Coinsiding with Con-Op's Larry Cunningham's book of essays on Warren Buffett, said blog has put together a pretty stellar set of contributions about the investor and his world. It has Berkshire insiders:
● Robert Mundheim, who worked with Buffett and Lorne at Salomon and is now of counsel at Shearman & Sterling
● Donald Graham, Chairman and CEO of The Washington Post Co.
And it has professors
● Kelli Alces (Florida State)
● William Bratton (Penn)
● Deborah DeMott (Duke)
● Jill Fisch (Penn)
● Steven Davidoff (OSU)
Among others, too. It's off to a great start, so do give it a look.
This is not the place to go for careful consideration of tax policy, but we do know something here about business regulation more generally, so an observation and a reference with regard to the IRS investigation of tea party groups and their 501(c)(4) status:
- I assume that the decision to investigate the tea party applicants by the agency was an exercise of enforcement discretion; as such, it should be unreviewable by the courts under the principle that agencies cannot be reviewed for their decision to bring enforcement actions on one set of guys as opposed to another set of guys (the idea is that reviewing those sorts of decisions would enmesh the courts too much in the work of the agency). The denial of an application for 501(c)(4) status, oddly enough, would be plainly reviewable as a matter of administrative law. But doesn't appear to be what happened here. Of course, the mere fact that you can't go to court doesn't make it right, and what is happening here is supervision (pretty angry supervision, too) by the other branches of government, rather than by the judiciary. Moreover, this is tax, and tax is different; there may be special review provisions at stake in the tax code I'm not aware of.
- Kristin Hickman is your source for the administrative procedures adopted by the IRS, and one of the themes of her work, fwiw, is that the IRS rarely complies with some of the basic principles of administrative law. See, e.g., here and here and here.
There have been a number of weird news stories this week, so the Bloomberg terminal data breach scandal may not be getting enough time in the limelight. Recently, it has come to light that employees at Bloomberg have access to at least some information regarding users' search habits. Bloomberg currently has more than 315,000 terminals at client offices, mostly financial institutions, but also law firms. (Our campus also has some.) From these terminals, users can do a vast array of things, from researching specific companies to chatting to sending emails to making financial trades. Think of it like Westlaw or Lexis -- you can do a thousand things on those websites, but you mainly read law review articles, cases and statutes. Bloomberg terminals are very expensive ($20k/year) and also not committed to being user-friendly. Though Westlaw and Lexis gave up dedicated terminals decades ago and went from dial-up access to a web-friendly interface, Bloomberg has remained pretty hard to learn how to use, which may be why users are so hesitant to give it up after mastering it.
This week, Bloomberg is trying allay its clients' fears that journalists could see some data, but not important data (chatting, emailing, trading, specific research), and Wall Street firms are trying to get more commitments from Bloomberg as to what was accessible and what will be accessible going forward. But what interests me is what I'm not seeing anywhere -- what does the SEC think is important here?
Back in the day, and I assume now, lots of people devoted a lot of time to try to collect information on companies that might be engaged in M&A activity. A common legend around my law firm was that individuals would pose as messengers to go to the conference room floor and peruse the sign-in book to see what sorts of people were in the same conference room. I'm sure that was an example of an amateurish effort. A famous insider trading case involved the guy who worked for the financial printer trading on information he gleaned from reading documents there. I don't think you have to be a mystery novelist to come up with a scenario whereby a journalist at Bloomberg sees which (M&A lawyer) users are logging on and what sorts of things they are looking at and cobbles together insider information. The EIC of Bloomberg, Matthew Winkler, says that no one could access specific securities information, but could see aggregate information "akin to being able to see how many times someone used Microsoft Word vs. Excel." What about aggregate information such as a steep increase in users accessing company information on Company X? (N.B.: Bloomberg offers a service called Bloomberg Law, which is separate from the terminals that are at the heart of the breach this week. However, many law firms have Bloomberg business terminals.)
And now that we realize that Bloomberg could see that individual users were logging on and off (or not) of their terminals, is anyone interested in what folks at Westlaw or Lexis see? I would think that a sudden unease now exists for any research service that gives us a user logon associated with an individual's name and employer, whether that's a law firm or an investment bank.
The British government has praised the development of the Co-operative Bank, a member-owned institution that looks a little like an old school thrift, but that also provides funeral services, grocery shopping, agriculture - and, we'll let's just agree that it isn't exactly a model of a pre-Glass-Steagal institution.
However, like old-school thrifts, the bank is overcommited to the British housing market, and the result is that this alternative to corporate behemoth banking has had its credit downgraded to junk status (usually the death knell when you're talking about an institution that provides, and depends upon, credit), while the traditional banks start to produce profits.
So sad, too bad, banks die every month - but what if the government has been trying to prop up its golden child with regulatory forbearance? It's everything you worry about when you worry about capital regulation:
Ian Gordon, an analyst at Investec Securities, said it was “curious that the bank was allowed to run with such weak levels of capital,” adding there was “an element of regulatory neglect” that represented a lesson for the new system.
Julia Black, a professor at the London School of Economics, said, “Supervision isn’t a transparent process, but I’m surprised it hasn’t already been required to hive off the bad loans or to set aside more capital.”
The dirty secret of regulatory forbearance - and Congress tries to legislate it away after banking crises, you can see as much in the hand-forcing provisions of both Dodd-Frank and FIRREA - is that it works. Some day Citigroup will be much more profitable than it was during the Latin American debt crisis and the housing crisis, when the government could have shut it down. But not requiring a bank to maintain its capital levels during bad times is also counter to the whole point of safety and soundness supervision. We'll see if the forebearance suspicions save, or destroy, Co-operative.
The titular questions have been swirling in the back of my head for the past month or so. Spoiler alert: I don't have the answer. But Jeff Schwartz' post in the CLS Blue Sky blog on the SEC Advisory Committee on Small and Emerging Companies' proposal to create a separate market for small and emerging companies, open only to accredited investors--more or less a public SecondMarket/SharesPost--has me asking it again.
This strikes me, unlike Jeff, at first blush as a bad idea, but let's ignore the merits of the proposal and focus on one of its premises. One of the arguments the Committee makes in favor of it is that "providing a satisfactory trading venue" for these companies might encourage IPOs of their securities.
First question: Really? Isn't it just as likely that, if a robust market exists for these companies, they're less likely to go public? Isn't obtaining liquidity one big reason for going public in the first place?
Second question: How many is the right number of IPOs, anyway? The WSJ told me yesterday IPOs are set to raise the most cash since 2007. Jay Ritter argued in a recent paper that IPOs have dried up not because of heavy-handed government regulation but because times have changed. Now getting big fast is the way to go, and going public and being a small independent company isn't as attractive to a young firm being acquired by a bigger player.
As Ritter writes, "If the reason that many small companies are not going public is because they will be more profitable as part of a larger organization, then policies designed to encourage companies to remain small and independent have the potential to harm the economy, rather than boost it." Ritter's prescriptions to help IPOs are to encourage auctions over bookbuilding (here's yet more evidence that the underwriter spread is too big), discourage class action lawsuits, and reform the copyright and patent system.
Ritter closes with: "I do not know what the optimal level of IPO activity is in the United States or any other country, nor do I think that it should necessarily be the same now as it one was."
Right now I'm with him.
Over at HBR, Mayer, the former dean of the Said Business School at Oxford, decries British best-in-breed corporate governance. A taste:
The form of capitalism that has emerged in Britain is the textbook description of how to organize capital markets and corporate sectors. It features dispersed shareholders with powers to elect directors and remove them with or without cause, large stock markets, active markets for corporate control, a good legal system, strong investor protection, a rigorous anti-trust authority — the list goes on.
The downside, though, is that exemplary as a form of control the British financial system might be, it systematically extinguishes any sense of commitment — of investors to companies, of executives to employees, of employees to firms, of firms to their investors, of firms to communities, or of this generation to any subsequent or past one. It is a transactional island in which you are as good as your last deal, as farsighted as the next deal, admired for what you can get away with, and condemned for what you confess.
While incentives and control are center-stage in conventional economics, commitment is not. Enhancing choice, competition, and liquidity is the economist's prescription for improving social welfare, and legal contracts, competition policy, and regulation are the toolkit for achieving it. Eliminate restrictions on consumers' freedom to choose, firms' ability to compete, and financial markets' provision of liquidity and we can all move closer to economic nirvana.
Yes, Iron Man 3 has been out 10 days or so, but I couldn't blog about it until now because I had to see it twice. All five of us went on opening weekend, but our little guy (5 1/2) only lasted about an hour, so he and I spent some quality time in the parking lot. Thankfully the 11 year-old went with me yesterday so I could see the last half. Now, our youngest has seen Captain America, Thor and The Avengers, but the Iron Man movies are grittier. As even Rhodey says during the movie, this isn't superhero stuff. The bad guys appear as terrorists. Gritty, nasty terrorists. More CNN than Saturday morning cartoons. But the thing that put poor Will over the edge was that Tony Stark has PTSD. Seeing Tony have several anxiety attacks was the last straw. And the humor is much more subtle in Iron Man than in The Avengers, so to the kindergarten set, there is no comic relief. Lesson learned.
But, the rest of us very much enjoyed it. Tony spends a lot of time out of the armor, which is really what we all want to see anyway -- Robert Downey, Jr./Tony Stark at his genius best. The plot (not to give too much away) involves a series of "bombings" in the U.S. and a terrorist who appears on television taking credit for the bombings and threatening the President. The President does not call in Iron Man, but calls in Colonel Rhodes as Iron Patriot (a refurbished War Machine) to go find "the Mandarin." Tony gets involved when his friend Happy Hogan is seriously injured in one of the explosions and vows to find the Mandarin. But, his quest is sometimes halted by his anxiety attacks.
So, why does Tony have anxiety attacks? He says he has had them "since New York." Unfortunately, none of the Avengers appear in the actual movie, but the events of that movie are mentioned many times. Since Tony fought Loki's army from another world and went up "the worm hole," he is not the same. He can't sleep, and he's worried that he will lose the one thing he cares about -- Pepper Potts. (No, he doesn't go over to the dark side like Anakin/Darth Vader, if that's what you're afraid of.) So, he's created 42 Iron Man suits in his newly found free time in the middle of the night.
The producers of these blockbuster Marvel hero movies have a problem now. Now that the four Avengers have met and joined forces in New York (Iron Man, Captain A, Thor and Hulk), how do you keep them out of the individual sequels you have planned? To me, that seems like the elephant in the room during Iron Man 3. Why doesn't Tony call his (super) friends? Where is Nick Fury while the President is being threatened? At one point, Tony admits he needs backup, but he means his Iron Man army, not his Avenger friends. There is some discussion that maybe the public isn't ready for the Avengers again, that this is more military-related than alien-related, but these excuses seem rather slim. The real reason is that this isn't The Avengers 2. In this movie, the heroes are Tony, Rhodey and Pepper.
The ending seems to hint that there will be an Iron Man 4 (and who doesn't want it?). There are some details left to the imagination as to how Iron Man 4 will begin. But until then, we have Thor 2 to look forward to!
Cross-posted at SocEntLaw.
"Branding" is one area where proponents of the Model may argue that the Model is better than the PBC. As mentioned in my first substantive post, the PBC favors private ordering more than the Model, which makes the PBC more flexible, but also makes it more difficult to maintain a consistent brand. Branding could be useful to investors, consumers, and governments that wish to quickly identify socially responsible companies.
Some proponents of the Model may point to the required annual report (PBC only requires a biennial report) and the requirement of measuring general public benefit against a third party standard (optional under the PBC) as building the Model’s brand. In my opinion, however, neither the required annual report nor mandatory use of a third party standard is likely to facilitate creation of a useful brand under the current language of the Model.
First, the Model does not expressly provide an enforcement mechanism for assuring the public posting of an annual report and the use of a third party standard. Currently, a number of benefit corporations are in violation of the statute, but nothing seems to be done about the violations. Second, most of the few annual reports available are full of fluffy self-promotion and do not include much of value. Third, the available third party standards vary wildly, so simply requiring a third party standard is not likely to lead to a consistent and valuable brand. The updated version of the Model requires that the third party standard be “comprehensive,” “independent,” “credible,” and “transparent,” but those requirements will be difficult to enforce and, in any event, do not appear aimed at creating a consistent brand. A benefit corporation that does not see the value in using a third party standard may use the lowest standard available, provide little to no useful information to the market, and waste company resources in the process.
If the Model proponents wished to create a brand via statute they would do better requiring an annual charitable giving floor and a partial asset lock, as I suggest here. In my opinion, however, the heavy lifting in the branding department of social enterprise should be left to private organizations like B Lab. The social enterprise space is evolving quickly, and I think it unlikely the state governments would keep up with the changes and engage in the type of enforcement needed to maintain a valuable brand. Also, the term “social good” means very different things to different people, and therefore it is likely better to have private organizations develop various standards and allow the market to determine which standards, if any, are useful and valuable.
Just out today, here's a link to one of my projects for my semester "off": Vanderbilt Law Review asked me to contribute to an online symposium offering advice for the SEC in its JOBS Act rulemaking. There's no abstract, but here's my opener:
Watch enough late night television and you’ll see advertisements for weight-loss elixirs, hair restoratives, and cures for ailments you never dreamed existed. Imagine, if you will, yet another huckster, this one touting PrivateDeal, a “never-before-available investment opportunity, the chance of a lifetime! Get in on the ground floor of a start-up boasting triple-digit growth!” The PrivateDeal hawker goes on to declare: “This investment was previously only available to the ultrarich, but now, thanks to recent developments in the law, it can be yours!”
Jim, an intrigued investor, calls the 800 number on the bottom of his screen, expecting to encounter an operator ready to take his credit card information. Instead, he gets an agent who starts peppering him with questions about his income and net worth. Gradually it dawns on Jim that he may not be able to invest in PrivateDeal after all. Indeed, five minutes into the conversation, the agent confirms that he is not qualified to invest.
“But. . .why. . .” Jim begins to splutter.
“Sir,” the agent explains patiently—Jim senses she has started this speech many times already tonight—“The fine print in the ad specifies that only accredited investors are eligible to buy shares in PrivateDeal.”
To which Jim responds: “Well, what’s an accredited investor?”
Welcome to post-JOBS Act private investing.
As you can tell, I had fun with the piece--my opening might (or might not) have been the product of bad late night television that I may (or may not) have been watching while up feeding my small one. I reveled in the freedom of the hybrid blogpost/essay form. I've done a few of these short online pieces for law reviews (here on SPACs for the Harvard Business Law Review), here for the Texas Law Review to respond to a Brian Galle article, and I've found each to be quite satisfying. I welcome the opportunity to produce timely, easy-to-digest morsels of scholarship.
Let me know what you think of the piece, and head over to Vanderbilt Law Review's website to check out offerings from my friends Andrew Schwartz of Colorado Law and Doug Ellenoff, a practitioner whom I met in the course of my SPAC research.
"That’s why we hire good-looking people in our stores. Because good-looking people attract other good-looking people, and we want to market to cool, good-looking people. We don’t market to anyone other than that. In every school there are the cool and popular kids, and then there are the not-so-cool kids. Candidly, we go after the cool kids. We go after the attractive all-American kid with a great attitude and a lot of friends. A lot of people don’t belong [in our clothes], and they can’t belong. Are we exclusionary? Absolutely. Those companies that are in trouble are trying to target everybody: young, old, fat, skinny. But then you become totally vanilla. You don’t alienate anybody, but you don’t excite anybody, either."
Ok. Let's acknowledge that the "membership has its privileges" marketing model has been successful. But there are a lot more average kids than "cool and popular kids," so your model has to be to sell to a larger bubble of people who wish they were the "cool and popular kids." "Wear our clothes and be popular" is a pretty good model. Now, A&F seems successful, so they probably sell plenty of clothes without my advice. (Here we can see it's stock price has done well this year, though the past 5 seem to have been tough.) Will these viral comments create a backlash for the store (which seems to have weathered other uproars in the past)?
A lot of the comments I see on FB start with "I've never been in an Abercrombie, but now I never will." Hmmm. That doesn't seem like a death knell. There is no Abercrombie in Champaign, so my teenager has no A&F clothes, but we do have a Hollister, which is a division of A&F. I think this may be a teachable moment in our house, anyway.
Doesn't the fall of Enron (Fall of 2001) seem like a long time ago? Jeff Skilling, after being sentenced to 24 years in prison in October 2006, has served six years of that sentence, much of that watching the legal wheels turn very slowly. For those of you keeping score at home, Skilling appealed his conviction to the Fifth Circuit, which affirmed the lower court (Southern District of Texas, Judge Sim Lake) as to the conviction, but vacated the sentence based on a sentence enhancement error. Skilling then appealed that decision to the Supreme Court, arguing that he should have been granted a request for a change of venue due to pretrial publicity and that the theft-of-honest-services statute underlying part of his conviction was unconstitutionally vague. In 2010, the U.S. Supreme Court agreed as to the theft-of-honest-services statute, not the venue question, and remanded to the Fifth Circuit to determine whether a finding of violation of that statute was necessary for the conspiracy finding. Because the jury could have found evidence of various conspiracies, the Fifth Circuit affirmed the conviction (again) and remanded for resentencing (again) in 2011.
Now, in 2013, the WSJ is reporting that the prosecution is likely to reach an agreement with Skilling that Skilling drop all further legal proceedings in return for a reduced sentence of 14-17 years. On my first reading of this, I didn't see a great benefit. Yes, 14 is less than 24, but it still means almost 8 more years. But, Skilling is 59; being freed at 67 is probably a great deal better than 77. But having the Supreme Court and the Fifth Circuit say that the sentence was wrong seems like at least a 50% discount should be in order, right? But this report, linked to by the Houston Chronicle, quotes Skilling's attorney Dan Petrocelli as saying that with various other good behavior discounts, Skilling could be released in "four or five years."
OK, that's a weird title. Once a year, I post something that I suspect makes Gordon cringe. This will do for the year.
Around 2006, I was on a treadmill ( a literal one, not a figurative one) in Wisconsin watching some morning news program. One of the bits was about a woman in her 50s who had successfully borne a child using eggs she had frozen back in her more fertile days. I looked at my friend, a pediatric physician and researcher, and said, "Weird." My friend didn't bat an eyelash, said, "That is awesome. I totally would have done that."
In the WSJ this weekend, there was an article that suggests those of us who mentor young professional women should include a freeze-your-fertility discussion in addition to any lessons gleaned from Sheryl Sandberg's Lean In craze. My first thought again was, "weird," but now I'm rethinking this. But, more broadly, I think my reaction to the article and its suggestions raise broader questions.
1. No one ever talks with male law students or associates about when children, so why talk to women about it? I think this is what bothers me most. In a perfect world, the questions that male law students ask me would be the same as the ones that female law students ask, but they aren't. Female law students ask me all the time about having kids and making partner and whether those two things are mutually exclusive. That's reality. So, mostly I stick to answering the "making partner" part because I don't feel all that comfortable talking to people who aren't my close friends about making babies. But I guess I'm not really answering the question then. When I was an associate, a female partner came to my office and asked how old I would be when (if) I made partner (this was at Baker Botts, and the math turned up the magic age of 31). She said, "There's the answer. Don't have kids until then." I was fairly appalled at this conversation. Maybe because she was the last person I wanted to talk to about making babies, but also because of point #2.
2. Having babies is a romantic notion, not a pragmatic one. Bringing harsh realism into future thoughts of motherhood is icky. I was appalled at the partner's advice partly because (as I repeated to my friends over lunch) "the moment I start timing my babies because of my career is the moment that I have lost it." That makes for a great lunch soundbite, but it may not be all that realistic. One reason for my declaration was that I thought I was the invincible rockstar associate. I could do anything, including have a lot of babies and make partner, even though other, weaker women, had tried and failed. But, not only was my impression of my own career trajectory romantic, but so also my visions of motherhood. I was enough of a feminist to appreciate the ability of modern technology (birth control) to allow women to postpone motherhood until the right point in their adult lives (finishing education, marriage stability, financial stability), but not enough to embrace postponing motherhood for climbing the career ladder. Because that would mean I was a bad person whose priorities were messed up.
So, my first thoughts when the author (Sarah Elizabeth Richards) suggests that young women freeze their eggs is "ick -- your priorities are messed up." But I think I'm wrong. The reality is that to "have it all" or to "have something approaching all" is that a little timing is necessary. I'm not a doctor, but my guess is that young eggs are healthier eggs, and I've known so many women who struggled with trying to make older eggs do the work of younger eggs. Would it alleviate that heartbreak? Some have argued that Sandberg finds it easy to talk about kids and work because she was already very successful when she had her children in 2005 and 2007, both post-age 35. It is a tricky business to postpone kids. Technology seems to have made it less tricky. The 1970s may have given women the technology to postpone pregnancy at their own peril; today's technology may reduce that peril.
Will I ever incorporate this discussion into the many office conversations I have with female law students? I don't know; that still feels a little too ick. Maybe they can just read this blog post!
JPMorgan is far too big to fail - but, then, so is Wells Fargo, Bank of America, and Citigroup. And JPMorgan is generally thought to be the safest and best run of the four of them (or at least better run than BofA and Citi). But this spring, it is JPMorgan that is getting buffeted by the press, regulators, and others. ISS is urging a vote against some directors as a result of the London Whale fiasco. Congress ripped the firm over the same thing on March 15. Mark Roe has been critical. And now the Times is discussing the "full court press of federal investigations."
It is a season of woe for JPMorgan, as it finds itself in a very uncomfortable spotlight. The Times has run 31 headlined stories on JPMorgan between today and March 1 (source). It has run none on Wells Fargo (source), 9 on BofA (source), and 10 on Citi (source) during that time period. And the London Whale trade, and subsequent defenestration of a number of JP executives, happened long ago.
Moreover, while the London Whale trade was terrible, it is by no means clear that JPMorgan has failed to manage the situation. The firm is, admittedly, too big. But it is not alone in that. This is beginning to look to me like the start of something corporations fear most, a singling out scandal, whereby one firm becomes the poster child for the shortcomings of an industry sector - it is a way that Washington works, and one that corporations find difficult to understand. Usually, those firms pay a disporportionate penalty for their celebrity; I can't help but be a little sympathetic for the bankers in this case, if it turns out that that is in their future.
From our friends at Wake Forest comes this announcement:
Wake Forest University School of Law welcomes applications for a Visiting Assistant Professor (VAP) to teach Civil Procedure in the 2013-2014 academic year, and perhaps beyond. Additional information is here.