From our friends at Wake Forest comes this announcement: 

Wake Forest University School of Law welcomes applications for a Visiting Assistant Professor (VAP) to teach Civil Procedure in the 2013-2014 academic year, and perhaps beyond.  Additional information is here.

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Last month I blogged about DealProf Steven Davidoff's piece on a few cases of hedge funds paying bonuses to their successful board candidates.  Controversy has since swirled in the law prof blogosphere. Lawrence Cunningham of ConOp summarizes the action thusly:

A hot debate rages among corporate law professors amid one of the largest proxy battles in a decade: Hess Corp., the $20 billion oil giant, is the focus of a contest between its longstanding incumbent management and the activist shareholder Elliott Associates.   Ahead of Hess’s annual meeting on May 16, where 1/3 of the seats on Hess’s staggered board are up, antagonists offer dueling business visions.  They battle bitterly over such fundamentals as sectors to pursue, degrees of integration to have and cash dividend policy.

The professorial debate, more civil, is about a novel pay plan Elliott proposes for its director nominees, which Hess’s incumbents condemn and Elliott defends as suited to shareholders. On one side, all quoted inElliott’s investor materials circulated April 16, are me, Larry Hammermesh (Widener), Todd Henderson (Chicago), Yair Listoken (Yale) and Randall Thomas (Vanderbilt); on the other  Steve Bainbridge (UCLA), Jack Coffee (Columbia) and Usha Rodriques (Georgia), all of whom have blogged since the matter was first reported by Steven Davidoff (Ohio State) in the New York Times April 2 (for which he connected with me for comment).

As in all such cases, Elliott proposes to pay nominees a flat fee of $50,000 each for their troubles and to indemnify them for legal liability.  The novelty is that Elliott will provide incentive compensation to the group: if any Elliott nominee is elected as a result of this year’s  contest, all nominees receive a bonus at the end of three years if Hess’s stock performs better than a group of industry peers. Elliott, not Hess, pays all bonuses.

Steve has since offered a response to Lawrence.  My original post was pretty cursory, and given the subsequent debate, I've been thinking more about the issues.  I have two points that are really more questions than answers:  

First, Lawrence argues that  the bonuses are "surgically tailored to tie the payoff to Hess’s stock price performance compared to competitors." But directors are supposed to act "in the best interests of the firm."  Doesn't Elliott's scheme predispose the directors in question to a certain version of "the best interests of the firm" in an impermissible way?  I.e., even if (and it is an "if" in some circles, at least) we're all agreed shareholder wealth maximization is the goal, these schemes enshrine one particular version for these directors.  That may not be kosher.

Second, Jack Coffee suggested that, if successful, these directors should not be considered independent: 

In the new world of hedge fund activism, we need to look to whether individual directors are tied too closely by special compensation to those sponsoring and nominating them. Once we recognize that compensation can give rise to a conflict of interest that induces a director to subordinate his or her own judgment to that of the institution paying the director, our definition of independence needs to be updated.  Although not all directors must be independent, only independent directors may today serve on the audit, nominating, or compensation committees.  

Director independence has interested me for a long time. In the Fetishization of Independence I distinguished between Delaware's situational notion of independence and securities law's static conception of independence meaning independence from management.  SOX 301, unlike the exchanges, takes into account bare share ownership when assessing independence, since affiliates of the issuer are not independent. The question whether successful Elliott directors would be deemed affiliates would turn on the extent of Elliott's control of Hess.  Coffee suggests that, even if Elliott is not an affiliate, its bonus program should be enough to render its nominees nonindependent.  

This notion has intuitive appeal for me, but I'm having some trouble squaring it with how the logic of independent committees.  Take compensation.  It's clear why we want compensation committee members to be independent of management--managers have a conflict of interest when setting their own pay.  But it's not clear that the Elliott nominated directors, even with their juiced incentives, have any particular disqualifying bias when it comes to setting executive compensation.  Or maybe the concern is that they could wield their comp-setting powers in order to extort private benefits from management?  

Currently under Dodd-Frank factors to consider in evaluating independence of comp committee members include the sources of the director's compensation and whether the director is affiliated with the issuer.  So I have a hunch we're at the start of a long conversation about director compensation and independence.

Update: for even more from Steve and Lawrence, see here (including the comments).

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“On The Unavoidable Intersection of Torts and Insurance”

The AALS Section on Insurance Law and the AALS section on Tort Law will hold a program On the Unavoidable Intersection of Torts and Insurance during the AALS 2014 Annual Meeting in New York. The program will feature a panel of leading researchers on the intersection of torts and insurance. Panelists scheduled to participate include: Kent Syverud (Washington University School of Law), Tom Baker (University of Pennsylvania Law School), and Nora Engstrom (Stanford Law School). We are looking to add one additional panelist through this Call for Papers. 

Submissions: To be considered, a draft paper or proposal must be submitted by email to Ronen Avraham, Program Chair, at ravraham@law.utexas.edu, and Jennifer Wriggins, Program Chair, at wriggins@maine.edu. A proposal must be comprehensive enough to allow for a meaningful evaluation of the proposed paper. Submissions must be in PDF format.

Deadline: The deadline for submissions is Friday, September 6, 2013. Decisions will be announced by Friday, September 27, 2013.

Eligibility: Full-time faculty members of AALS member law schools are eligible to submit. Faculty at fee-paid law schools; foreign, visiting and adjunct faculty members; graduate students; fellows; and non-law school faculty are not eligible to submit. Papers may already be accepted for publication, provided that the paper will not be published before the AALS meeting.

Expenses: The panelist selected through this Call for Papers will be responsible for paying his or her own annual meeting registration fee and travel expenses.

Inquiries: Inquiries about this Call for Papers may be submitted to the Program Chairs.

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I hate to admit this, but my highly time-leveraged life seems to only work because of Amazon Prime.  If someone needs a book, a math compass, a birthday present, even diapers, it has sometimes made sense for me to merely order the merchandise from Amazon, get free shipping and no tax.  Yes, sometimes that's easier than driving the 20 minutes to Target.  If I'm willing to pay $3.99, then I get it the next day.  For a $20 item, it's seems like a wash.  This may change.

On Monday, the Senate will vote (and probably pass) The Marketplace Fairness Act of 2013.  (It has its own website, here.)  This bill would require online retailers to collect and remit sales taxes based on the delivery location of goods purchased.  If there is no delivery location, for example in the case of a download, then the tax will be based on the billing address.  For those of us living in Illinois, this difference between ordering on Amazon now and in the future could be almost 10%.  (Chicago's general merchandise tax is a total of 9.25%, down from 9.5% last year.)  For those of you who live in the five states without a sales tax, keep on living in tax-free bliss.

The winners here are the bricks-and-mortar stores who have to charge tax.  Apparently, "showrooming" is a thing -- customers shop in stores where they can see and try on merchandise, then order online and skip the tax.  Ouch.  This Act should take that incentive away.  Even big stores like Gap and Best Buy charge tax online because they have a physical presence in most/all states.  Of course, online retailers have had a good run, and that run may have been enough to kill many many competitors, including big ones like Borders.  

Interestingly, Amazon, which has been the obvious beneficiary of tax-free online retailing, is supportive of the legislation.  After years of fighting states that have tried to force Amazon to pay sales tax, (blog post here), the online giant is a cheerleader for the Act.  Perhaps this is because Amazon has recently entered into voluntary arrangements with nine states, including large markets such as California, New York and Texas.  Building warehouses in these states where it is already taxed has allowed Amazon to ship merchandise cheaper and even faster.  And, Amazon may have established such a loyal fanbase of customers addicted to its convenience and fast shipping that it doesn’t fear losing customers over price.  

What about downloads, you ask?  Most states don't include digital downloads in definitions of taxable goods.  In the states that do, you are probably already paying tax on downloads from Apple (which has physical stores), but not Amazon.  Now, you will.  And, the Marketplace Fairness Act may enbolden states to redefine general merchandise tax rates or use tax rates to include digital downloads.

So, who is against Internet sales tax equity?  Online-only retailers that aren’t nearly as big as Amazon and the portal that serves them:  eBay.  Though the act exempts small businesses with no more than $1 million in revenue, that threshold leaves medium businesses with a price disadvantage and new compliance costs.  Therefore, some groups argue that the $1 million threshold could be raised to $10 million without states losing much revenue, while giving needed relief to small-to-medium enterprises. And, of course, the Heritage Foundation and anti-tax watchdogs oppose the Act as just another tax increase that will hurt consumers. 

Is it a new tax?  Not really.  It's the same old state sales tax, just with more enforcement.  Though sales taxes are an obligation imposed on the consumer, retailers are supposed to collect and remit the tax. However, retailers with no physical presence in a state can’t be compelled to collect these taxes.  Funnily enough, we were all supposed to be sending in the tax we aren't charged on our Amazon purchases.  Who knew?  Well, I hope I get some sort of Internet shopping amnesty.

 

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Jay Brown and his students have put together a useful primer on the JOBS Act - it goes through the act bit by bit, starts with a review of the old law, describes the change made in the stattue, and finishes with an assessment.  Black letter, footnoted, and concise.  You can find it here or here.  I view it as a nice use of a seminar, and of an online supplement to a law review.

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A perspicacious reader tipped me off that Above the Law has a new top law school list out.  A few miscellaneous thoughts.

1. Does the world really need another law school ranking system?  ATL says what differentiates its methodology is an emphasis on outputs, not inputs. It has a nifty graphic rejecting traditional inputs like entering students' LSAT scores and GPAs in favor of "real law jobs, quality full time positions, school costs, and alumni satisfaction."  OK, I kind of get that.  Measuring outputs in general is the holy grail for law schools, something everyone wants to do but no one quite knows how to do.  

 2. How exactly do those outputs get measured and weighted? Here's the breakdown (again, go to ATL for the graphic)

• 7.5% SCOTUS Clerks (adjusted for the size of the school)
• 7.5% Active Federal Judges (currently sitting article III, adjusted for the size of the school)
• 10% ATL Alumni Rating (nonpublic, a product of the ATL insider survey)
• 15% Education Cost (total cost, adjusting the score in some cases for cost of living)
• 30% Employment Score (counting full-time, long-term jobs requiring bar passage, excluding solo practitioners and school-funded positions)
• 30% Quality Jobs score (placement with NLJ 250 firm plus federal clerkships) 

3. How did my school do?  Well, Georgia Law does well--many of you might think remarkably well.  I'm less surprised for two reasons.  First, Georgia looks pretty good according to these output measures:

• We are cheap.  Georgia residents pay $16,506.  (Non-residents pay more than twice that, but qualify for resident status after a year.)
• We have sent 6 graduates to the Supreme Court in the past 9 years.
• Although this market has been brutal, I think our students have fared relatively well, especially because their relatively low debt burden gives them more flexibility in choice of job.
• Our alumni have an almost cult-like love of the school.  

And second, just as most CEOs will tell you their stock is undervalued, probably most professors probably think their schools are undervalued.  Admittedly I bring some bias to the table!

Here are the top 20 (see here for the full 50):

1 Yale Law
2 Stanford Law
3 Harvard Law School
4 University of Chicago Law
5 University of Pennsylvania Law
6 Duke Law
7 University of Virginia Law
8 Columbia Law
9 University of California, Berkeley
10 New York University
11 Cornell Law School
12 University of Michigan
13 Northwestern Law
14 University of Texas at Austin
15 Vanderbilt Law
16 Georgetown Law
17 University of California, Los Angeles
18 University of Notre Dame Law
19 University of Georgia Law
20 University of Southern California, Gould

 h/t Haskell Murray

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We haven't had a download list in a while; let's rectify that with the SSRN 60 days securities law article ranking.  Your mileage may, of course, vary, but here's what's intriguing that crowd these days:

1	376	The Securitization of Patents  Michael Risch,  Villanova University School of Law,  Date posted to database: March 3, 2013  Last Revised: April 18, 2013
2	285	The New Investor  Tom C. W. Lin,  University of Florida - Fredric G. Levin College of Law,  Date posted to database: March 3, 2013  Last Revised: March 13, 2013
3	265	The Fiduciary Obligations of Financial Advisors Under the Law of Agency  Robert H. Sitkoff,  Harvard Law School,  Date posted to database: March 19, 2013  Last Revised: March 20, 2013
4	249	The Supercharged IPO  Victor Fleischer, Nancy C. Staudt,  University of Colorado at Boulder - School of Law, University of Southern California - Law School,  Date posted to database: March 21, 2013  Last Revised: April 4, 2013
5	189	Corporate Short-Termism - In the Boardroom and in the Courtroom  Mark J. Roe,  Harvard Law School,  Date posted to database: March 27, 2013  Last Revised: April 29, 2013
6	96	The Importance of Cost-Benefit Analysis in Financial Regulation  Paul Rose, Christopher J. Walker,  Ohio State University (OSU) - Michael E. Moritz College of Law, Ohio State University (OSU) - Michael E. Moritz College of Law,  Date posted to database: March 11, 2013  Last Revised: April 3, 2013
7	94	The New Market in Debt Governance  Yesha Yadav,  Vanderbilt University - Law School,  Date posted to database: March 1, 2013  Last Revised: March 14, 2013
8	90	The JOBS Act: Rule 506, Crowdfunding, and the Balance between Efficient Capital Formation and Investor Protection  Daniel H. Jeng,  Boston University School of Law,  Date posted to database: March 25, 2013  Last Revised: March 25, 2013
9	87	Speech Engines  James Grimmelmann,  New York Law School,  Date posted to database: April 8, 2013  Last Revised: April 8, 2013
10	82	The Separation of Investments and Management  John Morley,  University of Virginia School of Law,  Date posted to database: March 29, 2013  Last Revised: April 8, 2013

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Cross-posted at SocEntLaw. 

One of my main criticisms of the Model Benefit Corporation Legislation (the “Model”) has been (and still is) the lack of guidance for directors. (See, e.g., here and here).  The Model requires directors to “consider” seven different stakeholder groups (§301(a)), and directs them to pursue “general public benefit” but does not provide any priorities to guide directors. (§§102, 201(a)).  The Model allows companies to choose one of more “specific public benefit purposes,” in addition to the “general public benefit purpose,” but does not require that any specific public benefit purpose be chosen. (§201(b)).

In contrast, Delaware’s proposal does require public benefit corporations (“PBCs”) to choose one or more specific public benefits (§362(a)), though the statute is not crystal clear on priorities and requires directors to “manage or direct the business and affairs of the public benefit corporation in a manner that balances [1] the pecuniary interests of the stockholders, [2] the best interests of those materially affected by the corporation’s conduct, and [3] the specific public benefit or public benefits identified in its certificate of incorporation.” (§365(a)) (emphasis added).   (As a side note, the PBC's requirement to “balance” the stakeholder interests seems more onerous than the Model’s requirement to “consider” the interests.)

Even if directors' duties are owed to the corporation as a whole, I suggest that clear priorities are important.  I attempted to explain the importance of priorities in my response to Professor Lynn Stout’s thought-provoking recent book:  The Shareholder Value Myth:

• Professor Lynn Stout and others reject the need for a single metric and have argued that directors, like other human beings, balance the interest of various stakeholders.   Among other examples of balancing by human beings, Professor Stout points to the ability of people to balance work and family.   This article admits that directors do and should balance various stakeholder interests and does not argue for myopic focus on a single metric, but rather posits that clear corporate priorities can make that difficult balancing job easier.

• Using Professor Stout’s work/family example of balancing can help illustrate the point.  Clearly defined priorities can help an individual make difficult decisions in the constant work/family balance.  If an individual prioritizes family over work, that obviously does not mean that every decision leads to direct, short-term benefits for the family.  For example, on occasion, that family-primacy individual will rightly choose to stay late at work and miss dinner.  While that individual decision may have seemed to prioritize work over family, viewed in the long-term, the family may benefit from the resultant career security.  Even if the long-term benefits do not actually come to fruition, most would agree that the individual should not be judged for her well-intentioned decision.

• The fact that humans certainly balance interests of various constituents, however, does not mean that priorities are unimportant.  Priorities can help guide and can also provide weightings for the costs and benefits of any decision.   Also, priorities most clearly help in critical situations.   To continue with the work/family example, in a zero-sum game, how does one decide between work and family when the outcome of that decision is of critical importance to both?   If an individual has clearly stated that family is a higher priority than work, this critical decision is more easily answered.  Even if the priorities are not clearly stated, priorities will still drive the decision.  Transparency as to the priorities makes things clearer to all involved and makes it less likely that the individual will drift from his or her true priorities.   Similarly, directors would benefit from a clear corporate objective that includes specific corporate priorities.

While I would have preferred the proposed Delaware amendments to have made clear that the PBC’s top priority is its specific public benefit purpose, I think requiring PBCs to identify a specific public benefit purpose is a move in the right direction and likely to aid directors in decision making.

In my third and final post, on Delaware’s proposed amendments involving the PBC, I will talk about the social enterprise statutes and branding.

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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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I've got a piece up over at the Times/DealBook on the SEC's whistleblower program, picking lots of nits. Here's a taste, and there's more here:

a whistle-blower program is a privatization approach, not unlike hiring a private company to run a prison. But for the S.E.C., it is law enforcement that is being privatized. Rather than being able to take aim at particularly worrisome corners of the securities markets, the program leaves the S.E.C. beholden to tippees. Moreover, if Congress believes whistle-blowers, rather than the agency, are doing the work, it will have yet another justification for placing tight limits on the agency’s budget.

Do check it out, and let me know your thoughts, either down below or thataway.

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Two summers ago, a group of well-known law professors (no Glommers) submitted a proposal to the SEC to require disclosure of political contributions by Exchange Act filers.  The arguments for new rulemaking were valid and persuasive:  investors are increasingly interested in the political contributions corporations make; even a diligent investor would have a difficult time finding this information independently; many corporations voluntarily disclose such information; and disclosure rules have historically evolved to require disclosure in various areas.

Wedneady, the NYT ominously declared that "S.E.C. officials have indicated that they could propose a new disclosure rule by the end of April, setting up a major battle with business groups that oppose the proposal and are preparing for a fierce counterattack if the agency’s staff moves ahead."  That sounds very dramatic.  The article reports that half a million comments have been submitted to the proposal; I did not count, but you can try here.  The NYT also reports that the majority of the comments are in favor of the proposal; again, feel free to count yourself!

The proposal's authors are correct in stating that investors want to know this information.  On the SEC website, I searched for 14a-8 shareholder proposals that related to political activities and came up with many requests from companies to exclude proposals relating to political contributions and lobbying activities.  In March alone, the SEC responded to requests for no-action letters relating to excluding political contribution proposals from Target; CVS Caremark (no letter given); Western Union (no letter given); Bank of America (no letter given); JP Morgan (included voluntarily); Goldman Sachs (no letter given); Bristol-Myers; Exxon-Mobil (proposal withdrawn); and CBS Corp. (shareholder ineligible).  According to this post on the HLS Forum on Corporate Governance and Financial Regulation,  this Spring has seen a "renewed blitz of resolutions on corporate campaign finance, particularly indirect lobbying activities, following the record spending in the 2012 election cycle."

But, as the NYT not-so-subtly-hints, a lot of groups, perhaps groups that receive the monies, vehemently oppose the bill, including Americans for Prosperity, the U.S. Chamber of Commerce, the American Gaming ASsociation, the National Retail Federation, and the National Mining Association.  The arguments against, though, just aren't that compelling.  As you might imagine, saying "our shareholders don't need to know this" or "we don't want our shareholders to know this because then they might sell" doesn't sound very good. 

One argument is that the amount of money involved is "immaterial to the company's bottom line."   I have two responses.  First, executive compensation may be immaterial to the company's bottom line, at least the top 5 compensated that are disclosed under Item 402.  Second, in reading the requests for no-action letters from companies that want to exclude shareholder proposals for political activity disclosure, no company cited 14a-8(i)(5), which allows proposals to be excluded if amounts "account for less than 5 percent of the company's total assets" or "net earnings and gross sales" and "is ot otherwise significantly related to the company's business."  Companies moved to exclude proposals because they were vague or misleanding (i)(3) or duplicative of past, failed resolutions (i)(11).  So, I'm not convinced either that the amounts are immaterial or whether quantitative materiality is necessary.

The other argument is, of course, free speech.  I love free speech, but that argument doesn't ring true to me.  The SEC wouldn't be limiting or prohibiting political speech, just mandating that corporations tell their owners about it.  Their owners.  Now, when publicly-held corporations communicate with their owners, that information becomes public, so the mechanism is not perfect.  Not only will current and prospective owners know about political activity, but so will consumers and the public at large.  But arguing against this potential rule seems to fall under the "protests too much" category.

Finally, last Thursday, the House of Representatives passed the "Focusing the SEC on its Mission Act," to prohibit the SEC from requiring corporations to disclose information regarding political activities.  Apparently, that is the SEC's mission -- to not require corporations to disclose information regarding political activities.

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My colleague Verity Winship and Jessica Erickson of the University of Richmond School of Law have asked me to pass on this interesting piece of news about a new conference in the Fall in Chicago, IL:

The University of Illinois College of Law and the University of Richmond School of Law invite submissions for the First Annual Workshop for Corporate & Securities Litigation. This workshop will be held on Friday, November 8, 2013, in Chicago, Illinois.

OVERVIEW: This annual workshop will bring together scholars focused on corporate and securities litigation to present their works-in-progress. Papers addressing any aspect of corporate and securities litigation or enforcement are eligible. Appropriate topics include, but are not limited to, securities litigation, fiduciary duty litigation, or comparative approaches to business litigation. We welcome scholars working in a variety of methodologies, including empirical analysis, law and economics, law and sociology, and traditional doctrinal analysis. Authors whose papers are selected will be invited to present their work at a workshop hosted by the University of Illinois College of Law in Chicago, Illinois, on Friday November 8, 2013. Local costs (lodging and workshop meals) will be covered. Participants are asked to pay for their own travel expenses. The workshop is designed to maximize discussion and feedback. All participants will have read the selected papers. The author will provide a brief introduction to the paper, but the majority of the individual sessions will be devoted to collective discussion of the paper involved.

SUBMISSION PROCEDURE: If you are interested in participating, please send an abstract of the paper you would like to present to Jessica Erickson at jerickso@richmond.edu not later than Friday, May 31, 2013. Please include your name, current position, and contact information in the e-mail accompanying the submission. Authors of accepted papers will be notified by Friday, June 28.

QUESTIONS: Any questions concerning the workshop should be directed to the organizers—Professor Verity Winship (vwinship@illinois.edu) and Professor Jessica Erickson (jerickso@richmond.edu).

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I vividly remember learning about 10b5-1 plans while in practice: they struck me then as an elegant and sensible way to insulate yourself from insider trading liability.  Even when I don't cover insider trading in Business Associations, I always make sure to mention them.  For those unfamiliar, 10b5-1 plans take the trading discretion away from corporate insiders, either by setting some type of formula or prearranged schedule for when to buy or sell company shares, or by vesting the power of decision with a third party that lacks inside knowledge.  When done correctly, this "set it and forget it" style investing works great.  "I don't know why everyone doesn't set up these plans," I tell my students every year.

Well, apparently many insiders agree--and are doing them the wrong way.  The WSJ had an article last November detailing executives setting up plans and then trading almost immediately--when they likely had material nonpublic information.  Or, rather than "setting and forgetting," modifying the plan repeatedly.  

Today's WSJ has another front page article on 10b5-1 plans, this one focusing on outside directors .  The article implies that nonexecutive directors using these plans is in itself questionable, which seems wrong to me: what's good for the goose is good for the gander, and outside directors should be able to protect their personal trading as well as insiders.  But the chief problematic examples the article cites involve directors who represent hedge funds, with the hedge fund using the trading plan and trading soon after adopting or modifying it. Take this one:

Double-Take Software... adopted a "cautious stance" about its future financial results on Oct. 27, 2009, according to securities analysts' reports at the time.

Shortly before that, the company briefed board members on its business outlook, said a person familiar with the matter. Among those briefed, the person added, was Ashoke Goswami, a general partner of ABS Capital Partners, a Baltimore-based firm that invests in small, growing companies.

On Nov. 11, 2009, ABS amended a trading plan for Double-Take shares, a change Mr. Goswami disclosed in a regulatory filing. The director then reported the sale by ABS of $3.8 million in Double-Take stock, most of it under the revised plan, in trading from mid-December through Feb. 2, 2010.

On Feb. 3, Double-Take released earnings guidance below analysts' estimates. The stock plunged 21% in a day.

Last week Brian Breheny of Skadden posted some thoughts on these plans over at the Harvard Law School Forum on Corporate Governance and Financial Regulation.  He reports that the Council of Institutional Investors recommends that the SEC

• limit the time period for adoption of Rule 10b5-1 trading plans to the issuer’s open trading window;
• prohibit the adoption of multiple, overlapping trading plans;
• require a mandatory three-month or longer delay between plan adoption and the execution of the first trade pursuant to the plan; and
• limit the frequency of modifications and cancellations of trading plans.

Skadden takes issue with some of these recommendations, but the last two make good sense to me.  3 months might be overkill, but requring a delay between adoption and first trade would prevent a lot of of gaming, as would limiting modifications.

I'm not sure where I fall on making the terms of the plans themselves public--I can see that knowing when the CEO has to sell or buy shares would be valuable information, and there might well be good reasons to keep that from the market.  In any event, I expect we'll see more and more about these plans in the future.

 

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From my colleagues at the University of Illinois:

The University of Illinois College of Law and the Illinois Program on Law, Behavior & Social Science are hosting the Twelfth Annual Midwest Law & Economics Association on October 11 & 12, 2013 in Champaign, Illinois. Participants need not be an economist, a Midwesterner, or a Midwestern economist. The event consists of law professors and economists presenting papers with varying degrees of law-and-economics content, ranging from empirical analyses and formal economic modeling to legal philosophy and doctrinal papers infused with economic thinking. Presentations will begin Friday morning and end early- to mid-afternoon on Saturday. There is no membership fee or registration fee, but participants should expect to pay their own expenses. A block of rooms at the iHotel has been reserved for conference participants.

To submit a presentation, e-mail Robert Lawless at rlawless@illinois.edu with an abstract or paper by August 1, 2013. Presentation invitations will be sent out by August 15, 2013. A conference schedule and RSVP information for conference meals will be circulated closer to the conference date. Hotel contact info will be posted at this web page soon. Submission is open to all, so feel free to share this announcement with colleagues.

 The website is here.

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My family and I are a little late to see Oz the Great and Powerful.  We had seen the 4D Sneak Preview at Disneyland California Great Adventure in March, which really made us want to go see it.  And, so far, Oz is the greatest grossing film of 2013.  But, after watching it yesterday, I would say our feelings were mixed.

The movie walks a fine line between the book by Frank Baum and the 1939 movie, intending to be a logical prequel to that film, explaining how Oscar Diggs from Kansas becomes the Wizard of Oz.  (This is an almost impossible task given that the 1939 film was presented as Dorothy's dream and that the Wizard in the dream was really just a snake oil salesman in 1939, but we'll go with it.  Several characters in 1905 Kansas wind up in Oz as well, though it's not presented as a dream.)  Several online have speculated that Oscar's gingham-wearing sweetheart Annie, who is giving him up to marry John Gale, is meant to be the mother of Dorothy (Gale), who somehow ends up orphaned and living with Aunt Em and Uncle Henry.  For us, the first half of the movie was sort of boring.  After the 15 minutes in black-and-white, the next half hour or so is an amazing visual spectacle.  Oz is not showing in 3D here anymore, ceding theater space to Jurassic Park 3D, I guess.  But the first half is obviously meant to be an exhibition of 3D majesty.  However, the first half does not have a compelling plot.  Also, the acting is pretty bad.  Mila Kunis as the Wicked Witch of the West is just awful, and Michelle Williams as Glinda the Good Witch of the South (not North, as in the book/movie for some reason) appears with the same noblesse oblige as the most popular girl in class being asked to be in the school play because they need the prettiest princess. 

The second half picks up a little and has a few tricks and turns that were harder to spot than the thinly veiled secrets of the first half. 

My biggest unease about the film hit me in November when I saw the trailer.  I turned to my friend and said, "Why would witches need a wizard to come and save them and their people?"  And my uneasiness grew once Glinda acknowledges that Oz is a con man but says that he might still be the man they had been waiting for.  What?  You are a witch with magical powers, but you need a carnival magician to rouse your people to fight another witch?  What kind of craziness is that?  And it gets even worse -- a neutral witch is turned into a revenge-seeking green Wicked Witch (you know who I'm talking about now) because she wants Oz to marry her but realizes that he was toying with her affections.  Huh.  I was listening to an NPR story on the L. Frank Baum books, and one of the threads was that Dorothy was a feminist character.  She bravely leads these male misfits on a successful journey and defeats a witch.  But this movie is decidedly not feminist.  Glinda is not a coward, and deals the final blow (by accident), but she's not a proactive protagonist.  She is a protector, and she does see through Oz's blustery, but in the end she is the girl the hero gets, not a heroine.

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