Over the past nine months, the stock market has been inching upwards, but when Google goes public, the dam could burst. Just when you thought the hype could not get any bigger -- after Bill Gates proclaimed, Google "kicked our butts" -- the New York Times is reporting that Google "receiv[ed] a clean bill of health in a company-paid audit certifying its compliance with the requirements of the Sarbanes-Oxley law approved by Congress in 2002 in response to the wave of corporate scandals." The board decision to take the company public could come later this week.

Last spring, I was skeptical about Google's ability to prompt a big move in the stock market, but now I stand with those who see something big coming. Following recent gains in the overall market, the market for IPOs has been gaining steam. While Google is unquestionably unique, and may not inspire a raft of "me-too" offerings, it should add fuel to the furnace.

Permalink | Google | Comments (0) | TrackBack (0) | Bookmark

College football fans -- diehard college football fans -- know that there is no offseason. The whole year is filled with seasons: spring training, summer workouts, fall two-a-days, fall games (what normal fans call "the season"), and recruiting season. The last of those is happening right now. For many college football fans, especially those in the cold, cold North, recruiting is the only thing after the bowls that stands in the way of hibernation.

As with any activity that generates human passion, recruiting is big business. ESPN has a whole section of the website devoted to football recruiting, and most of the content is premium priced. Other services include TheInsiders.com and Rivals.com, as well as many team-specific sites. While all of this journalistic and quasi-journalistic activity is ostensibly aimed at observing the choices of 18-year-old athletes, some corollary to Heisenberg's Uncertainty Principle is at work in the coverage of recruiting, because many athletes are influenced by the stories surrounding their recruitment. Indeed, most fans hope that their efforts can boost the home team. Last week, in fact, a Kentucky fan was banned from Kentucky athletics for 27 years for "inappropriate interviews" with recruits.

I have followed BYU's football recruiting over the past several seasons, and it is clear that BYU is benefitting this year from the construction of new practice facilities at a cost of approximately $35 million. Almost all of the new recruits point to the new facilities as a reason for choosing BYU. (That and snowmobiling in the Rocky Mountains. BYU does not provide parties with young women and alcohol, but they know something about good, clean fun.) Certainly, last year's 4-8 record is nothing to brag about.

These young athletes are not unusual. People like new buildings. A shopping center recently opened near our home. We have visited all of the stores and tried several of the restaurants. It is a fun place to shop, largely because it is so new. Why are franchised fast food restaurants required to upgrade upon renewal of the franchise agreement? Same reason. The downside here is that schools are locked in an arm's race with no apparent end point.

Permalink | Sports | Comments (2) | TrackBack (0) | Bookmark

After my traumatic trip to India, I am rethinking my international travel agenda. I have already agreed to teach a class this summer in Giessen, Germany. On the way, I will stop in Scotland for the Babson-Kauffman Entrepreneurship Research Conference. In addition, I have been offered a chance to teach a short course in venture capital in Beijing at the University of International Business & Economics. The big question: how much is this experience worth?

One thing is clear to me: I don't like traveling alone. Two of my sons will accompany me to Germany, and I will go to China only if my oldest daughter can come along. Seeing sights alone with a camera -- when six people that you really care about are back in Wisconsin -- is just pathetic. While we usually travel as a family, my wife understandably wants the summer off from these sorts of excursions. While I prefer the large group, I find that taking trips with my children, one or two at a time, is really quite a nice exercise in relationship building.

China is enticing, especially in the wake of my trip to India. To a person, the Indians we met viewed China as their major competition for economic supremacy in the next century. With a confidence bordering on hubris, they seemed to accept India's ascension as inevitable ... but for the threat posed by China. While India's domestic problems were appropriately acknowledged, I had the impression that most of our hosts felt that those difficulties would be conquered in due time. No, the bigger problem in their view was the fact that China had a lead of 10-15 years. Moreover, China can build infrastructure -- roads, dams, power plants -- because the government did not need to suffer the deliberative process. In this view, communism was an advantage.

So I am interested in seeing the world through Chinese eyes, even if for a short time. I am just concerned that this might not be the right opportunity. Any advice would be accepted with open arms ...

Permalink | Travel | Comments (1) | TrackBack (0) | Bookmark

Over the past week, I have been listening to The Kalahari Typing School for Men by Alexander McCall Smith on my way to and from work. This is not a fast-paced thriller, and it doesn't grab you like The Da Vinci Code. It is a leisurely stroll through Botswana, with an expert guide.

Last night, I laughed out loud at a scene in which the protagonist, Mma Precious Ramotswe (head of The No. 1 Ladies' Detective Agency), was attempting to procure the address of a pensioner's widow from a government bureau. The man behind the counter denied her request for the address, stating that it was against the rules. Mma Ramotswe sized up the situation and concluded that there was no sense in trying to convince the man that her request was reasonable, that the rules were not really intended to cover her situation, because stupid people cannot make nuanced distinctions of that sort. As a result, they become sticklers for the rules.

She eventually overcomes his objections by creating confusion about the rule. She pretends to cite the rules manual, chapter and verse, and asserts that the prohibition governs only the names of pensioners, not their addresses. Of course, she ultimately succeeds in confusing the hapless clerk and gets her address.

This reminded me of a parking ticket that I paid last week. The University of Wisconsin Traffic Control Office fined me $40 for parking behind the law school on the Saturday after Christmas (December 27) at 5:00 pm. That my official parking spot is a 10-minute walk from the law school, that I was transporting three large bags of books to my office, and that I timed the visit as I did to avoid the possibility of disruption were all lost on the enforcement officer. And the person who reviewed my appeal. A rule is a rule, after all.

It may seem a bit unseemly for a law professor to be complaining about law enforcement in this way, but we law professors can be an ornery bunch. Rules often seem like wonderful tools for social control, but rules rarely regulate behavior in exactly the way we want. That is, they almost inevitably penalize in cases where a penalty is not desirable (overinclusive), or they fail to reach cases that they should (underinclusive). Sometimes, the same rule is both overinclusive and underinclusive. As you might expect, rules tend to be modified repeatedly (see, for example, the tax code), but this is more a game of cat and mouse than progressive evolution.

We also rely to varying degrees on prosecutorial discretion (e.g., the parking officer could have elected to let my transgression pass, but she didn't). But this is problematic, too, because prosecutors will be biased (nothing personal ... we all are). In some instances (e.g., blacks and the death penalty), the results can be very troubling.

Regulation is a tough business, and Mma Ramotswe's skill in manipulating the system captures nicely the advantage of being smart. Still, as my parking ticket illustrates, the bureaucrats do sometimes have their revenge.

Permalink | Rules & Standards | Comments (0) | TrackBack (0) | Bookmark

Today has been a day filled with distractions. I have been trying to finish my grading, which is my personal version of "Short Attention Span Theatre." I just finished reading an excellent student paper examining the book Burn Rate by Michael Wolff, an entertaining, if disturbing, account of life in the internet fast lane during the 1990s. The book should serve as a cautionary tale to venture capitalists and entrepreneurs alike. My student's take was that this book offered an illustration of the power of rationalization to overcome carefully crafted contracts. I agree.

Transactional lawyers spend a tremendous amount of time fine-tuning contracts. It is no secret that most contracts are never read by the people who sign them. It is also no secret that courts never see most contracts that are breached. So how does one ensure that a counterparty to a contract does not behave opportunistically? One of the most common responses to that question is "reputation," a topic that has attracted my attention before. The hard fact is the reputation packs a pretty weak punch when the stakes are high and the facts contestable. Many actions that might seem like bad faith or flagrant breach of contract to one party will not play out the way in the court of public opinion.

Another possible mechanism for controlling opportunism is culture. We lawyers often purport to develop culture through legal rules. For example, we hope that the doctrine of good faith will have a positive effect on the behavior of contracting parties. While not exactly the right context, the following passage from Ed Rock (about Delaware fiduciary law) makes the point:

My claim here ... is that the Delaware courts generate in the first instance the legal standards of conduct (which influence the development of the social norms of directors, officers, and lawyers) largely through what can best be thought of as "corporate law sermons." These richly detailed and judgmental factual recitations, combined with explicitly judgmental conclusions, sometimes impose legal sanctions but surprisingly often do not. Taken as a whole, the Delaware opinions can be understood as providing a set of parables -- instructive tales -- of good managers and bad managers, of good lawyers and bad lawyers, that, in combination, fill out the normative job description of these critical players. My intuition is that we come much closer to understanding the role of courts in corporate law if we think of judges more as preachers than as policemen.

This may work pretty well in the context of hostile takeovers, where options are limited. But in the more expansive field of venture capital relationships, the ability to rationalize judicial sermons on good faith is likely to provide much greater scope for opportunistic behavior.

Permalink | Contracts | Comments (0) | TrackBack (0) | Bookmark

For some people, shopping at Whole Foods Market is a political statement. While I understand the connection to new age environmentalism, I shop at Whole Foods because it has food I cannot find at the chain stores in Madison. I love roaming the cheese department in search of new finds. (There is, of course, no shortage of cheese in Madison, and I also frequent Brennan's Market, which has a great selection of Wisconsin cheeses.) Today, for example, I purchased some Arina goat milk gouda cheese from Holland and some Tuscan bread from Italy. I also found a plantain from Columbia, and Bubbies pickles from San Francisco. (They claim to be the "Best Pickle in America," but if you want my opinion, they are a bit briney. The best commercial pickle I have eaten, at least in recent memory is the Gedney State Fair Pickle. Yummm.)

Judging by the people lined up outside the Madison Whole Foods Market, waiting for the 8:00 am opening, I am not alone in my passion for the place. It offers a bounty of choices that, only a few decades back, would have been unimaginable in a city as geographically remote as Madison, Wisconsin. What most of us never consider, however, is that our bounty is made possible in part by improved international trade regimes.

Walking through the Schiphol Airport in Amsterdam last week, I was reminded how small the world had become. During the 1980s, when I was in Europe, Swiss or Austrian chocolate was a favorite souvenir or gift purchase. Chocolate still has a prominent place in the duty-free shops, but now I can buy Lindt, Milka, or Toblerone chocolate in many locations right here in the U.S. Admittedly, our easy access to the wares of most nations has somewhat diminished the exoticness of international travel, but it has enriched our everyday lives.

Permalink | Businesses of Note | Comments (0) | TrackBack (0) | Bookmark

My friend, colleague, and across-the-hallmate -- Ann Althouse -- has started blogging at -- what else? -- "Althouse." I know that Ann has been reading blogs for a long time, so I am happy to see her finally take the leap and start her own. Look for lots of insightful and sometimes surprising commentary about politics ... and some goofy stuff, too. (Ann, you are going to Tivo "American Idol"? Who would have guessed?)

Permalink | Blogs and Blawgs | Comments (0) | TrackBack (2) | Bookmark

Contracts scholars distinguish discrete and relational contracts. Discrete contracts are characterized by simultaneous exchange, while relational contracts contemplate longer-term interactions, often with multiple, staged exchanges. Following the lead of Ian Macneil, many scholars now accept that all contracts are relational to some degree. During my recent trip to India, I learned how discrete contracts can be.

As you might imagine, shopping was an interesting diversion for our entire group in India. Most of us were first-time visitors, and we all had family or friends who were interested in receiving an exotic gift from our travels. I found shopping to be surprisingly difficult in India because of the extreme information asymmetries.

We construct interesting mechanisms for reducing these asymmetries. For example, tourists are often advised to purchase nice items (e.g., silk rugs) only at government-sponsored stores. After a few trips to the government emporia, however, I began to realize that "buyer beware" was still the watchword. The "pashmina" scarves were really pashmina wool and silk, a blend that is less expensive than pure pashmina. And the silk rugs, seemingly genuine, were wildly overpriced.

On some days, we were placed at the mercy of our guides, who were clearly getting a cut of the action at some of the stores. The local markets were the most fun. The prices are lower, but the quality is uncertain ... or certainly low. The best part of the local markets is the bargaining. Of course, the prices always go way up when American tourists enter the store. While our guides advised us that a 25% discount would be outstanding, I found that discounts of up to 80% were easy to obtain. My unwillingness to pay more was directly related to the information asymmetries -- I really had no idea, in most cases, what I was buying!

Most of the people in our group bought postcards and trinkets from people who come up to our bus, but I avoided that stuff for the most part. When I observed others concluding these transactions, I thought, "You are going to regret all of that when you get home and take a closer look." One woman in our group bought a "marble" box with "inlaid stones" from a guy handing it through our bus window at the Taj Mahal. She paid about $1 (so her regret would not be too great), and after receiving the item, she remarked, "I'm not sure it's marble." No, ya think?

Almost all of these transactions were discrete contracts. We bargained over price on the spot and made a simultaneous exchange. In most instances, we would never be able to find each other again, even if we wanted to. (Although I was amazed when a man who took my picture at the Amber Palace found me four hours later and 20 kilometers distant. And he had the picture!) While I attempted to evaluate quality, I have no expertise in wood carvings and bronze statues. As a result, the only prospect for a bargain was a price discount. Even after many strenuous negotiating sessions, I was taken to the cleaners on many occasions. Oh, well. Call it "entertainment expense"!

Permalink | Contracts | Comments (5) | TrackBack (0) | Bookmark

When my luggage was devoured by KLM, I lost a brand new pair of dress shoes. Nice ones, too. While I am waiting for KLM (Northwest) to make good on my claim, I will repair two of my older sets, both of which have holes in the soles. The man who sold me the new shoes recommended Cecil's Shoe Repair, and I stopped in tonight on the way home from work. I handed four shoes to a man I presume is Cecil, he gave me two claim stubs, and told me to come back in two days. I trust this guy, though I am not sure why.

Trust is like that. It is not always fully rational. In this instance, it seems to be based on myriad little contextual clues. The smiling customer who exited as I was going in. Was he a repeat customer? He seemed to know Cecil ... or whoever that man is behind the counter.

The man acts like the owner, completely comfortable with his house of shoes. He greeted me warmly, but never looked me in the eyes. He was concentrating on my shoes. I liked that.

There was nothing slick about this shop, located in a strip mall next to a Burlington Coat Factory. I liked that, too. I don't want the shoe repair man to be rich. If he looks rich, I ask how much the repairs will cost. As it is, I let him surprise me.

Of course, Cecil comes highly recommended. At least by a salesman whom I couldn't pick out of a crowd of three people. Again, it isn't clear why I should trust that man to make a good recommendation. Even if he knows someting about selling new shoes -- and does he even know that? all he did for me was get the right size out of the back room -- what does he know about shoe repair? Nevertheless, I took my business to Cecil, who could charge $100 for the repairs, for all I know.

Maybe I am a sucker, but I don't often get burned. Funny how things just seem to work out. Even though I am a law professor, I have long ceased attributing all of this good fortune to law. Law has its place, to be sure, but more important in Cecil's case is reputation. He seems to have it. And if my shoes come back in two days in good shape at a reasonable cost, he will have built that reputation a bit higher.

UPDATE: I got the shoes back, and they look great. The price was very reasonable ($36 per pair for new soles and heels), and he threw in some free advice about tongue pads. By the way, my colleague Nina Camic, who just started blogging at The Other Side of the Ocean, informs me that the man behind the counter is not Cecil. Nevertheless, he does a nice sole.

Permalink | Entrepreneurs | Comments (3) | TrackBack (0) | Bookmark

A few weeks ago, I noticed that my teenaged daughter was spending an inordinate amount of time with duct tape. It started appearing all over -- on her shoes, backpack, purse. At first, I assumed that she was repairing tears, but then she mentioned that a friend was "into duct tape, too." So I have been watching, and biting my tounge, as she constructs duct tape wallets and duct tape hats. She is quite creative, using both yellow and silver. As it turns out, she is far from alone in this. Somehow, duct tape has become cool. Don't miss the "Duct Tape Club" or "Duct Tape Fashion." I wonder if my daughter would appreciate one of the funniest shows on television, The Red Green Show?

Permalink | Businesses of Note | Comments (2) | TrackBack (0) | Bookmark

It has taken me a few days to readjust to the US after my trip to India. Changing time zones has been only part of the problem. I arrived in Chicago's O'Hare International Airport last Thursday, but my luggage took longer, several days longer. I was not well prepared for what finally showed up at my house.

Actually, my journey home was an adventure from the start, just as my stay in India had been. On January 14, 2004, I began my journey home from Delhi. The day began badly when fog prevented my KLM flight from departing Delhi on time, though this delay had the side benefit of allowing me to watch some cricket at the Delhi Airport. For the first time, I was able to watch cricket with some knowledgeable fans, and received a quick lesson on the rules. Although the game has many nuances that are still beyond my grasp, I was able to enjoy watching India whalloping Zimbabwe.

The delay caused me to miss my connection in Amsterdam, where I was forced to spend the night. The next day, I took a direct flight from Amsterdam to Chicago. Unfortunately, my luggage did not return with me. I made a claim with KLM at O’Hare and returned to Madison by bus to await delivery of my luggage.

Two days later, at approximately 11:00 pm, my luggage was finally delivered to my home. I have never seen luggage that had been so mishandled. The bag – which I had used only three or four times prior to this trip – was ripped and broken. The contents – at least what was left of the contents – were visible without opening the luggage. As for opening the luggage, that required a pair of scissors, because it was wrapped in packing tape, the zippers having been broken.

Investigating the luggage, I discovered that many of the souvenirs I had purchased in India were either missing or destroyed. Our hosts in India had presented me with a model of the Taj Mahal, but both the model and the wooden box that enclosed it were crushed, lying in pieces on the bottom of my suitcase.

I was surprised to learn that Northwest Airlines (KLM's U.S. partner) carries a full line of new luggage for occasions like this. When I presented my crushed suitcase in Madison, I was awarded a replacement bag on the spot. Now, we are trying to settle for the contents. Fortunately, the most valuable items survived, but I still have about $500 in damages. If they see the bag, they will have not doubt about why things were missing.

By the way, I mentioned this story to one of my students, and he told me that he wraps all of his luggage in duct tape. He claims that raggedy looking bags are less likely to be mishandled and the contents are less likely to be pilfered. I can understand the last point, but would airline workers really be more careful with a well-worn bag? After this most recent experience, it seems like it might be worth a try.

Permalink | Travel | Comments (1) | TrackBack (0) | Bookmark

India is a country with a long and fascinating history. Since gaining independence in 1947, however, India has struggled to find itself after 200 years of British rule. One of the professors I have met here described India's early post-independence relationship with the U.S. as one of "unrequited love." Of course, that history is complicated, but India ultimately turned to the Soviet Union for guidance and aid. The legacy of that decision still weighs heavy here.

India was a typically unsuccessful socialist state that began the process of gradual reform in the 1980s. The country hit bottom in 1991 and undertook more dramatic government liberalization. While the effect of these reforms is much debated, free marketeers agree that India has not gone nearly far enough.

Not a day passes without a news story about the effect of the IT revolution on India. (Look here if you don't believe me.) As a newcomer to India, I found the need to adjust my vision a bit -- Delhi is not Silicon Valley (though some claim that Bangalore is) -- but the evidence is indisputable. Software exports, BPO (business practice outsourcing), and ITES (information technology enabled services, like call centers) appear to have had an enormous psychological effect on this country, even if the real impact on this country of over one billion people is modest. Many of my hosts proclaim, "India has found its niche" in IT.

But IT will not save India. The country is too large for that. Other big issues loom. Most importantly, agriculture reform and education reform. Antiquated farming techniques and inadequate public schools threaten to stop India in its tracks.

The other big issue is infrastructure. Roads are horrible, but improving quickly. Telecommunications is booming. Mobile phones and wireless internet will speed adoption rates. Power supplies are the most contentious issue. Continued growth will demand more power, and India does not yet have a reliable system in place.

As you can see, the challenges here are enormous. Conquering those challenges would be difficult under the best of circumstances, and these are not the best of circumstances. India's multi-party democracy is broken and needs to be fixed. Strangely, the paralysis of India's government has made some here long for the efficiency of a totalitarian regime, like China's. Let's hope that's just talk.

Permalink | India | Comments (2) | TrackBack (0) | Bookmark

I have been in Delhi for nearly a week, long enough to become accustomed the most conspicuous signs that I am in a Third World country. Over the past several days, I have started to notice the little things that indicate how far India still has to travel before it reaches First World status. The moth balls in the sink (to dissuade insects from coming back up the system), the regular electricity outages (the lights just go off without warning; fortunately, all of the computers have a backup power source), and workers constructing highways with homemade tools.

I also notice little signs that the economic tide is turning. Where are the beggars at the Hindu temple? Even our guide is surprised. Advertisements for mobile telephone line a street that otherwise looks like it was transported from National Geographic. Children and mothers walking the streets in modern, Western clothes. Some people don't like these changes, but many people here are celebrating an economic revolution. The consensus seems to be that it is still too early to tell, but by all accounts, India is making great strides.

Permalink | India | Comments (0) | TrackBack (0) | Bookmark

We often associate high tech and entrepreneurship, but the two do not necessarily have to be joined. When I look at Indian industry, I see an enormous amount of technological prowess and very little in the way of developing new firms. Outsourcing, call centers, captive software development ... India has perhaps been distracted by the lure of easy money. Soon India will need to develop its own billion-dollar ideas. Perhaps more importantly, it must learn to implement them.

Permalink | India | Comments (3) | TrackBack (1) | Bookmark

One of the core attributes of economic relationships is exit. When people form relationships, they usually create rules about exit. Sometimes, people agree that any party to a relationship can exit at will. In other circumstances, exit may be constrained by contract or regulation. Tonight, while riding the bus to another event, I spoke with an economics professor from the Management Development Institute, which is hosting our group. He told me that India does not have a bankruptcy code. Does this strike anyone else as problematic?

OK, there was some exaggeration in my lead. While efforts have been made to craft an American-style bankruptcy code, Indian companies currently have to deal with the Sick Industrial Companies Act of 1985 (SICA), which creates a government Board for Industrial and Financial Reconstruction (BIFR). Essentially, what happens here is that "sick" companies are referred to to BIFR, which then has the primary responsibility of preserving jobs. Most of the companies that get to BIFR are merged out of existence.

There is widespread agreement that SICA does not get companies into the system quickly enough. Moreover, the government's role is focused on preserving jobs. In the case of company failure, for the best of all concerned, a quick death is best. My new professor friend expressed the belief that the current law discourages company formation by those who are concerned about exit options.

Interestingly, he tells me that startup IT firms are relatively insulated from the effects of this law. For one thing, the number of employees affected by a firm closure of this type is typically very small, thus dampening the sense of catastrophe. Perhaps more importantly, most knowledge workers don't have time for a court to hear their grievance. Plus, they have a (new) job to do.

Permalink | India | Comments (0) | TrackBack (0) | Bookmark