If you care at all about the considered use of the English language, you will probably wish to remain at least 10 paces from this book. Its sentences arrive as if prefrozen at a warehouse, and picked up by the author after they’ve fallen from the back of a Sysco truck.
Executives here are “honchos” or “bigwigs.” Wealthy people are “moneybags.” Restaurants are “eateries.” Interiors are “swanky.” A death is a “passing.” The author, a journalistic Will Rogers, has never met a cliché he did not like.
How good does nonfiction writing have to be? It’s a complicated question; there are so many variables. One answer, though, is: better than this. Isn’t there cliché-isolating software publishers can put to use? If not, why not? We need an app for this.
Second-rate writing and second-rate thinking tend to arrive in tandem, like the Captain & Tennille. “The Frackers” has little of nuance to say about geology or engineering. You will not come away with a more sophisticated notion of how hydraulic fracturing or horizontal drilling works.
I've been reading some energy literature of late, and, other than The Son, it's pretty grim going. Oil still awaits its Melville (though it may already have its Burrough, I haven't read that one yet), it appears, though do inform me if you disagree in the comments.
If you'll excuse two barely business-related observations:
- The Son, by Philipp Meyer, might do as a novel about business - it's about 170ish years of a Texas family, with a basic theme that getting frontier-rich required fraud and evil-doing. But it's not an anti-business book at all. Recommended, if you like your epics dark.
- When I was a sprightly young lawyer in Washington in the late nineties, I got the Washington Post and New York Times delivered to my door every morning ... and I read the Post first, because it was more fun than the Times. I knew Post reporters, too, young, interesting, and not at all embarrassed that they weren't lawyers (we hadn't really heard of finance back then in DC). It is amazing how much that paper changed, and changed for the worse - and yet it's still the best single source on how business regulation gets done. I'm hoping it has a rennaisance with new ownership.
Coinciding 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.
Hot off the presses comes a stimulating way to start the summer for corporate law professors. Cambridge recently published Christopher Bruner’s new book Corporate Governance in the Common-Law World. The book builds on his earlier law review work, including Power and Purpose in the “Anglo-American” Corporation and Corporate Governance Reform in a Time of Crisis.
Bruner lays patient, meticulous siege to functionalist accounts that have occupied center stage in comparative corporate law scholarship. The key moves in his gambit:
¶ Disaggregating the idea of “Anglo-American” corporate law by arguing that British, Australian, and Canadian systems give far more power to shareholders than does the U.S. approach;
¶ Arguing that a functional approach (which has led to predictions that differing social welfare and social democracy concerns explains a divergence between continental European systems and Anglo-American systems) fails to account for the differing approaches among these four common-law countries;
¶ Articulating the further differences among the U.K., Canadian, and Australian approaches; and
¶ Providing evidence that politics, not functional concerns, provides a better explanation for the diverging paths within the common-law world.
Bruner also looks at how the crisis has affected these four common-law countries to different degrees. Harder hit, the U.K. and United States have moved to increase shareholder power within corporations. Although in the introduction Bruner sets out to navigate middle course between “functionalism” and “contextualism,” the book hews much closer to the latter. In doing so, he stages a serious challenge to comparative scholarship that poses grander economic arguments to explain differences and similarities among corporate law regimes.
To my mind, the book also raises a challenge of whether a similar political approach might explain divergences within continental Europe. Moreover, might a politics focus provide an explanation for divergences and convergences well before the latter half of the 20th Century?
Bruner’s Introduction is available on ssrn.
What you see is what you get with Warren Buffett. When he writes to his shareholders, he talks about not just the numbers in their annual report, but about himself, what he thinks, and how Berkshire Hathaway has come to be where it is today. The book is a compilation of Warren Buffett’s annual letters to Berkshire Hathaway shareholders from 1979 to 2011, and reads as sound investment strategy and business practices, with abundant offerings of good horse sense. He believes if "you can't understand a footnote or other managerial explanation, it's usually because the CEO doesn't want you to."
The first edition of The Essays of Warren Buffett: Lessons for Corporate America was the focus of a symposium held twenty years ago and was the standard textbook for a specialized course taught by the author, Professor Lawrence A. Cunningham of George Washington University Law School. It has since been adopted by many law and business schools for study in investment, finance and accounting. Investment firms have used this book in their staff and investor training programs. However, the layman should not be put off by these credentials as the book is an approachable guide to understanding investment. Buffett quotes Twain, Churchill and even Woody Allen. If it's a matter of faith in Warren's wisdom, you may be reassured by the sprinkling of Biblical references used to illustrate his points.
A sampling of Buffett's sage advice to shareholders includes, "Beware of companies displaying weak accounting." If you question what you see, "it is likely they are following a similar path behind the scenes. There is seldom just one cockroach in the kitchen." Berkshire Hathaway's board of directors do not receive company stock as part of their compensation, they "purchased their holdings in the market just as you did...I love such honest-to-God ownership. After all, who ever washes a rental car?" Another gem, "...lemmings as a class may be derided but never does an individual lemming get criticized."
Organized by topic rather than chronologically, the words of Mr. Buffett are the words of every man - there is extremely little corporate lingo and no baffling verbiage. His plain-speak is valuable guidance to learning the history of investing in the U.S., the good and the bad, and to understanding how you can make an intelligent investment decision if effort is put into researching the integrity and focus of company and management behind the investment.
The table of contents is well organized and the book includes a concept glossary and a disposition summary to help readers familiar with the previous editions of this book.
Berkshire Hathaway Inc. is a holding company owning subsidiaries involved in business activities including insurance and reinsurance, freight rail transportation, utilities and energy, finance, manufacturing, services, and retailing. They hold interests in 28 newspapers, even with the overwhelming influence today of the Internet.
I typically review biographies and lifestyle publications, and have been an admirer of Warren Buffett for many years so, naturally, I wanted very much to read this book. Clearly, is it a valuable tool for training anyone in anyway connected with handling the money of others, and I would highly recommend this book to investment clubs and to anyone giving serious thought to planning their retirement portfolio, be they in their 20's or their 60's.
Here are a few gift suggestions culled from books published this year if your special someone is a lawyer who associates Modigliani and Miller with capital structure and not paintings with elongated faces and the Tropic of Cancer:
- Tamar Frankel’s The Ponzi Scheme Puzzle;
- Steve Bainbridge’s Corporate Governance after the Financial Crisis (for a point of comparison, see his former colleague Lynn Stout’s The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public);
- Research Handbook on the Economics of Corporate Law, a collection edited by Claire Hill & Brett McDonnell.
Even the non-lawyers and non-academics in your life might enjoy Frank Partnoy’s Wait: The Art and Science of Delay. Of course, the target audience might never get around to buying the book.
A few links to tide you over during your tryptophan-induced torpor:
- Many law faculty dream (or so I’ve heard) of splitting their school in two and separating themselves from various colleagues (mimicking the good bank/bad bank model). Well Penn State is doing just that with its two campuses. (See the Dan Filler’s short post at the Faculty Lounge and the comments thereto);
- In the NY Review of Books, Elaine Blair reviews Every Love Story is a Ghost Story, D.T. Max’s bio of David Foster Wallace. It’s fascinating discussion of how Wallace drew on his own experience in addiction recovery, to create not only characters but a map out of the intellectual wilderness of “self-consciousness and hip fatigue” in American culture high and low;
- David Nasaw has slices of his new book, The Patriarch: The Remarkable Life and Turbulent Times of Joseph P. Kennedy at Slate;
- In the New Yorker, Nick Paumgarten explores the eternal musical afterlife in the Grateful Dead tape archives;
- Steve Bainbridge on vino for Thanksgiving (what about post-Thanksgiving?) and shareholder empowerment and banks.
- Track grandma’s flight home at FlightRadar24.
Back when Gordon and I started blogging, we wrote a lot of "observing the world" posts. This post is like that --sort of 2004-ish.
I recently downloaded (but have not read) a new biography of David Foster Wallace called Every Love Story is a Ghost Story by D.T. Max. Wallace is from Champaign-Urbana, from an academic family, so I can't help but be interested. I've read all of Mary Karr's memoirs, and Wallace makes an appearance in one, so I'm anxious to see if she's in his biography. (Besides the law, I love to read fiction and am inexplicably drawn to "memoirs of affliction" so the biography should be an intersection of the two, I guess.) In reading the reviews of the biography, I was struck by the similarities between how Wallace's place in the literary world is similar to James Dean's place in Hollywood. Wallace only wrote three novels, one of which was published posthumously. (Wallace also wrote short stories and essays, some of which are as famous as his novels). Dean starred in only three films, though he was an extra in a few others. Both, of course, died at young ages when both were becoming quite famous for their incredible gifts.
Posthumously, both Wallace and Dean have become even more famous than in life. Dean is a Hollywood icon, whose famous face is well-known in popular culture. Wallace himself was portrayed in a Simpsons episode, though television culture generally only knows literary authors who stick to vampires and wizards. At a bookstore in O'Hare airport last year, I took this picture because I was struck by the inclusion of Infinite Jest, a book that did not appear on the NYT bestseller list until Wallace died, even though it was swamped by literary praise and awards. The number of folks who have plowed through its 1000 pages is probably small compared with other well-known books. But this display puts Infinite Jest with Gone With the Wind, Moby Dick and War and Peace.
Having been 13 and now having a 13 year-old, I realize that reading is a tricky business. Thirteen year-olds can read most words and have full access to an entire library full of books, full of violence, sex and new ideas. Believe me, it was a sad moment when I realized that I just couldn't read every book my daughter read before she read it -- I was just going to have to let her fend for herself literature-wise and hope for the best. But, in the current world, there are plenty of books out there written for 13 year-olds. (Of course, 10 year-olds read them, but whatever.) But back in the day, voracious readers of the young teen variety were left to their own devices. WE hadn't been exposed to good literature in school as of yet, so we basically had to read what we found.
NPR's All Things Considered has been running a series called "PG-13" in which today's authors talk about dangerous books they read when they were 13. Out of the five books listed there, I read two of them, also the summer when I was 13: It and Flowers in the Attic.
OK, so It wasn't published when I was 13, but I read a lot of Stephen King that summer, probably The Stand, Cujo, Christine (of course) and Pet Sematary. I can't even imagine suggesting these to my own daughter, but I seemed to have survived this early exposure to horror (and occasional bizarre sex) at an early age. I'm not sure why those books were so attractive to me. They were accessible, ahd funny pop culture references and usually one or more really likeable characters. I haven't reread these books since I was a teenager, but I can still feel how hot and thirsty the Cujo mom is trapped in the car with her son and how incredibly sad the Pet Sematary dad is when his two year-old is hit by the truck. I'm not sure I could read those books now. Maybe only when you are 13 and your world is incredibly safe and insulated can you happily read books about extreme tragedy, horror and fear. (I also always think about the PR disaster at the beginning of Cujo as being a great example of correlation versus causation -- company that makes red cereal faces consumer outrage when a small number of kids vomit red after eating the cereal.)
Less understandably, I also read Flowers in the Attic and its sequels (yes, it had many sequels). I guess this book was lying (laying?) around the house, abandoned by my mom or older sister, so of course I picked it up and started reading. The premise is that four beautiful children are hidden in an attic after their father dies by their beautiful mother. Why? Because the mother is trying win back the millionaire father who disowned her, but feels that the grandfather will only accept her back if the marriage he opposed did not produce any children. The beautiful but passively evil mother assures the children they will be able to leave the attic once she wins over Grandfather/once Grandfather dies/once the Cubs win the series/etc. So, the story is basically about what four children do for years in an attic. This is no Chronicles of Narnia. More like The Blue Lagoon. The oldest two children, barely teenagers, fall in love. This beautiful incest story (??) apparently captivated millions of readers, including a few 13 year-olds. But again, I seemed to have survived reading it.
Summer reading is upon us: beach reads, required summer reading, book clubs.
My ten year-old son is in a "boy book club" (obviously organized my moms in book clubs). This has been a surprisingly successful plot to keep reading going over the summer. July's book was The Magic Thief, which was a big hit. August's book is Theodore Boone, Kid Lawyer by John Grisham. (Our pick and a family favorite.)
My freshman daughter's required reading was To Kill a Mockingbird, which of course she had already read. (Her parents are lawyers, after all.) The eighth graders read A Princess Bride, which I thought was a brilliant choice.
As for my summer (pleasure) reading, I have to admit I didn't accomplish as much as I would have liked. (I think because I learned how to download movies onto my Kindle, turning airplane reading time into airplane Downton Abbey time.) I continued my journey through Jo Nesbo's Harry Hole series. I am now on The Leopard, but I realize that I missed The Redeemer because it is not available on Amazon Kindle. However, it is on Amazon UK, but the website tells me in a somewhat patronizing manner that the UK Kindle downloads are for residents of the UK only, Christine Hurt. So, I'll have to get a hard copy so I can see what happened to Hole's supervisor.
I also read Paul Theroux's Lower River, which is about a man's late-in-life return to the Malawi that he loved in the 1960s when he was a Peace Corps volunteer there. It turns into a Mosquito Coast-type of disaster. I would like to sit down with Theroux and make some points about Malawi culture that I believe he overlooked as I disagree with many of his premises. Also, the entire plot hangs on our believing that a man in the 2010's hates cell phones so much that he would leave the U.S. for Malawi without one, and have a stranger drop him off in a remote village where he knows no one without a phone or a plan to leave. It's sort of like watching Home Alone and suspending disbelief that none of the McAllisters in France can get hold of anyone in the Chicagoland area, friend, family, neighbor or law enforcement, to tell them that 8 year-old Kevin has been left completely alone. I couldn't ignore a popular fiction book set in Malawi, but I was disappointed nevertheless.
Any suggestions here at the waning crescent of August?
- I wouldn't call it the book of the financial crisis, but John Lanchester's Capital is a nice look at the City of London from 2007-2009. Good things: it stars a street of rapidly appreciating homes, and there are fun fond metaphors for the crisis, and it has an excellent last line. Less good things: I thought that almost every plot twist was kind of obvious. Lanchester is a very emphathetic witness to the lives of Polish builders, English bankers, Pakistani shop owners. But he's not an amazing plotter. Still, probably the best finance novel ever, in a not very competitive field. Here's a Q&A with the author.
- This Times op-ed turns on the idea that we should just nationalize way too big banks, like they do in France with such amazingly sucessful results. You certainly couldn't say that French financiers have too great a degree of access to their country's leaders. It's not like they singlehandedly slowed and weakened the implementation of Basel III or anything. When someone comes up with a cute novel solution, you have to ask why it would be better than everyone's standard solution, which is size caps.
At the Glom, we haven't hid our fascination with the Battle Hymn of the Tiger Mother, and we have even held a discussion among other law prof supermoms on the book. One of my disappointments with the book was that Prof. Chua didn't discuss her dreams, aspirations, successes and failures in her on career path. Today, I saw this interview with Chua that talks a little bit about her dissatisfaction with law school and practicing law.
Law school tore down my confidence. I hated being called on. It's not a discipline that comes naturally to me. I did not click with law. I'm the hardest worker, but I could not retain the information
Chua then explains that her hard work led her to a clerkship, which she did not enjoy, and a career at Cravath, which she also didn't enjoy, though she worked extremely hard at both. After a 14-year odyssey to break into tenure-track teaching, she found a niche for herself in law and ethnicity in developing countries, a few leaps away from traditional law classes and law practice. One can jump to the conclusion that she might have been happier in a different graduate program in that field without the wandering in the wilderness.
As a professor, this makes me wonder how many really smart folks stumble into law school and just don't enjoy it because they would "click" with a different discipline. As a law professor, we have the amazing flexibility of dabbling in other disciplines, but most folks in law school are destined for the less flexible world of practicing law. I know that I have seen my share of students who are used to succeeding in school by working very, very hard and are flummoxed by the first year of law school. Some double down and work even harder, like Chua, but others sort of stall. (Of course, this is one reason why there are a growing number of people arguing to make it cheaper for law students to leave after one year: Me, Ian Ayres & Ahkil Amar, and Ari Kaplan.
Of course the tabloid-y bit of information in the interview was that Chua and her older daughter, Sophia, were asked to be on The Amazing Race, though they declined. From reading her book, I think Chua and younger daughter, Lola, would make a more ratings-ready pairing!
Time Magazine’s “person of the year” is the “protestor.” Occupy Wall Street’s participants have generated discussion unprecedented in recent years about the role of corporations and their executives in society. The movement has influenced workers and unemployed alike around the world and has clearly shaped the political debate.
But how does a corporation really act? Doesn’t it act through its people? And do those people behave like the members of the homo economicus species acting rationally, selfishly for their greatest material advantage and without consideration about morality, ethics or other people? If so, can a corporation really have a conscience?
In her book Cultivating Conscience: How Good Laws Make Good People, Lynn Stout, a corporate and securities professor at UCLA School of Law argues that the homo economicus model does a poor job of predicting behavior within corporations. Stout takes aim at Oliver Wendell Holmes’ theory of the “bad man” (which forms the basis of homo economicus), Hobbes’ approach in Leviathan, John Stuart Mill’s theory of political economy, and those judges, law professors, regulators and policymakers who focus solely on the law and economics theory that material incentives are the only things that matter.
Citing hundreds of sociological studies that have been replicated around the world over the past fifty years, evolutionary biology, and experimental gaming theory, she concludes that people do not generally behave like the “rational maximizers” that ecomonic theory would predict. In fact other than the 1-3% of the population who are psychopaths, people are “prosocial, ” meaning that they sacrifice to follow ethical rules, or to help or avoid harming others (although interestingly in student studies, economics majors tended to be less prosocial than others).
She recommends a three-factor model for judges, regulators and legislators who want to shape human behavior:
“Unselfish prosocial behavior toward strangers, including unselfish compliance with legal and ethical rules, is triggered by social context, including especially:
(1) instructions from authority
(2) beliefs about others’ prosocial behavior; and
(3) the magnitude of the benefits to others.
Prosocial behavior declines, however, as the personal cost of acting prosocially increases.”
While she focuses on tort, contract and criminal law, her model and criticisms of the homo economicus model may be particularly helpful in the context of understanding corporate behavior. Corporations clearly influence how their people act. Professor Pamela Bucy, for example, argues that government should only be able to convict a corporation if it proves that the corporate ethos encouraged agents of the corporation to commit the criminal act. That corporate ethos results from individuals working together toward corporate goals.
Stout observes that an entire generation of business and political leaders has been taught that people only respond to material incentives, which leads to poor planning that can have devastating results by steering naturally prosocial people to toward unethical or illegal behavior. She warns against “rais[ing] the cost of conscience,” stating that “if we want people to be good, we must not tempt them to be bad.”
In her forthcoming article “Killing Conscience: The Unintended Behavioral Consequences of ‘Pay for Performance,’” she applies behavioral science to incentive based-pay. She points to the savings and loans crisis of the 80's, the recent teacher cheating scandals on standardized tests, Enron, Worldcom, the 2008 credit crisis, which stemmed in part from performance-based bonuses that tempted brokers to approve risky loans, and Bear Sterns and AIG executives who bet on risky derivatives. She disagrees with those who say that that those incentive plans were poorly designed, arguing instead that excessive reliance on even well designed ex-ante incentive plans can “snuff out” or suppress conscience and create “psycopathogenic” environments, and has done so as evidenced by “a disturbing outbreak of executive-driven corporate frauds, scandals and failures.” She further notes that the pay for performance movement has produced less than stellar improvement in the performance and profitability of most US companies.
She advocates instead for trust-based” compensation arrangements, which take into account the parties’ capacity for prosocial behavior rather than leading employees to believe that the employer rewards selfish behavior. This is especially true if that reward tempts employees to engage in fraudulent or opportunistic behavior if that is the only way to realistically achieve the performance metric.
Applying her three factor model looks like this: Does the company’s messaging tell employees that it doesn’t care about ethics? Is it rewarding other people to act in the same way? And is it signaling that there is nothing wrong with unethical behavior or that there are no victims? This theory fits in nicely with the Bucy corporate ethos paradigm described above.
Stout proposes modest, nonmaterial rewards such as greater job responsibilities, public recognition, and more reasonable cash awards based upon subjective, ex post evaluations on the employee’s performance, and cites studies indicating that most employees thrive and are more creative in environments that don’t focus on ex ante monetary incentives. She yearns for the pre 162(m) days when the tax code didn’t require corporations to tie executive pay over one million dollars to performance metrics.
Stout’s application of these behavioral science theories provide guidance that lawmakers and others may want to consider as they look at legislation to prevent or at least mitigate the next corporate scandal. She also provides food for thought for those in corporate America who want to change the dynamics and trust factors within their organizations, and by extension their employee base, shareholders and the general population.
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I am honored to be a guest blogger, especially since I am brand new to the academy having worked in the private sector for nineteen years as a commercial litigator, HR executive, deputy general counsel and compliance/ethics officer for a Fortune 500 multinational corporation. I will spend the next two years as a visiting assistant professor at the University of Missouri-Kansas City learning to teach (marrying theory and practice) and focusing on scholarship and coursework related to corporate governance, compliance, social responsibility and the future of the legal profession.
Over the next two weeks I plan to write about two Dodd-Frank provisions- conflict minerals and whistleblower; my call for an affirmative defense for a redesigned “effective compliance program” under the Federal Sentencing Guidelines; the ongoing debate about the value of a law school education; in-house counsel as "gatekeepers"; and a book review of Cultivating Conscience: How Good Laws Make Good People by law professor Lynn Stout, which offers an alternative look at the homo economicus model. I look forward to receiving comments that can inform my research and thank Erik Gerding for the opportunity to share my thoughts.