December 04, 2005
Sunday Reading (and Dean Clark's Directorships)
Posted by Matt Bodie

A trio of NYT articles for the Conglomerate-minded reader:

  • A Michael Lewis profile of Mike Leach, Texas Tech's football coach.  I'm a big Lewis fan, and this article does not disappoint.  I knew nothing about Leach, and only a little about Texas Tech, before this article; now, I'll definitely be tuning in to the bowl game where Texas Tech puts its wildly innovative offensive schemes into play.  Once again, Lewis finds someone who is doing things in a decidedly different fashion and lets us in on the secret.  I'm not sure this article will have quite the far-ranging implications that "Moneyball" did (including for law schools), but once again Lewis is able to breathe life into the "thinking outside the box" cliche.  And isn't someone here a Red Raider?
  • An article about an antitrust suit brought against BAR/BRI.  According to the suit, BAR/BRI has overcharged students by an average of $1000 apiece and has colluded with potential competitors to shut down or divide the market.  While I was in law school, West made an ill-fated effort to challenge BAR/BRI's supremacy.  Apparently, since it couldn't beat them, West decided to join them: BAR/BRI is now owned by the Thomson Corporation.  (As this list of Thomson businesses indicates, Thomson owns West, as well as Westlaw, Foundation Press, and a lot of other businesses.)  The article talks about the circumstances around West's independent efforts and its ultimate decision to withdraw from the market.  According to the suit, Kaplan was interested in buying West, but BAR/BRI reached an agreement with Kaplan whereby Kaplan agreed not to buy the West bar program and in return BAR/BRI withdrew from the LSAT preparation market.  There is some irony in these antitrust allegations in the midst of a process that, as Larry Ribstein argues, is intended to restrain competition.  In my view, the article is yet more evidence that the whole bar review process needs to be reconsidered. (Dan Solove suggested abolishing the whole thing here.)
  • A Gretchen Morgenson column (Times-Select-protected) arguing that former Harvard Law Dean Robert Clark has a conflict of interest problem in his role as Time Warner director.  Dean Clark joined the Time Warner board in January 2004, as one of his many directorships in the corporate world.  Ms. Morgenson raises questions about his recent decision to join the board of Lazard Ltd. after it went public earlier this year.  As the Lazard website notes, it is working with Carl Icahn in his effort to "maximize" Time Warner shares.  Morgenson questions how Clark can be serving on the Lazard board at the same time as he serves on the Time Warner board.

The last article deserves some further comment.

Morgenson spends the first half of her column regaling readers with the many times that Bruce Wasserstein has invited Clark to join boards at his behest.  "Mr. Clark sure looks like Mr. Wasserstein's go to guy," she says.  Since Wasserstein is CEO of Lazard, she argues, Clark will be predisposed to favor whatever changes Icahn and Lazard suggest for Time Warner.  Nell Minow of the Corporate Library agrees: "Clark has to get off one or the other of those boards right now," she says.  "It can't happen fast enough -- it should have been a nanosecond after the announcement was made."

If the Icahn-Lazard team suggests changes that would benefit either Icahn above other shareholders, or if Icahn seeks to buy out the company, there is a clear conflict of interest.  But what if Icahn and Lazard just want to work with the board to suggest changes in strategy -- changes that benefit all shareholders equally?  Yes, Clark might be predisposed to favor those changes, but if they're good, don't they benefit all shareholders?  Morgenson herself admits that "getting Time Warner stock up is a goal of all its long-suffering shareholders."

And isn't it enough for Clark to recuse himself from any decisions involving Icahn and/or Lazard?  For example, if the Time Warner board agrees to some of the Icahn suggestions, and then chooses to reimburse his costs, Clark could just recuse himself from the reimbursement decision.  With fourteen members, the board could probably carry on without him.

If Icahn ends up taking a more predatory approach, Clark may find the conflicts too great to continue wearing both hats.  But right now it seems that both parties are seeking the same thing -- bringing up Time Warner's share value.  Of course, perhaps the Time Warner board isn't and shouldn't be concerned only with shareholder wealth maximization, as I discussed here.  If Icahn and Lazard suggest cost-cutting moves that will boost shares but hurt Time Warner's famed commitment to journalistic integrity, will Clark feel the pull of two masters?

One other note: Morgenson reports that Dean Clark makes approximately $100,000 as Lazard director and $175,000 in cash and stock as Time Warner director.  So this matter is not just a hypothetical question of corporate fiduciary duties.

Corporate Governance, Law Schools/Lawyering, Sports | Bookmark

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