the sort of obligations that have been blamed for the financial crisis.

I will quote the report made from the meeting, though that's pretty dull and bureaucratic. However:

  • the freedom of banks to hold derivatives is being set in these informal international meetings among bureaucrats, a fact always worth repeating
  • the limits on bank holdings of securitized assets is being set through a negotiated, and global, process involving bank regulators and capital market regulators 
  • some people, the US very much not included, would see no reason to consult those who set monetary policy, or what the currency is worth, on the appropriate way to limit the power of banks to hold derivatives, or whether derivatives would fail to protect a bank in crisis times
  • the supervisors and central bankers met in Tianjin, which means that some of them hopefully took the world's fastest train from Beijing's airport to Beijing's port city.

It's all very global and committee of regulators oriented.  Anyway, here's the report on securitization assets held by banks:

The Committee also reviewed progress towards finalising revisions to the Basel framework's securitisation standard and agreed the remaining significant policy details that will be published by year-end. It also recognised work that is being conducted jointly by the Basel Committee and the International Organization of Securities Commissions (IOSCO) to review securitisation markets. The Committee looks forward to the development of criteria that could help identify - and assist the financial industry's development of - simple and transparent securitisation structures. In 2015, the Committee will consider how to incorporate the criteria, once finalised, into the securitisation capital framework.

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icon Turkish Banking Law Is All About Image
Posted by David Zaring

Turkey's largest Islamic bank believes that it has been targeted for destruction by the Turkish government, and, given the way things seem to go in that country, the level of conspiratorial innuendo is high.  But also high is the discretion of the government to act against banks and observers of same.  Banks generally did well in the financial crisis of 2008, if not so well before then.  Usually, supervision is done for safety and soundness.  But here's Euromoney's quote of one of the principles of Turkish banking law:

The 'protection of reputation’ article of Turkey’s banking law, introduced after the country’s devastating banking crisis of 2001, states "no real or legal person shall intentionally damage the reputation, prestige or assets of a bank or disseminate inaccurate news either using any means of communication". Convicted violators of the code face up to three years in prison.

That seems like almost untrammeled regulatory discretion to me, joined with severe penalties.  You could go after shorts, any sort of speaker, and probably the banks themselves, for soiling their own reputation.  Via Matt Levine.

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October 21, 2014
icon Family Film Blogging: Meet the Mormons
Posted by Christine Hurt

We were among the last folks in Provo-Orem to go see Meet the Mormons last night.  As it was ending, my very astute middle child whispered:  "The point is for non-Mormons to Meet the Mormons, but only Mormons are going to see it."  (Of course, we were seeing it in Provo, so that probably doesn't give us a random sample of moviegoers.)  So, the topic of this family film blog post is to ponder what would make a non-Mormon go to the movies and choose this movie over another.

The reviews from film critics are pretty low.  The word "infomercial" is used a lot.  Perhaps not surprisingly, the reviews from users are very high.  So, here's the deal.  The movie isn't a documentary made by outside filmakers who want to see the ins and outs of a religion.  There are no interviews with detractors or those who have left the church.  There aren't profiles of church leaders or discussions of sensitive points of church doctrine.  It isn't even a reality show where cameras follow members around 24/7 and edit it to portray maximum conflict and tension.  The movie is a portrayal of six families, chosen for a purpose, to show the diversity, ordinariness, and impact of selected members' lives.

A narrator begins in Times Square and shows media clips of common portrayals of Mormons (yes, even South Park).  She then takes us around the world (in beautiful filmmaking reminiscent of IMAX movies) to meet various members of the Church of Jesus Christ of Latter Day Saints.  She sums up at the end by hoping that the audience sees the "common ground" that LDS members have with other religious followers.  And that is what the vignettes focus on -- the core values that the members have and the choices they have made to put God and Jesus in the center of their lives.  The movie does not explore church doctrine or mention the beliefs that make LDS doctrine different from mainstream Christian doctrine.  (This is not Mormonism for Dummies.)  I don't think Joseph Smith or Brigham Young were even mentioned.  The movie isn't an exploration of how LDS doctrine differs, but instead focuses on how it is similar to other religions.  The movie depicts two converts who still maintain close ties with their families, who profess other Christian religions, along with a Nepalese man who still kept the religious customs of his family.

I enjoyed all of the stories, and I can see how they were carefully selected to combat subtle (or not so subtle) stereotypes of Mormon culture.  The subjects are from different races, cultures, countries and socioeconomic backgrounds.  One of the families is led by a working mom who is a mixed martial arts champion.  I get it.  But I still enjoyed all of the uplifting stories. I laughed, I cried.

So, is it worth the average viewer's time and money?  I think so, though Redbox, Netflix or Amazon Prime might also be the way to go.  (The movie is 78 minutes long.)  If you are of my generation, you may remember the commercials that were produced by the LDS church.  You can find some on the Internet, but I couldn't find my two favorites.  One showed a dad shopping with his daughter and agonizing over how much little girl stuff cost and the other showed a dad and his son running to put the trash out after the son forgot to do it in time.  I loved those commercials, and so did a lot of folks.  Growing up RLDS, people would always ask me "Does your church make those great commercials?"  Actually, no.  Anyway, the movie is a bit like those commercials -- heartwarming, inspiring, thought-provoking, but not really challenging or informative.  Finally, the movie is also a bit like an IMAX movie.  I love those short movies, and I notice that in recent IMAX movies Jerusalem and Arabia, the filmmakers focus on what all people have in common, even the three main religious groups that inhabit Jerusalem.

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October 15, 2014
icon Good Luck At AALS, And Here Are Some Alternatives!
Posted by David Zaring

I'm looking forward to seeing some of you at the meat market, Wharton is interviewing (and the deadline for applications is yet to come!).  We're not the only business law place, and I like to post the hiring notices of our competition for those inclined to peruse them.  After the fold, a few more, all in quite desirable locations.

more ...

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October 13, 2014
icon Family Film Blogging: Assorted Dystopian Future Films (The Maze Runner and The Giver)
Posted by Christine Hurt

When I was a "young adult," books geared toward me dealt with parental divorce, mothers dying of cancer, anorexia and the occasional unwanted pregnancy.  But everyone knowns now that YA novels must have a dystopian future (or a wizard).  (See, e.g., Catching Fire and Divergent et seq.)  Two recent movies jump on tha tbadwagon, adapting two other YA novels that depict a dystopian, totalitarian future:  The Giver and The Maze Runner.

I will have to admit that I may be one of the very few moms out there with kids that have gone through middle school who has not read The Giver (1993) by Lois Lowry.  Sorry.  But I get the feeling from watching the movie that the book may have a little more to offer.  The NYT Magazine interviewed Lowry here about watching the book be made into a movie twenty years after writing it.  There has to be something weird about writing a book (a single book) decades ago about a totalitarian future where everyone is made to believe that a regimented life with people being organized into work and life by a supreme authority is optimal and then see some young whipper-snappers copy that idea into zillions of dollars (See, eg., Catching Fire and Divergent, mostly Divergent).  LIke Tris in Divergent, Lowry's Jonas begins to sense that life isn't supposed to be about just doing life the way it has been done, organized into familes, occupations, etc.  Very similar to the ceremony in Divergent in which young people are sorted into "factions," young people in The Giver are sorted into occupations.  Jonas is left to the end, and he begins to think there is something wrong with him (divergent, possibly?)  But no, he is given the position of "receiver of memories," which is held only by one person in a generation.  He is to be the memory laureate of the community -- he alone will hold the history of mankind, with its tragedies and blessings, wars and creative accomplishments, weapons and musical instruments.  The trick is though, that the outgoing "receiver/giver" has to give Jonas all of this accumulated knowledge (through some sort of forearm-mindmeld thing) without Jonas balking and deciding that this form of government is completely whack, as the young people say.  As you might imagine, Jonas does exactly that.  Watching the movie, I felt that I wasn't really understanding everything because I did not read the book.  Maybe the book is meant to be a small allegory or cautionary tale and not a summer blockbuster.  Anyway, when you watch the next Divergent movie, just know that Lois Lowry did that first, without as much violence.

Speaking of violence, The Maze Runner does not flinch from modern depictions of a totalitarian future.  I also did not read this book, though my children did.  As far as violence goes, this movie is more along the Divergent and Catching Fire lines than The Giver.  The beginning is very existential -- our hero, Thomas, wakes up in a metal elevator, which is rising to an unseen destination.  The elevator ("box")stops when it emerges from underground into "the glade."  This green space is fairly large, with groves of trees, grass, and a really bizarre stone or metal wall surrounding the green space and extending high into the sky.  Thomas cannot remember who he is and has no idea why he is here or what "here" is.  And neither do the other teen-age boys that greet him.  They also arrived via the box, one a month for three years.  They were expecting another arrival in the box, along with supplies.  Someone or some thing sends the box once a month, but no one knows who.  The supplies are marked with "wckd."  The boys have created a type of community with three rules:  do your work, don't hurt anybody, and don't go into the maze.  The maze is on the other side of the tall wall, and there is a door that opens during daylight hours.  Of course Thomas, being our hero, immediately wants to go into the maze.  And early on, you get the sense that this ok-topia that the boys have worked out over time (apparently with some rough patches) is not going to stable for too long.  The Lord of the Flies seems imminent.

The rest of the movie (obviously just a first installment) poses one central tension:  is it better for the boys to continue on and live in a sort of harmony in the glade, living off the land and the necessary supplies that come once a month or to risk this sort-of-acceptable existence to find a way out through the maze, past the "grievers" (gross robot giant spider things), and see what is outside?  Should they cash everything in and risk death to find out who they are and why they are there?

Because this is the first installment, we get to see the gladers trade what they have for something, but we aren't sure what the something is.  As my daughter said to me on the way out:  "Everyone is lying."  Yikes!  Maybe I should read the book.

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icon Family Film Blogging: Alexander and the Terrible, Horrible, No Good, Very Bad Day
Posted by Christine Hurt

On Saturday, our whole family met another whole family to go see Alexander and the Terrible, Horrible, No Good, Very Bad Day.  Because we were in Provo, we were one of only three families who were not going to see Meet the Mormons.  Even though we were meeting Mormons to go see Alexander, there was a moment of shame that we weren't going to see the documentary.  Next week.  But this week, we saw Alexander.

So, any reader will understand that my criteria for a good movie would not make me a good film teacher or film critic.  I like movies that my whole family can watch, that make me laugh, don't have too much potty humor or gross-out jokes, and have some sort of intelligence.  I would say that Alexander fits the bill.

Obviously, the movie does not track the book other than the general gist (sort of like Cloudy with a Chance of Meatballs).  Alexander's bad day takes place in the first 15-20 minutes of the movie.  He gets gum in his hair, falls down in front of his 6th grade crush, finds out the most popular boy in his class is having a blow-out bash the same night as his 12th birthday party, etc.  Alexander's angst comes not because he had a bad day, but because his family doesn't seem to care in their self-centered busy-ness:  Big brother crowing about his prom the next day; big sister preening about her big theater debut the next day; mother worrying about her big book launch the next day; dad cautiously optimistic about his big interview the next day.  As you can see "the next day" has a lot of potential for the other family members.  You can brace yourself for what happens next.  At midnight on his birthday, Alexander wishes that his family could have a bad day (I'm sorry -- a terrible, horrible, no good, very bad day) so that they could know what it is like and maybe empathize with him more.  And beginning the next morning, that is what happens.

What separates Alexander from a number of movies (family and not) where a series of things go horribly wrong is that the movie never loses its sweetness.  The awful, cringe-worthy things that happen are followed swiftly by an epiphany, a shared moment with a family member, a recommitment to optimism and family togetherness.  Hokey?  Maybe, but exactly the kind of movie that I like to see with my family, which is not too different from Alexander's family.  (I was sitting by my 12 year-old, and he definitely empathized with Alexander's middle child angst.)

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icon The Marmon Group: A Mini-Berkshire?
Posted by Usha Rodrigues

As I blogged a few days ago, I've been reading Larry Cunningham's Berkshire Beyond Buffett: The Enduring Value of Values.  The thesis is that Berkshire Hathaway's value will endure beyond its founder, Warren Buffett, because of the larger values of the organization.  After making his case he argues (like a good lawyer) that a precedent and analogous case already exists: the Pritzger's Marmon Group.

You know you're a corporate law geek if the mere mention of the Marmon Group made you sit up and take notice.  The Marmon Group plays a role in 2 classic corporate law stories.   Larry mentions one: every student of corporate law should remember the Marmon Group as the bidder in the infamous corporate law case Smith v. Van Gorkom.  If you don't remember the 1985 Delaware Supreme Court case, you didn't have me as a Corporations professor.  Spoiler alert: the directors are found to have breached their fiduciary duty and are thus personally liable for potentially millions of dollars in damages.

What many casebooks omit--but not Klein, Ramseyer, Bainbridge, which I am happily using this term--is that the case settled for $23 million.  $10 million came from D&O insurance, and "almost $11 million came from the Pritzkers." The Pritzkers had no legal duty to pay for the directors' settlement--but they did it because they felt it was the right thing to do.

The Marmon Group's second corporate law claim to fame is as a player in Barbarians at the Gate, thhe father of corporate tick-tocks.  The Marmon Group backed one of the bidders, the First Boston Group.  There's this great scene where in a second round of the auction they need to raise more money.  First Boston makes a 45-minute presentation to a British sugar company, S& W Berisford, on a Saturday night.  First Boston hoped that Berisford could make a decision by Tuesday.  20 minutes later, the company committed $125 million. 

One of First Boston's advisors asks "Do these people have any idea what they're doing?... I mean, they're going to commit $125 million.  Why should they do it."

Handelsman stared at Finn as if it was the silliest question he'd ever heard.  "Jay [Pritzker] asked them to."

The common theme from these two stories? Sophisticated businesspeople regularly act for motivations other than money.  Again and again in Berkshire Beyond Buffett, either Berkshire itself or one of its subsidiaries demonstrates that money is not ultimately what drives them. Most notably, many of Berkshire's current subsidiaries turned down higher offers from other acquirers because they valued the reputation for hands-off management that Berkshire promises.

Here's a concrete example I used with my Corporations class when discussing conflicting interest transactions.  One of Berkshire's subsidiaries was operated by a devout Mormon whose stores were closed on Sundays.  He wanted to expand out of the state, but Buffett was skeptical.  He thought the model could work in highly religious Utah, but not beyond.  Here is Cunningham quoting Buffett:

Bill then insisted on a truly extraordinary proposition: He would personally buy the land and build the store--for about $9 million as it turned out--and would sell it to us at his cost if it proved to be successful.  On the other hand, if sales fell short of his expectations, we could exit the business without paying Bill a cent.

The store was "an instant success", and Berkshire wrote the Bill a $9 million check.  Bill refused to take a penny of interest.  It's a good example of insider transactions that benefit the firm.  It also suggests Larry might actually be right about Bershire's staying power.  I can't help thinking there is a lot of value in offering businessmen like this the combination of liquidity and autonomy Berkshire provides, insulating them from the  demands of Wall Street.

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October 09, 2014
icon Teaching corporate legal strategy
Posted by David Orozco

For our last guest post, Robert and I would like to share our experiences using the five pathways in the classroom to teach legal strategy to business students. Overall, applying this research in the classroom has been a rewarding experience that has challenged us to improve the framework’s conceptual foundation and demonstrate its relevance in the business world.

When we first experimented using the five pathways in our respective graduate business courses three years ago, we were unsure about how well it might be received. To our relief, the framework was well received from the start. In a recent end of year survey that I give to my MBA students, several of them mentioned that the framework was one of the learning highlights in their required business law course. Various students mentioned that the framework allowed them to view the law in a different way and also helped them appreciate the opportunities and benefits of engaging attorneys to help solve business problems. This is in contrast to the viewpoint, held by some managers, that law is an external, dense and static force that constrains business behavior as opposed to enabling value creation.

Robert and I introduce the framework early in our courses, and then apply it to examples and cases throughout the term. To drive home the framework’s applicability, we created a specific team-based homework assignment (Download HW 1) that asks students to choose a recent news story involving a business law issue that follows the prevention, value or transformation pathway, and to analyze the issue from a law and strategy perspective. The articles that students recently have chosen to analyze include stories about NFL contract negotiations, the FCC’s review of the Comcast Time Warner merger, and Airbnb’s legal fight against the New York Attorney General. These cases provide plenty of material for discussion in class, and serve as potential research topics.

Although the framework has yet to be applied in the context of a law course, we think it could potentially engage law students and attorneys who seek to understand how the law strategically relates to their clients’ business.

Ultimately, we’d like to see the framework applied in diverse learning environments, so we encourage you to make use of the framework and contact us if you have any questions or ideas about how to apply it. If you decide to use the five pathways in your classroom or company, we’d love to hear about your experiences.

We’d like to conclude by extending a warm thanks to The Conglomerate and its readers for allowing us this opportunity to share our ideas related to law and strategy. We’ve greatly enjoyed participating as guest bloggers in such a distinguished collaborative space.


David and Robert

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October 08, 2014
icon The Death of the Bluebook Monopoly?
Posted by Christine Hurt

So, I have thought a lot during my teaching career about the Bluebook.  I wrote down some of my thoughts here and here, and even co-authored a book and some online exercises here.  So, when I saw a headline on my feedly feed today that reads "Is The Bluebook About To Be Killed Off?" that was link teaser I couldn't ignore.

Almost 15 years ago, the Association of Legal Writing Directors attempted to kill off the Bluebook with the ALWD Manual.  Like the Maroon Book before it, the ALWD did little to knock the student-edited Bluebook off its lucrative pedastal.  The newest challenger is not a competitor, but its own Tenth Edition.  (As an unabashed collector, I have my own copy, pictured here.)

IMG_1446According to ATL, Professor Christopher Sprigman (NYU) has sent a letter to the holder of the Bluebook copyright, the Harvard Law Review Association, asserting that the copyright of the Tenth Edition (1958) has fallen into the public domain.  Furthermore, Publicresource.org is planning on making electronic copies of the Tenth Edition available to everyone.

Will the availability of the 124-page Tenth Edition kill sales of the Nineteenth or the upcoming Twentieth Edition?  Hard to say.  Most folks who practice law or who produce legal scholarship have already internalized the basic rules found in this volume.  I would hazard a hypothesis that law graduates turn to the modern edition for the hard questions, the esoteric sources, which the Tenth Edition doesn't cover.  Another reason I pick up the Nineteenth Edition is to check the appendices -- what's the form of the statutes in [insert state here]?  The Tenth Edition doesn't have those appendices, listing every reporter and statutory publication in every jurisdiction ever.  That is why the Tenth Edition is only 124 pages long.  I also pick up the modern edition to see if I need to abbreviate words in my case name, etc. according to T.6.  The Tenth Edition "Table 6" is embedded into Rule 1:1:3 and basically one short page.  But, if you are dealing with a "steamship" or a "Telegraph," it can really help you out. IMG_1447[1]

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icon When They Tell You About Capture, Tell Them About Graber
Posted by David Zaring

Geoffrey Graber, who is heading up a mortgage fraud task force for DOJ, is motivated by Glengarry Glen Ross, and the results have evinced an ouch from the banking community:

The surge of settlements engineered by Graber in the past year has helped neutralize some of that criticism and rehabilitate a key piece of Holder’s legacy. Still, the settlements have been controversial. Critics such as Roy Smith, a professor at New York University’s Stern School of Business, say prosecutors were driven by “political fever” to extract massive penalties from Wall Street.

“They have to deliver something, so they come up with this,” said Smith, a former Goldman Sachs Group Inc. (GS) partner. “The fact that it’s unfair never really gets considered. The banks have no choice but to hunker down and accept it.”

A bracing corollary to those capture stories, though notice that it's the enforcement officials who win headlines for big settlements, and the bank examiners who are subject to the expose about go along get along.

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October 06, 2014
icon Book Review: Berkshire Beyond Buffett
Posted by David Zaring

Larry Cunningham's Berkshire Beyond Buffett is the kind of book I might expect to see produced by a business school academic; it is unsurprising to see that it has been published by an excellent business school press.  The book is oriented around an extremely interesting question: does Berkshire offers some sort of competitive advantage beyond that provided by its once-in-a-generation-brilliant chairman Warren Buffett? 

Berkshire has invested in a vast array of businesses; in each of those businesses Buffett looks for a "moat."  That is, he looks for a market position that will deter competitors from appearing, prevent customers from disappearing, and retain contracting advantages over suppliers, workers, and other inputs.

But what is Berkshire’s moat?  Is it the fact that it is good at finding moats?  Or is it something else?  Larry answers this question in a way that gets at a division in business schools between management-oriented approaches to scholarship and finance-oriented ones.  Financial analysis would focus on the existence of barriers to entry (moats); it might also focus on the low cost of capital that Berkshire Hathaway enjoys, given, among other things, its stellar track record.  Management departments might look to something else: a strong corporate culture.  In this case, Larry reads more as a management scholar than a finance scholar.  Larry's describes, through case studies on a number of Berkshire’s subsidiaries, an ethos that focuses on:

  • long time horizons
  • an approach to management that is hands off but investor-oriented
  • an eschewal of complicated financial engineering
  • a preference for straightforward products and quiet but respected branding. 

In his view, it is this ethos that makes Berkshire a better manager of firms than most.

Can corporate culture explain business success?  It is difficult to measure, but obviously it must play some role.  If culture was meaningless we could evaluate the quality of a workplace without setting foot inside it, and nobody does that.  In my mind, the more difficult question is this: is Berkshire’s culture replicable?  Although Larry has developed a translatable story about what works for Berkshire, implementing it may require a certain set of special skills that most managers simply do not enjoy or possess – to describe, in this view, would not result in the ability to do.

Along the way I learned some interesting things about Berkshire.  For example, and for what's it worth:

  • The firm is not secretly an insurance company with a hobby in acquiring other firms.  Insurance revenues form a minority of the revenues of the conglomerate.
  • Nor is it a hedge fund, although it does take positions in numerous companies that it does not own.  Those revenues, however, are dwarfed by the revenues provided by the firms it does own.
  • Nor is Berkshire a story about a few winning companies saddled to a bunch of modest losers, or, at least, it does not seem to be.  In its extremely diversified way, the company has enjoyed productivity from almost unit.

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icon Book Review: Berkshire Beyond Buffet
Posted by Usha Rodrigues

GW Law professor Larry Cunningham has a new book coming out, Berkshire Beyond Buffett: The Enduring Value of Values.  Two caveats before I begin my review.  First, I received a review copy for free.  Second, we own shares of Berkshire Hathaway. Don't get excited, people, I'm not rolling in Class A. My husband likes to dabble in stock picking with a little "fun money, and" right out of college, one of the first stocks he bought was Berkshire Class B.

When talk over the dinnertable turns to investments, we've often speculated as to how much our shares will drop in value with the  death of Warren Buffett--who is now 84.  Cunningham's thesis is that it should not drop much at all, because there is much more to Berkshire Hathaway than the Oracle of Omaha.  So I was definitely interested to start this book.

A word about organization: The challenge of organizing a coherent story around a conglomerate is large, composed of  50 subsidiaries. Larry says that the teacher in him organized the traits at issue as a mnemonic spelling out "Berkshire":

  • Budget-conscious 
  • Earnest
  • Reputation
  • Kinship
  • Self-starters
  • Hands Off
  • Investor Savvy
  • Rudimentary
  • Eternal

This framing seemed a little forced to me at times.  But I understand its motivation: trying to make sense of commonalities among the the many diverse businesses that comprise Berkshire Hathaway. 

My takeaway was this: as I tell my students, successful entrepreneurs face two choices for exit: sale and IPO.  If you sell, you lose your autonomy.  If you go public, Wall Street expects certain returns and will punish you for failing to deliver. 

What if you have a family business and are pretty happy with the way things are, but are worried about looming tax problems when the founder dies?  Berkshire Hathaway offers the right kind of firm a third path, one that allows the founders to cash out and yet keep the business running as a BH subsidiary just as it had been independently.  Nothing is free, of course, and companies regularly accept a BH bid which is less than competing bids, because they know that they will be able to run the company as they choose.  But these select firms use the freedom, shelter from the market, and capital that Berkshire provides to flourish.

I was particularly interested to see the book's account of David L. Sokol's departure from the firm.  Sokol, a senior Berkshire exec, bought $10 million in shares in the Lubrizol Corporation and then recommended the company as an acquisition target to Buffett.  Cunningham, while obviously a Buffett fan, did not sugarcoat his account of Berkshire's initial missteps in handling what burgeoned into a scandal.  Although the SEC failed to prosecute Sokol (which he claimed as vindication), the larger point Cunningham underscores is that Berkshire Hathaway's reputation is its chief asset. 

I'll have more to say about that in another post.  For now, I'll conclude by saying that this was a timely and accessible book, chock-full of insights and enjoyable to read.


Permalink | Books, Businesses of Note | Comments (View) | TrackBack (0) | Bookmark

October 02, 2014
icon A Take In DealBook On The Fannie/Freddie Takings Case
Posted by David Zaring

Steven Davidoff Solomon and I opine on a recent opinion dismissing cases brought by Fannie and Freddie shareholders against the government in DealBook.  A taste:

In one Washington court, Maurice R. Greenberg, the former chief executive and major shareholder of A.I.G., is suing the United States government, contending that the tough terms imposed in return for the insurance company’s bailout were unconstitutionally austere.

In another closely watched case in a different Washington court, the shareholders of Fannie Mae and Freddie Mac, led by hedge funds Perry Capital and the Fairholme Fund, lost a similar kind of claim.

Parsing what the United States District Court did in the Fannie and Freddie litigation offers a window into the ways in which the government’s conduct during that crisis might finally be evaluated.


There are three main points to the decision. For one, the court held that the government’s seizure of Fannie’s and Freddie’s profits did not violate the Administrative Procedure Act’s prohibition on “arbitrary and capricious” conduct. It also found that the Housing and Economic Recovery Act barred shareholders of Fannie and Freddie from bringing breach of fiduciary duty suits against the boards of the companies and that the government’s seizure of profits was not an unconstitutional “taking.”

Go give it a look, won't you?

Permalink | Administrative Law, Finance, Financial Crisis, Financial Institutions | Comments (View) | TrackBack (0) | Bookmark

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