PENNSYLVANIA STATE UNIVERSITY
Smeal College of Business
University Park, Pennsylvania
Assistant Professor of Business Law
The Department of Risk Management of the Smeal College of Business at The Pennsylvania State University seeks to fill a full-time, tenure-track appointment in Business Law. The successful candidate will be hired at the Assistant Professor rank.
JOB DESCRIPTION/ QUALIFICATIONS
This position is a tenure-track appointment with teaching responsibilities at the undergraduate and MBA levels. A qualified candidate must demonstrate interest in and capacity to conduct quality scholarly research as well as a high level of teaching competence. All successful candidates are expected to pursue an active research program, perform undergraduate and graduate teaching, and supervise graduate students. Candidates must have a J.D. degree from an ABA accredited law school by time of appointment. The department has an interest in candidates with a background in securities law, real estate law or legal aspects of risk management including insurance regulation, but other backgrounds will be considered as well. Candidates with a second degree in a business-related field at either the masters or undergraduate level, a record of publishing in the field of business law, and/or teaching experience in higher education in the field of business law are particularly encouraged to apply.
POSITION AVAILABLE: August 2013
SALARY: Competitive and commensurate with qualifications.
Applications received by December 1, 2012 will receive first priority, although all applications will be considered until the position is filled. Candidates must send a letter of application to firstname.lastname@example.org. Please include a copy of curriculum vita, the names of at least three references, and evidence of quality research and teaching where appropriate.
If you have questions about the position, please contact Dan Cahoy, Associate Professor of Business Law, Smeal College of Business at DanCahoy@psu.edu.
Employment will require successful completion of background check(s) in accordance with University policies. Penn State is committed to affirmative action, equal opportunity and the diversity of its workforce.
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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Another college football scandal, another round of calls for the NCAA to get tough on schools.
Why can’t we just admit that the NCAA is doomed to perpetual failure? Enforcing amateurism in big revenue sports is just a price control on the labor of college-age athletes. Price controls succeed mainly in creating black markets. Although, if they are effectively enforced, price controls can reduce supply.
But does the NCAA really want to reduce supply? Does it really want to enforce its rules? Miami won’t be treated like SMU and have its football program shut down because that would hurt television revenue.
There are really three explanations for why the NCAA seeks to enforce price controls:
1. It sincerely believes that doing so will encourage schools to provide the students who are generating the billions of dollars in revenue to NCAA schools with an education. (This focuses only on the supply side of education and ignores the demand side. It also is only lightly tethered to reality.).
2. It wants to prevent rising labor prices for student athletes from eating into the revenue to schools.
3. It needs to protect the “amateur” brand that it thinks creates such strong demand for its product.
If this last assumption is true, it leads to a perverse result: demand for amateurism threatens to undermine that amateurism. As a result, the NCAA would have to do just enough enforcement to maintain a perception of amateurism.
Likely some combination of all three of the above explanations accounts for the continuing NCAA game: being “shocked, shocked” to find that college athletes are getting paid under the table and then imposing some penalties on schools, but not enough to actually hurt the egg-laying goose.
So let’s be frank. Division 1 football and basketball is about gobs and gobs of money. If universities would like to engage in a little less hypocrisy and actually serve the interests of its money-generating athletes, isn’t it time to actually test the premise of reason number three above? Is amateurism really essential to rabid demand for college football and basketball? Let’s pay college athletes a market rate for bringing in revenue to their schools. Better yet, let’s have schools sponsor professional athletic teams.
The American Law Institute is creating a Restatement Third, Employment Law. Chapter 8 of Tentative Draft No. 4, which was discussed today at the Annual Meeting, is entitled "Employee Obligations and Restrictive Covenants." Within that chapter is a section entitled "Employee Duty of Loyalty." This is the core obligation:
Employees owe a duty of loyalty to their employer in matters related to the employment relationship.
This is an uncontroversial (re)statement of the black-letter law, but some members of the ALI challenged the use of the word "loyalty." As noted by several of the ALI bloggers, some members want the ALI to omit references to "loyalty" because it implies that the relationship between employers and employers is reciprocal. These members prefer the term "mandatory obligation," which (to them) connotes that employment is a one-way street.
Although Reporter Samuel Estreicher did not grant the point, he repeatedly invoked the need to "delimit" the concept of loyalty and suggested that the "duty of loyalty" in the ALI's Restatement of the Law Third, Agency was ill-defined. These comments suggest the possibility of some future work to be done rationalizing the duty of loyalty in the two Restatements.
Count me as a fan of the duty of loyalty and as an opponent of attempts to delimit that duty. Such attempts, which surface regularly in the law of business associations, run at cross purposes with the value of the duty as a standard of last resort. Self-interested behavior may be constrained by statute or by contract, but the issue in cases involving the duty of loyalty is whether self-interest was checked in the absence of a specific rule. If courts (or Restatement drafters) are too precise with the boundaries of the duty, they provide bad men with a roadmap for opportunistic behavior. As I have written many times on this blog, ambiguity is our friend in this area.
Option A: Unleash expletives over an intercom at your company's customers, then make a dramatic exit.
Option B: Expose your boss as a letch and Farmville addict using a series of photos with messages on a dry erase board.
It turns out the first fellow didn't actually quit -- he has been suspended -- so the winner is Option B by default. If the woman in Option B had asked my advice, I would have told her not to do it that way, but I have to admit, she made the event memorable.
Henry Ford had a good idea.
In January, 1914 he announced to the world that his workers would be paid five dollars a day. The five-dollar day doubled the average wage for auto workers, produced long lines outside of the factory gates, and helped to create a mass market for the Model T and other consumer durables.
When Henry Ford announced the $5 workday, the W$J suspected a motivation other than creating customers for the Model T or improving the quality of workers' lives: Ford was attempting to reduce the company's profits, thus depriving the Dodge brothers, who owned shares of Ford Motor, of the capital they needed to start their own company. As it turned out, Ford couldn't spend the money fast enough, so he simply stopped paying dividends, a move that lead to the famous case of Dodge v. Ford Motor. You can read more about the dispute here.
As the Big Three automakers' pleas for emergency bailout money appear to have fallen on deaf ears on Capitol Hill, the blogosphere is awash with discussion of bankruptcy scenarios (see, e.g., here, here, and here). "Prepackaged" bankruptcy in particular seems to be a popular solution (see here and here). But I find it hard to see how a prepack would work here. Unlike a standard Chapter 11 filing, a prepack is a bankruptcy filing where the debtor and its major constituents--in this case, bondholders, banks, employees, unions, management, dealers (have I left anyone out?)--already have a deal worked out before they file. Instead of negotiating in Chapter 11 (i.e., after the Chapter 11 filing), management and the major constituents work out the company's financial restructuring, new financing, and anticipated operational changes beforehand, and when they file for bankruptcy, they include not just the bankruptcy petition, but also the plan of reorganization and all the creditor consents required to confirm the plan.
Just judging from what I read in the paper, it is not apparent that the Big Three have had any discussions with their banks or bondholders or dealers about how to share the pain of a restructuring, or who would provide financing in bankruptcy. Now, this may be just posturing on the part of companies. They seem to be playing chicken with Congress, on the "too-big-to-fail" theory. Needless to say, that's a dangerous game. Especially during the interregnum, the specter of political gridlock looms large.
There may just be some usage issues here: when commentators say "prepackaged," they might instead mean some kind of bankruptcy filing with strong government involvement. For example, the government could offer bankruptcy financing conditioned on specific operational and managerial changes. Not a bad idea. But that's not a prepack.
Since I traveled to Pittsburgh this week, I had the chance to read a story in the Pittsburgh Post-Gazette on the pros and cons of allowing employees to participate in office bracket pools. Indeed, some offices have sought to ban such pools. Apparently not because they may be illegal. But rather because they may have a negative impact on employees and the workplace. To be sure, one research firm estimates that the distraction created by basketball office pools will cost employers some $1.7 billion in wasted work time. This estimate is based on wasted time spent on bracket-related activities from "trash talking at the water cooler" to "watching live videos of the games during business hours." In addition, to the wasted time, one employment lawyer notes that bracket pools in the office invite trouble because things may go awry. Such as when someone believes they should have taken first prize and instead gets third place, or worse, when the CEO wins first prize, after having pooled money with "the people in the mailroom and the messenger." If this happens, the advice is that the CEO should buy everyone lunch instead of pocketing the money. To be sure, despite the potential loss in productivity, most companies either encourage or do not discourage bracket pools in the office. Such companies find that allowing employees to participate in brackets is good for employee morale, fostering a sense of community and healthy competition. So for now, most employees are free to fill out and agonize over their brackets, even on company time. Given the many students that participate in bracket pools, it is probably a pastime that would be very difficult for companies to disrupt.
I know we are trying to move on, but I have heard several news sources and commentators point out that Bear Stearns employees own some 1/3 of the company's stock. That number seems striking and a bit surprising, particularly given all of the hoopla surrounding Enron and the fact that its employees held so much of the company's stock when it collapsed. Indeed, I thought one important lesson from Enron, at least for employees, was to diversify. Apparently not. To be sure, there are many good reasons to invest in your company's stock. Then too, a short while ago Bear Stearns did not appear like it was heading for disaster (but then again neither did Enron). Moreover, it is not clear that Bear Stearns employees have not diversified and hence perhaps there are employees who did not have their entire nest egg in the Bear Stearns basket. Unfortunately, it seems more likely that employees have once again found themselves in a situation in which they not only face potential job loss, but also the loss of their retirement.
Over the past few weeks, I have heard several condemnations of French employment law prompted by the well-publicized inability of Société Générale to terminate Jerome Kerviel for his trading activities. The suggested lesson for Americans: we are lucky to have employment at will as the default rule because it encourages employment (and, thus, economic development).
Certainly, one of the oft-cited impediments to entrepreneurship in Europe is employment law, but it turns out that the facts underlying Kerviel's activities are messier than first presented. We have emails showing that Kerviel had an accomplice, right? Not so fast ... the purported accomplice now says that the emails were altered to make him look more involved with Kerviel than he actually was. And Kerviel's lawyer says that the accomplice is a fabrication designed to keep Kerviel locked up.
Of course, Kerviel's position remains that SocGen was complicit in the fraud. Or, in the words of Kerviel's lawyer, "everyone knew what Jérôme was doing." Which means, interestingly, that one of the live questions in the case is whether Kerviel is entitled to his year-end bonus! (French version. HT Alan Hyde)
Wouldn’t it be wonderful if you could discharge your debts by paying 50 cents on the dollar? You’d have something in common with General Motors in its bargain with the United Auto Workers union.
The GM-UAW deal adapts an old vehicle, the VEBA (voluntary employee benefit association), in a radically voguish way. Traditional VEBAs, dating to 1928 and used by tens of thousands of US companies, are tax-advantaged vehicles that companies use to manage and fund employee benefits. The new twist, in the GM-UAW deal and others, makes the VEBA a vehicle that unions use to manage and fund those benefits.
GM will transfer to the VEBA $29.9 billion of assets (including a $4.37 billion note convertible into GM stock whose exercise would make the VEBA a 16% shareholder of GM); extinguish from its balance sheet $46.7 billion in liabilities for post-retirement health benefits; and forego further obligations for such benefits. The union assumes all duties from there, including managing and funding the trust and administering benefits—perhaps with some official GM oversight or input.
This new vogue in VEBAs shows the dire straits of some companies burdened by enormous financial legacy costs, due, in part, to bad old accounting rules and curious health care policies.
Until 1993, US accounting rules (GAAP) did not require companies to book a balance sheet liability for promises to employees to pay post-retirement health benefits. The results were bountiful—but often worthless—corporate promises to provide these benefits, contributing to the bankruptcy of some companies. Under the 1993 rule, huge balance sheet liabilities sprouted. This (along with increased costs and other factors) tended to curtail company promises (and reduced the number of companies with 200+ employees who provide such benefits from 66% before the change to 33% today).
Even so, 14 years later, enormous benefit liabilities appear on balance sheets of dozens of US companies, especially manufacturing companies with unionized work forces. For many, the obligation exceeds $1 billion and 5% of total assets (at GM, the figure is nearly $70 billion). These costs impair US competitiveness with foreign companies where national health services foot the bill.
The new vogue in VEBAs may be appealing, but is not free from risk. Two risks are manifest in the GM-UAW deal. First, GM’s initial funding may be insufficient to satisfy the VEBA’s long-term obligations. Second, GM officials may exercise influence over the VEBA. Either way, the risk is that the obligation will remain with GM and not be transferred to the VEBA, as a matter of law or accounting, whatever balance sheet treatment GM adopts now. If so, investors may regret the deal; workers may get two bites at the apple. But there may be no other solution.
Members of the United Automobile Workers Union began striking today at GM plants across the country in what is apparently the first national strike by the union since 1970. In a statement on Sunday, UAW told its members that if a deal between GM and the union had not been reached by 11 a.m. today (and unless they heard otherwise), they should consider themselves on strike. And thus, after 11 today many workers walked off the job to begin striking for what could be weeks or even months. To be sure, as GM noted, the apparent stalemate between GM and the union involves "complex, difficult issues" such as those related to health care coverage and how to secure jobs in a troubled industry. Yet, similar to many conversations in the corporate governance arena, a large part of the stalemate appears to center not only around issues of compensation, but also around the gap between executive and employee compensation. Thus, in criticizing GM, vice president and director of the union's GM department stated "in 2007 company executives continued to award themselves bonuses while demanding that our members accept a reduced standard of living." This apparent difference in behavior captures the broader sentiment of employees and their mounting frustration with increased executive compensation. The seeming difference in behavior no doubt only adds to the complex and difficult issues being confronted at the bargaining table.
A study to be presented at the Academy of Management's annual meeting indicates that bad bosses get promoted rather than punished. According to the study, nearly two-thirds or 64.2 percent of the 240 people surveyed said that their bad boss was either never censured or was promoted for domineering ways. The three study authors from Bond University in Australia suggested that the promotion of such leaders has a negative impact on the corporate environment and the bottom-line. Indeed, despite their apparent success in office, such leaders not only cause workplace strife, but also cause serious malaise for their subordinates including nightmares, insomnia, depression and exhaustion. Bad bosses also lead to increased employee turnover, which can impact profit. This is because not only do many employees eventually walk away from workplaces with spiteful supervisors, but such supervisors often develop a reputation that makes it difficult to recruit and retain employees. The study's authors faulted senior managers for failing to recognize the signs of bad supervisors as well as the leaders above such managers who fail to intervene or otherwise elect to reward the behavior of spiteful bosses.
I have been traveling a bit lately and, as is apparently inevitable, my most recent flight was delayed. However, the delay gave me the opportunity to speak with a fellow passenger who happened to own a mid-sized business. Once he discovered that I was a Corporations professor at a law school, he at first lamented lawyers and the amount of money he had to pay in legal fees each year. He then said that the fees (and the threat of lawsuits they often represented) were particularly annoying because he was, as he described himself, "one of the most accommodating bosses in the world." When I guess I appeared skeptical, he explained that he made it a point to have a very flexible work schedule for his employees, and if people needed time off or to come in late to "watch their kids or whatever"--his answer was always that they should take the time, their job would be there when they returned. He said the answer was the same if the time off was ten minutes or ten months. When I asked him if he could really run a business with people taking ten months off at a time, he responded that the problem with most people in human resources was that they "forget that resources are things you build up, not something you constantly turn over." I found the quote so interesting, that I knew I would share it. The conversation reminded me that while many corporate scholars may debate the wisdom of whether or to what extent corporations should devote time and resources to employees, at least some business owners do not see it as a debate at all. Thus, while I know that not all employers have the same philosophy as my fellow passenger, I found it refreshing to hear that some not only believe that focusing on employees and their welfare is an integral part of running a business, but also implement that belief through their employment policies. Alas, I considered my flight delay time well spent.
Paul Kedrosky raises an interesting possibility about the fallout from John Mackey's excellent internet adventure: "while anti-stock-blogging/posting clauses haven't yet hit CEO/exec contracts, they will. And soon."