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.

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Hot off the presses ... Comparative Company Law: A Case-Based Approach, edited by Mathias Siems and David Cabrelli.

As attention moves rapidly towards comparative approaches, the research and teaching of company law has somehow lagged behind. The overall purpose of this book is therefore to fill a gap in the literature by identifying whether conceptual differences between countries exist. Rather than concentrate on whether the institutional structure of the corporation varies across jurisdictions, the objective of this book will be pursued by focusing on specific cases and how different countries might treat each of these cases. The book also has a public policy dimension, because the existence or absence of differences may lead to the question of whether formal harmonisation of company law is necessary. The book covers 10 legal systems. With respect to countries of the European Union, it focuses on the most populous countries (Germany, France, the UK, Spain, Italy and Poland) as well as two smaller Member States (Finland and Latvia). In addition, the laws of two of the world's largest economies (the US and Japan) are included for the purposes of wider comparison. All of these jurisdictions are subjected to scrutiny by deploying a comparative case-based study. On the basis of these case solutions, various conclusions are reached, some of which challenge established orthodoxies in the field of comparative company law.

This is a very cool project, for which I am the U.S. contributor. Mathias and David were patient and longsuffering editors, and I believe they have produced something truly worthwhile for those of us interested in comparative company law. Thanks to the many collaborators who made this happen.

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Elizabeth Trujillo, Jason Yackee, Sonia Rolland, and yours truly are the new leadership of the American Society of International Law's International Economic Law Group, Sonia and I in the vice-chair role.  So hurrah and all that.

The historiography of this group is a bit different from that of the usual business law outfits.  Corporate and securities regulation academics have been thinking about Delaware and the SEC for a very long time, and it seems to me that the new areas of research - executive compensation, what to do about private equity, and so on - fit within the Delaware and SEC framework.  International economic law meant, until about 2000, one thing, and one thing only: the WTO (well, maybe also letters of credit, not that there's a lot of research on that).  Then it meant two things that don't really overlap - the WTO and investment arbitration.  Now there is a third group of financial regulation scholars in the mix, and the next emerging outfit will likely be one focusing on debt instruments.  So what you see on the committees, and at the conferences, are trade specialists, investment specialists, and financial regulatory specialists, with sovereign debt to come.  It isn't easy to knit those research interests together.  But that is why we have the IELG.

So I'm excited to add VCASILIELG to my already impressive acronymic title roster (see also CCABAALSILC)

Anyway, the official announcement follows.

Elizabeth Trujillo from Suffolk University Law School and Jason Yackee from University of Wisconsin School of Law have been elected to be Co-Chairs of the International Economic Law Interest Group for ASIL.   Jason and Elizabeth are stepping in after 2 years as being Co-Vice Chairs under the wonderful leadership of Sungjoon Cho and Claire Kelly.  New Co-Vice-Chairs are David Zaring and Sonia Rolland.  The election took place at the ASIL-IEcLIG Biennial conference held at George Washington Law School in Washington DC on Nov. 29-Dec. 1, 2012.  The new leadership will be assuming their positions at the ASIL 2013 Annual Meeting in April.  The ASIL-IEcLIG Biennial, in cooperation with George Washington University School of Law and the Federal Trade Commission, was on "Re-Conceptualizing International Economic Law: Bridging the Public/Private Divide."  Keynote speakers included Professor Ralph Steinhardt from GW Law School, the Honorable Donald C. Pogue, Chief Judge United States Court of International Trade, and Amelia Porges from the Law Offices of Amelia Porges.  There were over 100 registered participants from all over the world including the U.S., Europe, Latin America, New Zealand, and Asia.

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The Times has an op-ed about the truth that 120 million Japanese citizens and hundreds of thousands of foreigners don't want you to find out.  Amazing secret or cherry picked data - you decide!

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This is the fourth installment of a series of previews of the papers being presented at the AALS Financial Institutions & Consumer Financial Services Section meeting this Sunday from 9 am to 10:45 am at the Marriott Wardman Park.

Stavros Gadinis (U.C. Berkeley) has authored the fourth paper that will be presented on Sunday. His work, From Independence to Politics in Banking Regulation (forthcoming in the Duke Law Journal) provides a very insightful empirical study of how lawmakers are responding to the financial crisis. Surprisingly, Gadinis finds across a number of countries, lawmakers are moving away from giving responsibility for bank regulations to independent agencies. Instead, lawmakers are increasingly assigning responsibility to officials subordinate to elected politicians or to politicians themselves.

Here is his abstract:

U.S. financial regulation traditionally relied on independent agencies, such as the Federal Reserve and the FDIC. In the last two decades, countries around the world followed the U.S. example by strengthening the independence of their financial regulators, encouraged by recommendations from international organizations such as the Basel Committee and the IMF. Yet, reforms introduced following the 2007-2008 financial crisis abandon the conventional paradigm of agency independence and allocate authority to officials under the direct control of elected politicians, such as the Secretary of the Treasury. This paper studies reforms in 10 key jurisdictions for international banking. It shows that politicians gained new powers with three distinct features. First, politicians have new authority not only to handle emergencies, but also to oversee banks’ financial condition during regular times of smooth business operation. Second, politicians exercise these powers directly, rather than by delegation to a regulatory bureaucracy. Third, while reforms did not dismantle independent regulators, they require them to work under the leadership of politicians in new systemic oversight arrangements. Whenever reformers established new regulatory bodies or mechanisms, they placed politicians at the helm.

Gadinis’s paper promises to launch a fleet of subsequent scholarship. Beyond the normative/ policy question of whether this shift away from independence is a good development, are interesting questions that would drill down into the data. I would find it surprising that elected officials would assume all these new powers without building in mechanisms to hedge the risk of being blamed for the next crisis.

At the same time, Gadinis is writing at a particularly fertile juncture of financial regulation and administrative law. Some of the influential recent administrative law scholarship in this area has argued that traditional hallmarks to measure agency independence and traditional mechanisms to safeguard that independence need to be rethought, at least in the U.S. context. For example, Lisa Schulz Bressman & Robert Thompson have looked at the nuanced ways in which the President can exercise influence over agencies.   Rachel Barkow has laid out other ways in which agencies can be insulated from capture beyond the traditional mechanisms (which, include taking away the President’s power to fire an agency head and exempting agency regulations from Executive Office cost-benefit review). So we need to pay much more attention to texture and nuance in defining agency independence and serving its underlying goals. Of course, the coding in a comparative empirical study cannot take into account all the differences in institutional environments among numerous countries.

Gadinis’s paper is sure to spark a lively scholarly conversation. Shruti Rana (Maryland) will serve as discussant and be first to engage.

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Law schools are under attack. Depending upon the source, between 20-50% of corporate counsel won’t pay for junior associate work at big firms. Practicing lawyers, academics, law students and members of the general public have weighed in publicly and vehemently about the perceived failure of America’s law schools to prepare students for the real world.

Admittedly, before I joined academia a few months ago, I held some of the same views about lack of preparedness. Having worked with law students and new graduates as outside and in house counsel, I was often unimpressed with the level of skills of these well-meaning, very bright new graduates. I didn’t expect them to know the details of every law, but I did want them to know how to research effectively, write clearly, and be able to influence the clients and me.  The first two requirements aren’t too much to expect, and schools have greatly improved here.  But many young attorneys still leave school without the ability to balance different points of view, articulate a position in plain English, and influence others.

To be fair, unlike MBAs, most law students don’t have a lot of work experience, and generally, very little experience in a legal environment before they graduate.  Assuming they know the substantive area of the law, they don’t have any context as to what may be relevant to their clients. 

How can law schools help?

First, regardless of the area in which a student believes s/he wants to specialize, schools should require them to take business associations, tax, and a basic finance or accounting course.  No lawyer can be effective without understanding business, whether s/he wants to focus on mom and pop clients, estate planning, family law, nonprofit, government or corporate law. More important, students have no idea where they will end up after graduation or ten years later.  Trying to learn finance when they already have a job wastes the graduate’s and the employer’s time.

Of course, many law schools already require tax and business organizations courses, but how many of those schools also show students an actual proxy statement or simulate a shareholder’s meeting to provide some real world flavor? Do students really understand what it means to be a fiducuiary?

Second and on a related point, in the core courses, students may not need to draft interrogatories in a basic civil procedure course, but they should at least read a complaint and a motion for summary judgment, and perhaps spend some time making the arguments to their brethren in the classroom on a current case on a docket. No one can learn effectively by simply reading appellate cases. Why not have  students redraft contract clauses? When I co-taught professional responsibility this semester, students simulated client conversations, examined do-it-yourself legal service websites for violations of state law, and wrote client letters so that the work came alive.

When possible, schools should also re-evaluate their core requirements to see if they can add more clinicals (which are admittedly expensive) or labs for negotiation, client consultation or transactional drafting (like my employer UMKC offers). I’m not convinced that law school needs to last for three years, but I am convinced that more of the time needs to be spent marrying the doctrinal and theoretical work to practical skills into the current curriculum.

Third, schools can look to their communities. In addition to using adjuncts to bring practical experience to the classroom, schools, the public and private sector should develop partnerships where students can intern more frequently and easily for school credit in the area of their choice, including nonprofit work, local government, criminal law, in house work and of course, firm work of all sizes.  Current Department of Labor rules unnecessarily complicate internship processes and those rules should change.

This broader range of opportunities will provide students with practical experience, a more realistic idea of the market, and will also help address access to justice issues affecting underserved communities, for example by allowing supervised students to draft by-laws for a 501(c)(3). I’ll leave the discussion of high student loans, misleading career statistics from law schools and the oversupply of lawyers to others who have spoken on these hot topics issues recently.

Fourth, law schools should integrate the cataclysmic changes that the legal profession is undergoing into as many classes as they can. Law professors actually need to learn this as well.  How are we preparing students for the commoditization of legal services through the rise of technology, the calls for de-regulation, outsourcing, and the emerging competition from global firms who can integrate legal and other professional services in ways that the US won’t currently allow?

Finally and most important, what are we teaching students about managing and appreciating risk? While this may not be relevant in every class, it can certainly be part of the discussions in many. Perhaps students will learn more from using a combination of reading law school cases and using the business school case method.

If students don’t understand how to recognize, measure, monitor and mitigate risk, how will they advise their clients? If they plan to work in house, as I did, they serve an additional gatekeeper role and increasingly face SEC investigations and jail terms.  As more general counsels start hiring people directly from law schools, junior lawyers will face these complexities even earlier in their careers. Even if they counsel external clients, understanding risk appetite is essential in an increasingly complex, litigious and regulated world.

When I teach my course on corporate governance, compliance and social responsibility next spring, my students will look at SEC comment letters, critically scrutinize corporate social responsibility reports, read blogs, draft board minutes, dissect legislation, compare international developments and role play as regulators, legislators, board members, labor organizations, NGOs and executives to understand all perspectives and practice influencing each other. Learning what Sarbanes-Oxley or Dodd-Frank says without understanding what it means in practice is useless.

The good news is that more schools are starting to look at those kinds of issues. The Carnegie Model of legal education “supports courses and curricula that integrate three sets of values or ‘apprenticeships’: knowledge, practice and professionalism.” Educating Tomorrow’s Lawyers is a growing consortium of law schools which recommends “an integrated, three-part curriculum: (1) the teaching of legal doctrine and analysis, which provides the basis for professional growth; (2) introduction to the several facets of practice included under the rubric of lawyering, leading to acting with responsibility for clients; and (3) exploration and assumption of the identity, values and dispositions consonant with the fundamental purposes of the legal profession.”  The University of Miami’s innovative LawWithoutWalls program brings students, academics, entrepreneurs and practitioners from around the world together to examine the fundamental shifts in legal practice and education and develop viable solutions.

The problems facing the legal profession are huge, but not insurmountable. The question is whether more law schools and professors are able to leave their comfort zones, law students are able to think more globally and long term, and the popular press and public are willing to credit those who are already moving in the right direction.  I’m no expert, but as a former consumer of these legal services, I’m ready to do my part.

 

 

 

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I am in London teaching a course called "Corporations: U.S. and Transnational Perspectives" through the Georgetown Law Center's Summer Program. The students are excellent, and the facilities -- classes at King's College, offices on High Holborn -- are nice. My apartment in Islington? Ok ... but shouldn't Baker's Row have a baker on it?

Anyway, the core of my course is US corporate law, and I am using my casebook to teach that, but I have enjoyed using the "transnational" aspect of the course as an excuse to read the second edition of Anatomy of Corporate Law, an excellent primer on comparative corporate law by Reinier Kraakman, John Armour, Paul Davies, Luca Enriques, Henry B. Hansmann, Gérard Hertig, Klaus J. Hopt, Hideki Kanda, and Edward B. Rock. That's a terrific lineup of authors, and they do not disappoint. The new edition is even better then the first, which I used five years ago to teach a similar class in Lund, Sweden.

The book is well written and insightful, relying on a functional approach to compare the regulation of corporations in various jurisdictions. It bears the marks of deep, thoughtful conversations among sophisticated analysts. But it is accessible, less like a typical law review article than an essay in The Economist. If you are interested in adding a transnational perspective to your study of corporate law, I have a hard time imagining a better starting place.

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I've been working away on a draft symposium piece for the NeXus Journal at Chapman where I present a model of deregulation that explains banking deregulation in Sweden leading up to that country's financial crisis in 1990.  The model may also help us understand how the deregulation of Freddie & Fannie, the repeal of Glass Steagall, and bank OTC derivatives trading contributed to our own financial crisis. 

The piece is called Deregulation Pas de Deux: Dual Regulatory Classes of Financial Institutions and the Path to Financial Crisis in Sweden and the United States and can be downloaded here.  Here's the abstract: 

This article presents the following model of two regulatory classes of financial institutions interacting in financial and political markets to spur deregulation and riskier lending and investment, which in turn contributes to the severity of a financial crisis:

1) Regulation creates two categories of financial institutions. The first class faces greater restrictions in lending or investment activities but enjoys regulatory subsidies, such as an explicit or implicit government guarantee, while the second class is more loosely regulated and can make riskier loans or investments and earn additional profits.

2) These additional profits leads to calls for deregulation to enable the first class to participate in lucrative lending or investment markets.

3) Deregulation allows the first class of institution either to compete with the second class in formerly restricted markets or to invest in the second class, in either case, while retaining its regulatory subsidy.

4) Deregulation spurs additional lending in two ways:

i) subsidy leakage, which occurs when the first class can use subsidized funds to make riskier investments (including investments in the second class) without regulation compensating for moral hazard; and

ii) displacement, which occurs when subsidized competition pushes the second class into riskier market segments.

5) Additional lending increases leverage in the financial system and fuels a boom in an asset market.

6) Asset prices collapse and threaten the solvency of financial institutions.

This model explains financial deregulation in Sweden in the 1980s, which led to a 1990 bank crisis. The model also provides a framework for scholars to examine whether deregulation in the United States involving the following dual classes of institutions contributed to the current crisis:

¶ GSEs (Freddie Mac and Fannie Mae) and sponsors of “private label” mortgage-backed securities;

¶ Commercial and investment banks with respect to the Glass-Steagall repeal; and

¶ Banks and hedge funds with respect to OTC derivatives.

The model would support the premises of the proposed Volcker Rule, which would restrict investment activities of banks, but suggests that imposing those restrictions may not be sustainable in the long run.

Comments are welcome!

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I've had almost enough of end-of-the-year and end-of-the-decade lists.  (Is this a peculiarly American phenomenon?  An attempt to produce some amount of cultural cohesion in a nation of 300 million?)

But not enough to refrain from speculating on what will be the major stories in business law and the legal academy in the next decade.  In my guest posts a while ago, I wrote about how the economic pressures on law firms and legal education will intensify.  Here are two other trends to watch:

1.  Graying boomers continue to rock the boat:  The leading edge of the baby boom will turn 64 this year (and back of the envelope calculations suggest these boomers will be 74 in ten more years).  Like in every previous decade, the boomers will continue to be heard.  Some pundits suggested that the retirement of boomers will create massive demand for new workers (including lawyers and professors) to fill the gap.  Not so fast.  Demand for many services may also shift.  And don't expect boomer to retire on cue.  Anticipate tension in all sorts of places of work as generations grapple with the issue of when the torch will be passed.

In terms of law practice, it would not be at all surprising if employment discrimination, trusts and estates, and elder law see growth spurts.

In terms of social issues, thanks in part to immigration and to Americans having more kids, the U.S. won't deal with the same degree of economic and social challenges that Japan and Europe face.  But there will still be huge issues.

For example, expect the costs and ethics of elder care to become a national issue that dwarfs the current health care debate.  Financial markets may gyrate as boomers reallocate or cash out of investments.  Expect consumer finance to focus on new financial products aimed at the elderly, of which reverse mortgages are just the harbinger.  (In short, my colleague Nathalie Martin will have a full plate this decade.)

2.  We will all be comparativists soon:  Law professors have been stressing the need to incorporate international and transnational issues in the law school curriculum, including in business law, for quite a while.  But I doubt public international law will be as important as giving students some comparative law skills to enable them to work with clients and lawyers across jurisdictions.  Over my time in practice, I think I looked at a treaty only once, but spent quite a bit of time working with lawyers in other jurisdictions.  It was one of the more difficult and fascinating aspects of practice.

Overarching treaties will be less important in corporate and financial law scholarship too compared to the type of bilateral and multilateral cooperation among national regulators that scholars like Chris Brummer and our own Professor Zaring have written about.  To understand whether this cooperation works, we need to know quite a bit about foreign legal systems.

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Here's a fascinating interview with Niall Ferguson. I was particularly interested in his comments a la Douglass North crediting the rule of law with the success of Western economic powers and asserting that China must fundamentally change its legal system or fail. It's not a novel point, but it sounds wonderful in Ferguson's accent. If you don't have time for the whole thing, start at 19:07.

Via Paul Kedrosky.

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This semester I am teaching Antitrust law to a group of eager students who are willing to take the class pretty early in the morning. I have now taught the class for a few years and have come across the same issue each year: how much of an international/comparative perspective should I bring into the course? On the one hand,  there is the worry that too much of a comparative perspective will confuse students in an introductory course who are trying to master the basic concepts. On the other hand, as can be seen in many cases, like the infamous lysine cartel playing at a theater near you, modern antitrust cases and practice have a vast global component.

There has been a dramatic increase in cross-border antitrust issues since the 1990s with more comprehensive antitrust laws being adopted around the world, such as China’s 2007 Anti-Monopoly Law, or antitrust regimes in India or Latin America. Furthermore, the European Union has played an aggressive role in antitrust enforcement in the past ten years, including against US companies and in challenging merger transactions between US companies. For example, the European Commission recently imposed a record $1.5 billion fine against Intel (which Intel claims violated its human rights) and has released a very lengthy decision laying out its evidence and justifying this enormous fine. In another high profile matter, the Europeans have decided to extend their investigation into Oracle’s $7.4 billion acquisition of Sun Microsystems which the Department of Justice had already approved back in August without any conditions. Antitrust scrutiny of horizontal mergers is just one of the areas in which Europe and the US have diverged. Some antitrust scholars like Jonathan Baker and Carl Shapiro have argued “ in favor of reinvigorating horizontal merger enforcement" and statements by Christine Varney, who heads the Department of Justice antitrust division, also indicate that there will be greater merger review in the US. It is too early to say whether antitrust enforcement by the US and EU will converge, although the big players have been talking regularly. And on the merger front, the DOJ and the Federal Trade Commission will be holding joint workshops  to determine whether the Horizontal Merger Guidelines need to be updated “in light of legal and economic developments that have occurred since the last major revision of the guidelines” in 1992.  Assistant Attorney General Varney, in a  recent speech discussing international convergence of competition policy regimes (HT: Antitrust Law Prof Blog), stated that this modification process will be done with "an openness to others' ideas and new approaches."

These types of developments indicate a need for the introductory Antitrust course to take a global view. Of course, the challenge is how to convey the essential substantive material that should be covered in the class with the undertaking to help students comprehend the global nature of current Antitrust practice. Undoubtedly, the degree to which one should/can bring a global perspective comes up in numerous other courses.  I am not sure that I have any solutions yet, but I am planning on internationalizing at least some of the material covered in my Antitrust course.

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Other than spending time studying reverse termination fees, I’ve been spending the past year thinking about and researching the role of law and legal culture in cross-border M&A transactions.  When I was in practice, cross-border deals were even more complicated and more engaging than domestic M&A deals.  Who doesn’t enjoy conference calls at 3 am with Israeli counsel trying to explain arcane Israeli tax issues, the miscommunication regarding regulatory review that undoubtedly occurs with British counsel, trying the explain Delaware’s standards of heightened scrutiny to Indian counsel, etc. 

According to the Deal Professor, “a driver of future deal growth will probably come from cross-border and intraregional takeovers.”  I think that is a good thing not just for deal lawyers but for transactional law scholars.  Suffice it to say, there is not an abundance of comparative corporate law scholarship by US legal scholars that examines the laws affecting cross-border M&A deals and the “law of the deal” produced by parties in cross-border acquisitions.  This is especially true with respect to scholarship that studies laws in developing countries and deals where one of the parties is located in or from a developing country.  John Armour and David Skeel have done important work in studying the divergence in US and UK takeover legislation (see here for their law review piece and here for their shorter summary), I’d love to see this kind of work extended.  Currently I am focusing on the role of law and legal culture in outbound M&A activity by Indian multinationals and the differences in deal-making by these emerging economy buyers.  If you are working on scholarly projects that involve cross-border deals, I would love to hear from you.

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This Friday, I will be hosting and participating in the BYU Law Review Symposium, which is entitled "Evaluating Legal Origins Theory." Beginning with the publication of Legal Determinants of External Finance in 1997, Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert Vishny ("LLSV") launched an ambitious research project to explore the meaning and importance of legal origins in financial development ("Legal Origins Theory"). Over the ensuing years, LLSV have embraced an expansive notion of legal origins under which common law is associated with support of market outcomes, while civil law is associated with state-desired allocations. Legal Origins Theory holds that a wide array of laws and regulations are influenced by legal origins, and that these laws and regulations in turn influence economic outcomes.

Many legal scholars have been skeptical of Legal Origins Theory, even as economists have pressed the fundamental claims through increasingly diverse and sophisticated studies. Work on Legal Origins Theory has emphasized three themes: investor protection, government regulation or ownership of economic activities, and judicial enforcement of property rights and contracts. This symposium will bring the insights of leading scholars to bear on each of those themes.

Keynote Speaker

Simon Deakin, Professor of Law, University of Cambridge Faculty of Law, The Legal Origins Hypothesis: What are We Learning from Time-Series Evidence?

Session 1: Legal Families

Holger Spamann, Executive Director, Program on Corporate Governance, Harvard Law School, Contemporary Legal Transplants -- Legal Families and the Diffusion of (Corporate) Law

John W. Cioffi, Assistant Professor of Political Science, University of California – Riverside, Legal Regimes and Political Particularism: A Comparative Law Critique of the 'Legal Families' Theory

Commentary, J. Mark Ramseyer, Mitsubishi Professor of Japanese Legal Studies, Harvard Law School

Session 2: LLSV in the Midst of the Financial Crisis

Lisa Fairfax, Professor of Law and Director, Business Law Program, The University of Maryland School of Law, Legal Origins Theory Through the Prism of the Current Economic Crisis

Ruth V. Aguilera, Associate Professor, University of Illinois at Urbana-Champaign College of Business, and Cynthia Williams, Osler Chair in Business Law, Osgoode Hall Law School, York University, “Law and Finance:” Inaccurate, Incomplete and Important

Commentary, Karl Okamoto, Associate Professor of Law, Earle Mack School of Law, Drexel University

Luncheon Speaker

Katharina Pistor, Professor of Law, Columbia Law School, Rethinking the Law and Finance Paradigm

Session 3: Government Regulation or Ownership of Economic Activities

D. Daniel Sokol, Assistant Professor of Law, Levin College of Law, University of Florida, Competition Policy and Comparative Corporate Governance of State Owned Enterprises

John K.M. Ohnesorge, Associate Professor of Law, University of Wisconsin Law School, Legal Origins Theory and Developing Economies

Commentary, Chris Whytock, Associate Professor of Law, S.J. Quinney College of Law, The University of Utah

Session 4: Investor Protection

Poonam Puri, Associate Professor, Osgoode Hall Law School, York University, Investor Protection, Enforcement, the Canadian Capital Markets and the Legal Origins Theory

Andreas Engert, Lecturer, University of Munich, Institute of International Law and Comparative Law, and D. Gordon Smith, Glen L. Farr Professor of Law, J. Reuben Clark Law School, Brigham Young University, Are Civil Law Courts More Formalist? A Qualitative Exploration of the Adaptability Hypothesis

Commentary, Naomi R. Lamoreaux, Professor of Economics, History, and Law, University of California Los Angeles

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Some interesting findings on CEO hirings and firings from a recent Economist piece:

1.  Importance of finance.  One-fifth of US CEOs in 2005 were formerly CFOs, almost twice the percentage from a decade prior.  Increased focus on financial reporting and SOX compliance has likely augmented the CFO's overall importance within companies.

2.  Build or buy?  Both in Europe and the US (among the FTSEurofirst 300 and the S&P 500), "lifers" make it to the executive suite more quickly on average than "hoppers," defined as those who jump through 4 or more companies.  Lifers make it in 22 (US) or 24 (EU) years on average, while hoppers take at least 26 years.  Information asymmetry probably explains this difference.

3.  Women at the top.   Eleven percent of US CEOs were women in 2001.  In the early 1980s, by contrast, there were none.

4.  Time to the top.  The average climb to the top took 28 years in 1980.  By 2001, it took only 24.  The average CEO had fewer jobs on the way up (five instead of six) and spent less time at each intermediate job (only four years) than before.

5.  Naked capitalism.  In a set of surprising (to me) results, EU capitalism appears to be a bit more rough-and-tumble than in the US, at least as regards CEO tenure.  EU CEOs have much shorter tenures than in the US and have a tougher time staying there.  They're also much less likely to be lifers in Europe (18% versus 26% in the US). Average CEO tenure over the past decade was just over 9 years in the US, but under 7 years in Europe.  European CEO firings accounted for 37% of turnover, but only 27% in the US.  European CEOs are also younger on average than in the US--54 versus 56 years of age.   

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As my two-week guest blogging stint is now over, I want to thank Gordon for inviting me and hope that readers found some of this stuff interesting. If you did, I invite you to continue reading over at my regular blog, the Chinese Law Prof Blog. My final post here will be on an interesting aspect of Chinese tort law: the absence of a direct tie between lost income and tort damages for wrongful death.

If you tortiously injure someone in China, the damages are as you might expect: medical expenses, lost income due to missed working time, and maybe even something for emotional distress. (Article 119, General Principles of Civil Law.) Thus, given identical injuries and identical fault, you pay more for punching a doctor than for punching a taxi driver. (I mention these only as examples of high-income and low-income professions, and mean no disrespect to taxi drivers.)

If you go a bit further and end up killing the person, however, in which case they will (if young) have a lot of missed working time, the calculation of damages changes completely. Lost income drops entirely out of the picture, and there is no attempt even to estimate it. Instead, the law switches to an attempt at a need-based standard. The tortfeasor is to pay medical expenses, funeral expenses, "necessary living expenses of the deceased dependents," and "compensation for the victim's death."

These last two terms were specifically defined in an interpretation issued in 2003 by the Supreme People's Court (which has the power to interpret and clarify laws by general rulemaking). "Necessary living expenses" are "calculated on the basis of the average consumption expenditure of those living in the city where the court is located, or the average cost of living for rural residents where the court is located, as the case may be." Clearly, this calculation takes no account of the actual lost income of the decedent; instead, it tries to estimate what the dependents will need to survive at a relatively decent standard of living until they can fend for themselves. Thus, compensation is not apparently paid to adults who have the capacity to work; it is paid only to minors on the basis of the number of years until the minor turns 18, and to other adults unable to work and with no other source of income on the basis of 20 years.

"Compensation for the victim’s death" is, according to the interpretation, "calculated on the basis of 20 times the previous year's average net income of urban residents in the city where the court is located, or the average net income of rural residents where the court is located." As with "necessary living expenses," the actual lost income of the decedent has nothing to do with the amount awarded under the Interpretation.

This system has been criticized in China on the grounds that it discriminates against rural residents by valuing their lives more cheaply than that of urbanites; all lives, say the critics, should be valued equally. To be sure, China does indeed have official discrimination against rural residents; they are explicitly intended to be underrepresented in the National People's Congress, for example. But the problem with this rule is not that it values lives unequally; it is that it values lost income equally: at zero for everyone. Thus, the compensation for lost income is the same (nothing) for wrongful death where the victim is a doctor and where the victim is a taxi driver.

I have heard it argued that this is due to cultural differences: that Chinese (and some civil law jurisdictions) simply view it as wrong to give different amounts of compensation for death. But this misses the point: giving equal compensation for the death itself - in which case there is an argument for treating all lives equally - does not preclude also giving compensation for lost income. And civilian lawyers I have questioned assure me that killing a doctor in their countries does cost more than killing a taxi driver.

Thus, far from being too inegalitarian, the rule in China can be seen as too egalitarian: the dependents of the deceased Shanghai doctor get exactly what the dependents of the deceased Shanghai taxi driver get, even though they have been deprived of much more money. And of course, you get equally inappropriate results when the dependents of urbanites with small earning capacity get more than the dependents of wealthy rural entrepreneurs, for example.

A recent case brought out the importance of location, as well as some of the ambiguities associated with it. A migrant worker living in Beijing was killed in a traffic accident, and because of his rural domicile registration (something that's not easy to change, even though geographical mobility itself has increased greatly in the last several years), the award to his family included only 70,000 yuan (about $9,764) as compensation for death. They appealed, asserting that he should be treated as an urbanite because he was actually living and working in Beijing. The higher court agreed, awarding 170,000 yuan ($23,713), in addition to enhanced amounts under other heads. The case was welcomed by many as an example of "same life, same price," but of course it was just an application of the existing rule, not a negation of it. It showed a willingness to be flexible about which standard to use, but it didn't suggest that the rural-urban distinction was in any way illegitimate.

Although it's not my place to give advice to China's legislators, it seems to me that this problem could be solved relatively easily by allowing courts to include an estimate of lost income in damages for wrongful death - just as they now do in damages for injuries short of death - while separately stipulating another amount to be paid as compensation for the loss of life per se, just to make it clear that the former amount is not compensating for the lost life, and thus carries no offensive implications in being different for different people.

For the time being, though, the moral of this story is: don't pull your punches.

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