The Senate Finance Committee held another hearing on Carried Interest today; you can read the written testimony here. 

While the political issue is very much up in the air in DC, even among some Democrats, it's safe to say that there is an academic consensus among tax profs on the issue:  the status quo is problematic, and it should be addressed.   Three academics testified to that effect today - Joe Bankman (Stanford), Charles Kingson (Penn), and Darryl Jones (Stetson).  I'd previously testified at a committee roundtable, and Mark Gergen (Texas) testified at an earlier hearing.

We may not all agree on exactly what to do about the tax issue -- (1) tax the grant of a profits interest at ordinary income rates, (2) tax the returns at ordinary income rates at the back end, or (3) a hybrid approach (like my Cost of Capital or loan approach), or (4) even repealing the capital gains preference altogether.  Some of us would apply the changes to all partnerships, others would limit it to smaller partnerships.  But as more tax academics weigh in, it's clear that there's a consensus that this is an issue worthy of legislative action.  There's myself, Mark Gergen (Texas), Joe Bankman (Stanford), Dan Shaviro (NYU), Lily Batchelder (NYU), Noel Cunningham (NYU), Darryl Jones (Stetson), Alan Auerbach (Berkeley), Chris Sanchirico (Penn), and many others -- everyone agrees that there's a case for reform.  And this isn't a bunch of lightweights; nor is it a group that generally believes in higher taxes, or more redistribution. We tend to believe in a broader base and lower rates, and that's one way of viewing carried interest reform.  There are really few academic voices in dissent; the most prominent voice in dissent had his research sponsored by the Private Equity Council, so I'm not sure he counts on this issue.

What's remarkable about all this is that we tax profs are not a group that agrees on much -- there's division in the tax academy about income tax vs. consumption tax, corporate tax vs. full integration, territorial vs. worldwide taxation, whether to have an estate tax. 

One way to see why a consensus has emerged on this issue is to consider what happens to carried interest in a consumption tax world.  Consumption tax advocates tend to believe that not taxing capital income is the best way to grow the economy, as it encourages saving over consumption.  Now imagine a capital gains rate of zero, i.e. no tax on investment income.  In that world, private equity fund managers would pay no tax at all on their carry, since it qualifies as investment income.  (The fund managers get to exchange services for an investment in their own fund using pre-tax dollars -- and pay no tax on the back end, either.)  That can't be the right result -- carried interest obviously represents a return on labor, not capital.  So even if you have an underlying belief that encouraging investment is the best system for economic growth, we need to deal with the carried interest issue.  And it's this kind of thinking that explains why, in addition to the likes of the New York Times and Washington Post, you also have the Economist and Financial Times in favor of carried interest reform.

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

I'm always a few days behind in reading the NYT Magazine, so I had already seen this post by Frank Pasquale on an article entitled "Do Workers Have a Fundamental Right to Care for Their Families?  The Latest Front in the Job-Discrimination Battle."  That article focuses on a new twist to gender discrimination claims -- claims that center on job termination or other negative treatment because of the worker's parental responsibilities or even mere parental status.  This theory is either used as part of a Title VII claim or an ADA claim (when the child in question has a disability).  Much of the theoretical work for this litigation position comes from the work of a Hastings law professor, Joan Williams, who wrote Unbending Gender in 2000.  That book gave as possibilities several ways to combat the growing tension between parent workers and employers, and one chapter talked of litigation, even though it conceded that "suing your employer is not the ideal mechanism of social change."  In the article, Williams updates her statement by saying that lawsuits "are the worst possible vehicle for social change, ecept for nothing, and that's where we are right now."

Two aspects of the article were very interesting to me.  One was the description of a study by the Cognitive Bias Working Group, which sent over a thousand resumes to both volunteers and real employers.  (The study appears in the May 2007 issue of the American Journal of Sociology.)  The resumes represented equally qualified applicants, but some resumes signalled that the applicant was a parent.  Here are the results:

Among the volunteers, mothers were consistently viewed as less competent and less committed and were held to higher performance and punctuality standards. They were 79 percent less likely to be hired and, if hired, would be offered a starting salary $11,000 lower than nonmothers. Fathers, by contrast, were offered the highest salaries of all. Meanwhile, in the test run with real-world employers, the hypothetical female applicants without children were more than twice as likely as equally qualified mothers to be called back for interviews.

Second, the article notes that "more than half [of these cases] have prevailed in court -- a success rate significantly higher than that of more conventional employment-discrimination cases, which is below 20 percent."  I am assuming that these success rates are of filed cases, so they include dispositions by motions to dismiss, summary judgment, settlment and trials, although I'm not sure.  Let's assume that a parent discrimination case has a much better success rate in front of a jury than a gender discrimination case.  Why would that be?  I can think of a few factors.  While only a certain percentage of jurors may be women, or working women, all have parents and most probably are parents.  So, it would be hard to seat a jury without sympathetic jurors.  Also, one-fourth of these plaintiffs are male, presumably male fathers.  If the Cognitive Bias Work Study Group's work holds up, then jurors would be subject to the same biases as the volunteers/employers and consider the working fathers' claims as credible and important.  They might also consider the lost wages/employment of the working father to be much more in need of a remedy.  Other thoughts?

Permalink | Gender Issues | Comments (1) | TrackBack (0) | Bookmark

Dan Solove has made his (semi-annual, now annual) contribution to the study of the blogosphere:  Law Professor Blogger Census 2007.  Readers are giving Dan corrections, etc., so the chart may change over the next few days.  Specifically, Dan is asking for information on "deadwood bloggers":  bloggers who are listed on the blog's "letterhead" but haven't posted for two months or longer.  The elimination of these bloggers should change many of the rankings as the big "faculty blogs" list many professors as bloggers, but a smaller number post with any frequency, or even post at all.

And of course, I have to note that the University of Illinois has 8 bloggers!  We even have our own web page:  http://www.law.uiuc.edu/blogs/.  Andrew Morriss has not been listed yet as he is transitioning from Case Western, but I'm sure our web magician will be on that right away.

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

Yesterday's NYT had an interesting column by Jonathan Glater on public universities charging more for some degrees than others.  The degrees that garnered the higher price tag are degrees where the costs of recruiting professors are higher and/or the cost of equipment is higher.  Some of the examples given are business, engineering, pharmacy, and journalism.  The premiums are not astronomical -- from $250 to $500 more per semester.

Most administrators quoted seem very unhappy with this phenomenon, even at their own schools.  They predict that lower-income students will stay away from pricey majors such as engineering and business.  They bemoan the days when states educated their children to create better citizens that were well-rounded and enlightened.  They brush off apologists who defend the policies on the basis that some degrees are worth more in the marketplace.  Richard W. Lariviere, the provost of the University of Kansas, is quoted saying "Where we have gone astray culturally is that we have focused almost exclusively on starting salary as an indicator of life earnings and also of the value of the particular major."

A few thoughts.  First, I don't think we can read this article without recalling the almost daily newspaper articles about the high cost of educational debt that many graduates are shouldering.  With so many students going into debt for an education, and many with high-interest private loans, shouldn't we be teaching them something about the dollar value of a particular major.  Yes, students should seek out jobs that are interesting to them and that will bring them fulfillment throughout their lives, but they should think twice before borrowing $100,000 for a major where the starting salary is $22,000, right?  To say that this should not be a consideration is pretending that everyone that goes to university is wealthy and coming merely for self-actualization -- to take Latin, Greek, Philosophy and Theology and return to their position in the aristocracy.  That's not real life.  Students are going to college to gain knowledge, skills and credentials to support themselves and their families.

So, why shouldn't an Engineering degree cost more than an Education degree?  I don't think this is insulting to Education majors.  In fact, why raise tuition across the board and have people who want to teach kindergarten have to subsidize the education of people who want to become engineers, who will get paid much more after graduation?  Why not just let engineering students pay more?  (The article did not mention lab fees, which I had long thought were already a mechanism to have students in certain majors pay more than others.  Texts also cost vastly different amounts in various majors.)  Students already pay more for elite institutions than non-elite institutions; more for university education than community college; and more for degree-granting institutions than technical schools or cosmetology schools.  Surely this pay differential has something to do with the value of the degree.  And surely degrees within a particular institution are worth more than others. 

Of course, students going to law school can basically game the system by majoring in low-cost degrees such as English or Philosophy and then going to law school!

Finally, I think we have to take the quotes from these state university administrators with a grain of salt.  They are obviously pitching to their legislatures.  "We have to act this unfairly because you have tied our hands by not letting us raise tuition across the board."  What the colleges would prefer to do is raise tuition not just for Business and Engineering students, but also for English and Philosophy students.  So much for well-rounded, liberal arts education.

One last thing.  As a U. of Texas graduate, I try to stay away from Aggie jokes, even though I have a natural right to make them.  Well, this one makes itself.  The article quotes G. Dan Parker III, associate executive vice president of Texas A&M on the fact that the business school there pays starting professors $130,000 or more.  "The salaries we pay for entering assistant professors on average is probably larger than the average salary for full professors at the university.  That's how far the pendulum has swung at the business schools, and I sure wish they'd fix it."  Ummm, what are you going to fix?  I guess if you can clone sheep, you can alter the laws of supply and demand, too.

Permalink | Economics | Comments (10) | TrackBack (0) | Bookmark

Last week at the Law & Society Annual Meeting in Berlin, I attended/participated in three panels on comparative corporate governance, which I had organized with John Ohnesorge (Wisconsin) and Andreas Engert (Munich). Our goal was to showcase some of the new generation of European and Asian corporate governance scholars, and the results were impressive.

One paper that had everyone buzzing was a new study by John Armour, Simon Deakin, Priya Lele, and Mathias Siems with the unsexy title, "How Legal Rules Evolve: Evidence from Panel Data." If you are interested in the LLSV literature, you will want to keep an eye out for this paper, which is not available on the internet, yet. Here is the abstract:

Much attention has been devoted in recent literature to the claim that a country’s ‘legal origin’ may make a difference to its pattern of financial development and more generally to its economic growth path. Proponents of this view assert that the ‘family’ within which a country’s legal system originated—be it common law, or one of the varieties of civil law—has a significant impact upon the quality of its legal protection of shareholders, which in turn impacts upon economic growth, through the channel of firms’ access to external finance. Complementary studies of creditors' rights and labour regulation have buttressed the core claim that different legal families have different dynamic properties. Specifically, common law systems are thought to be better able to respond to the changing needs of a market economy than are civilian systems. This literature has, however, largely been based upon cross-sectional studies of the quality of corporate, insolvency and labour law at particular points in the late 1990s. In this paper, we report preliminary findings based on newly constructed indices which track legal change over time in the areas of shareholder, creditor and worker protection. The indices cover five systems for the period 1970-2005: three 'parent' systems, the UK, France and Germany; the world’s most developed economy, the US; and its largest democracy, India. The results cast doubt on the legal origin hypothesis in so far as they show that civil law systems have seen substantial increases in shareholder protection over the period in question, and cannot be accurately characterised as less shareholder-friendly than common law ones. The results also show that the pattern of change differs depending on the area which is being examined, with creditor rights and labour rights, for example, demonstrating much more divergence and heterogeneity than shareholder rights. The results for labour rights are more consistent with the legal origin claim than in the other two cases, but this overall result conceals significant diversity within the two ‘legal families’, with different countries relying on different institutional mechanisms to regulate labour. Finally, we found that until the late 1980s the law of the five countries was diverging but that in the last 10-15 years there has been some convergence in the legal protection of shareholders, creditors and employees.

By highlighting this paper, I don't want to cheat the others that were presented. They were many and varied, and I immensely enjoyed them. My motives for helping to organize these sessions were entirely selfish: I wanted to meet the participants and learn from them. Since 1990 or so, comparative corporate governance scholarship has been on the rise in the US. We are familiar with the work of American scholars like Mark Roe, Ron Gilson, and Bernie Black, as well as some prominent scholars from outside the US (Theodor Baums, Katherina Pistor, Klaus Hopt, Hideki Kanda, Paul Davies, etc.), but my sense is that comparative corporate governance has really been gaining some steam over the past few years.

Attendance at these sessions was unusually strong for LSA. In the first session, the room was packed -- not a single empty seat. (36 chairs ... I counted.) And many people turned away at the door. The later sessions were also well attended, in part because the participants in the panels viewed the sessions as a "conference within a conference," but also because many other people were interested. I am eager to dig deeper into comparative corporate governance over the coming years, and I appreciate all those who taught me something over the past few days.

Permalink | Comparative Law| Corporate Governance | Comments (1) | TrackBack (0) | Bookmark

Today news outlets are reporting that two news helicopters in Phoenix that were covering a police chase collided, killing all 4 passengers on the two helicopters.  The police were chasing someone who had stolen a pickup truck and a trailer.  This is a horrible and senseless tragedy.  However, I can't agree with the Phoenix police chief who states that the thief, who was eventually caught, will be held responsible for any of the deaths from this tragedy."

Now, I've been watching Law & Order for a long time, and I've seen Jack McCoy stretch to indict remote defendants for their "reckless disregard for human life," but I'm not sure if he would go here.  I understand that someone leading police in a car chase would be responsible for deaths involving other cars, pedestrians, and police vehicles in the vicinity of the chase.  I could also see where the suspect might be responsible for deaths caused by a police helicopter.  But I think I would draw the line at the news helicopter.  The news helicopters do not have to be there for public safety; they are not there by happenstance like a bystander.  Instead, the news outlets have chosen to go to the chase for hope of commercial profit.  Would the suspect be responsible if the helicopter went down because of bad maintenance?  Human error?  Gross negligence on the part of the pilots, trying to get as close as possible to the action?  If I saw the chase come on TV in another room and ran to watch, would the suspect be responsible if I tripped over something and broke my leg?  Where does the chain stop?  I would be interested to hear what others think.

Permalink | Crime and Criminal Law | Comments (6) | TrackBack (0) | Bookmark

Careful readers of the blog may have noticed that I'm quite interested in globalization, particularly the globalization of regulation.  But sometimes people give international trade a superstatus that I find, um, only marginally persuasive.  Take Floyd Norris.  In his view, "the Chinese economy that has taken world leadership. So long as it remains strong, many companies will prosper no matter what the prospects for their home markets."  Really?  I know stock markets are supposed to be leading indicators, and a trillion dollars in exports is a lot of money.  But it is a small fraction of world GDP, at least as the IMF sees it, and trade is a small proportion of every nation's national product.  By the same token the Chinese economy is one fifth the size of the United States', half the size of Japan's, and approximately the size of Italy's.  But no one talks about continued Italian prosperity being the key for global financial health.

Permalink | Globalization/Trade | Comments (0) | TrackBack (0) | Bookmark

Having married into a half UVa family/half Virginia Tech family, I sort of know who Michael Vick is and have sort of been following his year of bizarre clashes with the law.  Of course, he is now in the doghouse again (couldn't resist).  The WSJ Blog quotes his attorney, Billy Martin, as defending athletes-gone-bad by saying

You have teenagers and kids in their early 20s with multimillion dollar contracts. And often their experience handling money and life have to catch up with their years of age.

Hmmm. I think Mr. Martin should come up with a different narrative if he wants to successfully defend his client.  Not only has the "young kids with overnight wealth and fame just can't handle the pressure" defense gotten a little worse for wear, but it doesn't even seem applicable here.  A jury (and the public) may find it predictable that a young person with newly found money, power and prestige may abuse it in the traditional ways:  fast cars, alcohol, drugs, liaisons with young fans of the consensual and not-so-consensual variety, gambling, even fighting and violence.  These are cautionary tales that make up part of the lexicon of fame.  However, the story that wealth and fame drove someone to owning a dogfighting business and personally participating in the infliction of painful deaths on dogs is not going to resonate with anyone.  And for whatever it says about our society, probably the one unforgivable characteristic a person might have is to hate dogs.

(I'm reminded here of an old Confederate Railroad song:  "She never cried when Old Yeller died
So do you think I'll cry when she's gone.")

One of the commenters on the WSJ Blog seemed to defend Vick and say that he be unfairly punished because dogfighting will be put on trial.  Well, dogfighting is already illegal, so that seems a strange thing to complain about.  However, I think he means that Vick will be caught up in anti-dogfighting sentiment or even in class bias.  Dogfighting, even without the out-of-ring mistreatment of the dogs, is not a high-class activity.  The jury isn't going to associate dogfighting with the lifestyles of the rich and famous they might otherwise excuse, such as drugs, alcohol, and playing bumper cars with your Mercedes like Lindsay Lohan.  Nope.  Dogfighting is nasty, and a jury will make the jump that only nasty people would be associated with it.

So, what should Mr. Vick's attorney say?  From the facts alleged so far, this is what I would say:  "Michael Vick trusted his friends, friends he had known all his life, before the fame and before the money.  Michael wanted to go into business with his friends to feel like he was giving them opportunities and sharing the benefits of his new life.  He was obviously naive as to what was really going on there.  You will not hear anyone who is not getting a deal from the prosecution testify that Michael Vick was present when these atrocities were committed."  And hopefully, for Vick's sake, that will be true.

Permalink | Crime and Criminal Law | Comments (9) | TrackBack (0) | Bookmark

Like other law professor moms that I know, I have spent untold hours and energy creating a crazy quilt of day camps for my kids to attend so that I can continue to work when school is not in session.  In the back of my mind I keep wondering how old the kids have to be before they can go to sleep-away camp.  I went to church camp starting at 12, but it only lasted a week.  I'm looking into religions that host much longer sleep-away camps.

Anyway, according to this Sunday's NYT, sleep-away camp may not give me the huge blocks of uninterrupted work time I'm looking for.  Apparently, I will spend an hour each day babysitting my kids' Webkinz!  (I have blogged about Webkinz before.)  While the kids are at camp, someone has to feed and take care of the Webkinz, which will include earning Kinz cash each day to keep them healthy and happy.  Great.  Now I'll have to find a camp for our five Webkinz (Felipe Bananas, Herramiento "Harry" Rana, Coco, Alex, and one that I don't even know it's name)!

Permalink | Marketing | Comments (6) | TrackBack (0) | Bookmark

A few weeks ago, Eugene Volokh addressed complaints about the paucity of women panelists at a recent Federalist Society conference.  I responded to one explanation that was related to citation counts and promised to address the topic of gender and conferences generally at a later time.  Well, it is later. . . .

I have often defended blogging as the great academic equalizer by noting that women law professors (or I should say parenting law professors) may find it easier to balance blogging with home life than traveling for conferences.  I have responded to critics of time-intensive blogging that networking through blogging may be a substitute for networking through conferences, which can be costly in terms of time and money.  (This Spring I had a babysitter stay with our kids Friday afternoon through Sunday afternoon while Paul and I were at different conferences the same weekend -- not cheap.) 

Perhaps because of the demographics of my field (corporate law), I often go to conferences where women law professors are in the minority.  Last year in fact I was the sole female panelist at a day-long conference with 10 or so speakers.  I've really gotten to where I don't notice much any more.  I was talking about this with some other female corporate law professors, who have decided that when asked to speak at a conference, they also make suggestions of other possible female speakers to be invited (to counteract any network effects similar to the ones that Eugene discussed).  However, I know at my almost all-male conference, many speakers suggested two other female professors who wrote in the field, and they declined.  So, my question to readers is whether women law professors feel that they must pick and choose their conferences more so than their counterparts due to child care responsibilities or other work/life issues.

Obviously, pregnancy takes a female law professor out of conference rotation for at least a month or so before the birth and several afterwards, depending on nursing decisions, etc.  As one of several female law professors I know who took a baby to the meat market, I can attest to doing some wacky things to keep up a travel schedule and be the mother of small children!  My mother-in-law, who lives nowhere near us, is often the one who drives hours to meet me at an airport to take the children while I conference for a few days.  However, blogging is much easier, and more invisible than attending conferences.  Why I could be eight months pregnant right now, and you would never know.

Finally, maybe David or Gordon could tell us what they think the gender mix is in Berlin right now.  Law & Society is usually a fairly diverse conference, but I don't know that many women law professors who were planning on going to Berlin this year. 

Permalink | Gender Issues | Comments (6) | TrackBack (1) | Bookmark

Late to the party, I'll note only that yet another dynastic corporate law enterprise (this time it is Viacom) is facing intra-family litigation - and there's not even a will involved.  There is, however, even more evidence that securities law is growing together rather than apart, in the tendency spotted by the Financial Times for European lawyers to follow restrictive American IPO rules.

Permalink | Corporate Governance | Comments (0) | TrackBack (0) | Bookmark

Hospitals find consent bothersome.

The WTO doesn't make transparency easy.

Everyone is joining us in Berlin these days.

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

I've just returned from spectating at my first panel at the Law and Society conference in cloudy Berlin (cloudy and cool, which, along with tons of rain, is what I dream about when I dream about Europe, but boy, the southern part of the continent, I can attest from experience, is hot hot hot).  It was on secrecy in government - and it is a au courant topic, given all the claims of privilege being made by the government today.  I think it is fair to say that the panelists were critical of all this secrecy, and maybe that is appropriate, since the government does, in theory, serve as an agent to the principal that is its people.

But it seems to me that you have to make a principal-agent sort of argument to justify transparency in government (which, believe me, I am for).  Does anyone really think that there aren't benefits to secret, private deliberations?  Corporate boardroom debates, as the HP case underscored, are private on pain of the duty of loyalty, and companies in general - that is, private ordering - choose, in general, to be as secret as heck.

For more, consider Co-Op blogger Dan Solove's essay on having nothing to hide.  Maybe the Glom community can get him some additional much needed downloads.

Permalink | Organizational Theory | Comments (2) | TrackBack (0) | Bookmark

What goes into the canon of popular business literature?  I've read a bunch of business books, but many of them have been histories, and many of those have been unsatisfying.  Can't say the same about Barbarians at the Gate, the tick tock of the KKR LBO of RJR Nabisco - it's every bit as good as everyone tells you it is.  And Liar's Poker, about the go go junk bond era from the perspective of Michael Lewis, who spent some time in Salomon's bond department, is also really, really memorable.  There's no doubt that James Suroweicki's The Wisdom of Crowds and Malcolm Gladwell's Blink have made both authors rich on business meeting speaking engagements, but it's not easy to pin down the precise implications of their theses (which are "crowds are [sometimes] magic!" and "initial reactions are [sometimes] magic!" respectively).  And the canonical business case study text, In Search of Excellence, by Peters and Waterman, is fascinating, but characterized by, and, heck, maybe invented, what I call the "eight squishy rules" rule of how-to business books.  P&W recommend "simple form lean staff" and "simultaneous loose-tight properties," that sort of thing.  Which is thought-provoking, and maybe that's all you want, but is also the kind of thing that, if these rules were laws, would drive lawyers nuts.

Any other suggestions for the canon? Please do comment.

Permalink | Books | Comments (23) | TrackBack (0) | Bookmark

Pottermania began this morning in the Smith household. The nearest bookstore, Barnes & Noble, is employing a distribution system that is ostensibly designed to eliminate the need to stand in lines. (At least that's what the store's employees claimed.) The bookstore began distributing wristbands this morning at 9 am, and those wristbands will determine purchasing priority for the midnight sale.

Of course, this system didn't eliminate lines. When my daughter and I arrived at the store at 7:30 am, a healthy line (100 or so people) had already formed, and it more than doubled by the time the doors opened. We are in group BB. "It's like boarding a plane," the B&N employee proclaimed.

Oh, and don't bother going to the party at the store. They will shoo everyone out at 11 pm to prepare for the sale, then reopen again around 11:45 pm ... allowing staggered entries by the designated groups.

This is my fourth midnight with Harry Potter, but I have never seen a system quite like this. Is this a Utah thing? I ask only because BYU was forever trying innovative ticket distribution schemes during my undergraduate years, and most of the schemes were disastrous. None more than the time they decided to eliminate lines by announcing the location of the ticket office for a concert on the radio at 9 am. Of course, everyone was prowling the campus in cars or bikes waiting for the announcement. No one was killed in the ensuring stampede, but several people were injured.

Finally, we prepared for the event tonight by going to Harry Potter and the Order of the Phoenix. Lots of great actors, but all in all, a pretty forgettable movie. Like the books, I'm afraid.

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