Friday, May 29, 2015

Will More White Collar Criminal Laws Make More White Collar Criminal Behavior?

If you have been following my guest posts regarding white collar crime and how white collar offenders rationalize their conduct, you likely have noticed that the discussion thus far has been largely theoretical. In this post, I’d like to offer some more concrete uses of rationalization theory and discuss how it may (should?) impact lawmakers and business people.  

But before doing that, I have to explain, just for a moment, a bit more theory. One of the most fascinating things about rationalizations, in addition to how they operate, is where they come from. Researchers have concluded that rationalizations are not created in a vacuum; offenders do not invent them in the spur of the moment. Instead, offenders find their “vocabularies of motive” within their own environments. Donald Cressey suggested that rationalizations are “taken over” from “popular ideologies that sanction crime in our culture.” He pointed to commonplace sayings that suggest wrongdoing is acceptable in certain situations: “Honesty is the best policy, but business is business” and “All people steal when they get in a tight spot.”  (Warren Buffett once called the phrase “Everybody else is doing it,” which is a clear rationalization, the five most dangerous words in business.)  Once rationalizations such as these have been “assimilated and internalized by individuals,” they form powerful constructs that allow illegal behavior to go forward.

Building on this idea, two other criminologists, Gresham Sykes and David Matza, found that offender rationalizations originate from an even more specific location: the criminal law itself. According to Sykes and Matza, great “flexibility” exists in criminal law; even if a defendant commits a bad act, he may avoid punishment if he provides a legally valid justification or defense. Citing defenses to criminal liability such as necessity, insanity, and self-defense, Sykes and Matza viewed application of the criminal law as variable, a circumstance they found offenders incorporate into their psychological processes. Sykes and Matza determined that most unethical and illegal behavior was based on “what is essentially an unrecognized extension of [legal] defenses to crimes, in the form of justifications for deviance that are seen as valid by the delinquent but not by the legal system or society at large.” Put another way, would-be lawbreakers rationalize their behavior in order to fit it within a “defense” to the law that they deem valid, but that society or a court may not.

These finding have important implications for how we consider controlling unethical and criminal behavior in corporations. Our preferred model has been to pass legislation criminalizing conduct in reaction to corporate scandals, e.g., Sarbanes-Oxley after Enron and Dodd-Frank after the financial crisis.  As scandals continue to occur, we look for new ways to make the detection and prosecution of crime easier for the government. Unfortunately, this approach has led to overcriminalization in many spheres, including white collar crime.  There are now over 5,000 federal criminal statutes and as many as 300,000 federal regulatory provisions carrying criminal penalties. While certainly not all relate to white collar crime, many do. In fact, white collar crime underwent the biggest expansion of federal law during the 1970s and 1980s, and it likely took the lead again in the early 2000s. Along with that expansion came reduced mens rea requirements for many white collar crimes, as well as increased punishments, all of which has had the effect of shifting lawmaking and adjudicatory powers to prosecutors. What this means, as many have observed, is that white collar crime suffers from the same ills as other overcriminalized areas of the law—its “depth and breadth” has led to inconsistent enforcement and arbitrary adjudication. (A great example of this is the recent Supreme Court case Yates v. United States, which dealt with a commercial fisherman who was convicted under the anti-document shredding provision of Sarbanes-Oxley for throwing a crate of undersized fish overboard. Yates was subject to at least five partially overlapping obstruction statutes; the prosecutor charged him with the one carrying a 20-year maximum sentence. The Court overturned Yates’ conviction, based partly on concerns of overcriminalization.)

While the arbitrary enforcement of white collar criminal law is problematic for many reasons, the most profound harm it causes is that it makes the law more uncoordinated and illogical, thereby lessening the law’s overall legitimacy.  Why is the lessening of the legitimacy of the law so harmful? The answer comes from the interaction between the perceived illegitimacy of white collar criminal law and rationalizations.  As discussed above, rationalizations are drawn from the white collar offender’s environment, including the law governing his conduct. As would-be offenders increasingly believe those laws to be illegitimate, more space is created for them to rationalize their conduct. They see “defenses” to the law all around them, which they then internalize and incorporate into their own thought processes. Once this occurs, there is little stopping an offender’s future criminal conduct from going forward. Instead of deterring crime, then, adding more criminal statutes and regulations to an already overcriminalized area of the law fosters the very conduct sought to be eliminated. Put simply, more laws aimed at white collar crime may actually be creating more white collar criminal behavior.  (For a more complete discussion of this topic, please see here.)  Lawmakers considering the next round of white collar criminal statutes should be mindful of the role of rationalizations play, or they may be inadvertently creating the conduct they are trying to stop. 

In my final post, I’ll discuss how these same ideas impact corporate compliance efforts. 

May 29, 2015 in Ethics, White Collar Crime | Permalink | Comments (0)

More on the Turmoil Resulting from the SEC Chair's Recusals

A while ago, I noted a New York Times article about the effect of SEC Chair Mary Jo White's recusals from cases because of her husband's work at Cravath. The Times has a follow-up today. Apparently, the 2-2 split that results when Ms. White recuses herself is causing some real enforcement headaches, including missing a statute-of-limitations deadline.

May 29, 2015 in C. Steven Bradford, Securities Regulation | Permalink | Comments (0)

The Economics of the TV Show Nashville

Earlier this month, The Tennessean reported that the state of Tennessee approved $8 million of incentives for the fourth season of ABC's show Nashville. The city of Nashville also plans to chip in about $500,000.  According to the article, the "show spends about $20 million each season on local labor."

Economic incentives seem to be increasingly common, but this arrangement is interesting for a few reasons. First, this is an arrangement that not only brings jobs to town, but also brings publicity and tourists. Second, the lion share of the incentives appear to be coming from the state, but the lion share of the benefits seem to be directed at the city of Nashville - causing some in other parts of the state to complain

Some businesses, like the Bluebird Cafe, are featured regularly on the show, and I wonder whether they pay for that privilege. I don't think they do, but have not been able to find out for sure. 

My wife and I watch the show, if only because we like seeing our city on TV. Nashville is a wonderful place, has been called an "it city" and the "south's red hot town." Even the New York Times did a glowing article on the city Nashville during the tenure of ABC's show. The job market and real estate are both booming in Nashville.

I don't know how much of this success, if any, is due to the show about Nashville, but things do seem to be going well here...except for the increasing traffic. Product placement has been on the rise in media for some time now; perhaps we will see more city, state, and business placement over time.  

May 29, 2015 in Current Affairs, Haskell Murray, Jobs, Television | Permalink | Comments (2)

Wednesday, May 27, 2015

Humblebragging is Empirically, Not Just Anecdotally, Ineffective

Last month, Ovul Sezer, Francesca Gino, and Michael I. Norton of  Harvard Business School posted Humblebragging: A Distinct – And Ineffective – Self-Presentation Strategy to SSRN (available here).  

Here is the full article abstract: 

Humblebragging – bragging masked by a complaint – is a distinct and, given the rise of social media, increasingly ubiquitous form of self-promotion. We show that although people often choose to humblebrag when motivated to make a good impression, it is an ineffective self-promotional strategy. Five studies offer both correlational and causal evidence that humblebragging has both global costs – reducing liking and perceived sincerity – and specific costs: it is even ineffective in signaling the specific trait that that a person wants to promote. Moreover, humblebragging is less effective than simply complaining, because complainers are at least seen as sincere. Despite people’s belief that combining bragging and complaining confers the benefits of both self-promotion strategies, humblebragging fails to pay off.

Although the authors accurately explain that humblebragging is "bragging masked by a complaint,"  I am partial to the Urban Dictionary definition:

Subtly letting others now about how fantastic your life is while undercutting it with a bit of self-effacing humor or "woe is me" gloss.
 
Uggggh just ate about fifteen piece of chocolate gotta learn to control myself when flying first class or they'll cancel my modelling [sic] contract LOL :p #humblebrag

I think most of us know someone who is a user of the humblebrag.  I used to think it was just a fairly common technique among lawyers and academics, though I am now more of the mind that it is a "people" thing, with lawyers and academics perhaps leading the way.  I'm rather glad to see an article that shows that humblebragging is empirically ineffective in its goals.  In my experience, I have also found that it's also not especially effective in getting people to like the humblebragger, either.  

Now, if only blatant, unrepressed, old-school bragging weren't so effective in some circles. we could make some real progress.  

May 27, 2015 in Jobs, Joshua P. Fershee, Research | Permalink | Comments (0)

Social Enterprise, Brazilian Style

As a semi-closeted (now "out," I guess) foodie* and as a lover of "things Brazilian" (including Havaianas flip-flops and Veja sneakers, as well as churrascarias and caipirinhas), I read with interest a recent electronic newsletter headline about a thriving Brazilian chef.  I clicked through to the article.  I loved it even more than I had thought I would.

The article tells the story of an emergent Brazilian chef and restauranteur, Rodrigo Oliveira, and his flagship establishment (Mocotó), as promised.  That was great.  But that was not all.  The piece also told the story of a business run using a "holistic business model."

Today, Oliveira focuses on his employees as much as his customers. . . .  Oliveira pays for his employees’ part-time education. And their kids’ health care. And daily jiujitsu and yoga classes in the room he built upstairs. It’s a rarely encountered, holistic business model that contributes to his restaurant’s roaring success. . . .

 . . . 

Beneath the street level they’re boring out new dormitories for employees, for a quick nap and shower between jiujitsu, work and class. . . .

He also seems to be attentive to the greater local community beyond his customers and employees, preferring (to date) to expand his business locally rather than into larger metropolitan areas.  Good business?  Yes!  But it seems like more than that.  This business appears to have more than one bottom line!

Perhaps this is not a remarkable story, in the end.  Regardless, I wanted to share it.  Another Brazilian social enterprise, Ashoka, gets a lot of attention.**  But it's now clear to me that we can and should look beyond larger, storied examples of social entrepreneurship for other manifestations of social enterprise in action in Brazil.

 

*Yes, Steve Bainbridge, I do read  your wonderful posts on food and beverage pairings, including this one on my birthday earlier this month.

**Actually, much to my surprise, Ashoka is a U.S. organization that networks social enterprises across the globe.  So, it's not even Brazilian!  Having been in Rio teaching for a few summers and known of its presence there, I  assumed it was a Brazilian organization.  Please forgive the error.  Hat tip to co-blogger Haskell Murray for pointing it out to me.

 

May 27, 2015 in Entrepreneurship, Family Business, Food and Drink, Joan Heminway, Social Enterprise | Permalink | Comments (0)

The Future of Respectability for Lawyers (Part 4)

In my first post of this series, I asked whether business leaders had unknowingly provided the legal industry with a long-term solution to declining interest in the legal profession and potential waning influence.  I suggested that business leaders may be the driving force that ends up saving the legal profession.  In my second and third posts, I discussed the current state of in-house attorneys and law firms.  Today is my birthday, so it is a great present to be able to share my view on the future of the legal profession, and how shifts may occur. 

Eventually, corporations can (and most probably will, in my view) evolve their thinking about “legal strategies” (as Professors Bird and Orozco suggest) to the point that lawyers are essential resources in developing sophisticated corporate planning. In order for this evolution to take place throughout the business world to any great degree, it will take time, experience, and success with the legal strategy concepts.  In other words, lawyers must become valuable not only for their legal skills, but also because they have inherent business talent resulting from advanced training. 

 

If this conversion is to occur, companies will initially be forced to buy senior legal talent they will need to begin this transformation.  This means attorneys with specific experience, usually from private firms or perhaps governmental entities, should begin moving towards corporate employment.  Companies will likely change their legal strategies from a rigid general counsel structure to include “Chief Legal Strategists,” as Bird and Orozco have posited, in order to accommodate this movement.  If accepted by business leaders, this should increase in-house counsels’ opportunities for engagement with the business units.  If so, corporate budgets likely will be increased to entice very talented firm lawyers to transition more regularly to companies. 

 

Because of their skill and expertise, and with the increasing trust of corporate leaders, these very same senior lawyers can then begin the legacy process of hiring established mid-career lawyers and use their growing corporate influence to replicate the success of their own tenure. If corporations begin to fill their ranks with qualified and active counsel, business leaders will be more able to recognize real legal talent, both in hiring and promotion.* Eventually, this environment may allow newly minted graduates to be directly hired into the company. Because these new hires should  have mentorship and support from more senior lawyers, their chances for individual acceptance and success in the corporate setting should increase.  As this occurs, corporations may be able to build legal departments that rival firms in social and economic attractiveness, as well as career opportunity.**

 

Assuming companies increase their endorsement of legal strategy, with the attendant hiring of more attorneys in-house, difficulties in communication between corporations and their outside law firms should diminish substantially.  With in-house attorneys having the confidence of their senior leadership and the knowledge of their businesses, they can foster enhanced dialogue with external counsel that might not have been possible in the past.  This can alleviate corporate trust concerns about law firm billing and perceived value (since in-house lawyers can act as an interpretive engine), allowing firms closer ties with their clients through greater understanding.  This in turn may actually increase work for the private law firms that survive the initial diminishment of legal work and lead to more private practice opportunities for new graduates, along with some firm positions that open due to lawyers moving to corporations.

 

As the legal landscape changes, the legal profession will, with the help of business leaders, become a broader, more inclusive, and more “respectable” profession—one that becomes pervasive and accepted throughout the business world, and not as insulated in private firms.  This familiarity will not breed contempt, but respect and appreciation, and it should benefit all. When this will happen, I cannot tell you.  But sooner, rather than later, it is bound to happen.

 

So, what can law schools and current lawyers do to help in this transition?  Well, I have some thoughts on that as well.  More here anon, same “Bat-Channel”...

 

--Marcos Antonio Mendoza

 

 

 

*Whether the business leaders will be able to hone and execute on this increased ability to recognize and incorporate this legal talent, no one can say for sure.  It will be a necessary factor in the success of this transformation of the legal environment, and one that should occur.  If not, the corporations will simply go through endless cycles of in-house counsel that will likely be underutilized.   

 

**I recognize that many companies have already built large legal divisions, and some companies have extremely talented lawyers.  But, for most businesses, in-house departments have yet to rival the talent, the opportunities for skill building, the ability to train, and the financial rewards, that most private law firms have.

May 27, 2015 in Corporations, Current Affairs | Permalink | Comments (0)

Hedge Funds as Heroes & The Role of Reputation in Markets

This week I have found myself reading the co-authored, empirical piece by C.N.V. Krishnan, Frank Partnoy, and Randall Thomas titled, Top Hedge Funds and Shareholder Activism.  Through their sample they observe that top hedge funds have repetitional capital in that the market responds more positively to announcements by certain hedge funds with certain features, like a longer track record, larger assets under management and management participation through board of director seats.  Its an interesting and insightful article on the role, and value, of hedge funds. The authors conclude that 

The market appears to anticipate the superior performance of these top hedge funds even before announcement of intervention. Moreover, post-intervention target-firm operating performance associated with these top hedge funds is significantly superior to that of other hedge fund activists.

The focus on reputation reminded of Elisabeth de Fontenay's good work on reputation in private equity.  Her article, Private Equity Firms as Gatekeepers, 33 Review of Banking & Financial Law 115-189 (2014).  de Fontenay argues in her piece that: 

private equity firms act as gatekeepers in the debt markets. As repeat players, private equity firms use their reputations with creditors to mitigate the problems of borrower adverse selection and moral hazard in the companies that they manage, thereby reducing creditors’ costs of lending to these companies. Private equity-owned companies are thus able to borrow money on more favorable terms than standalone companies, all else being equal. By acting as gatekeepers, private equity firms render the debt markets more efficient and provide their portfolio companies with an increasingly valuable borrowing advantage.

Updated to add:  Frank Partnoy informed me that he and Elisabeth presented these 2 papers collaboratively to the Duke law faculty with each commenting on the other.  This either proves once again that I have no original ideas OR this validates my insights about the overlapping observations in these papers.

-Anne Tucker 

May 27, 2015 in Anne Tucker, Corporate Finance, Corporate Governance, Corporations, Financial Markets | Permalink | Comments (0)

Upcoming Corporate/Securities Sessions at Law & Society Assoc. Annual Meeting May 28-30th

CRN: #46  Corporate and Securities Law in Society

 LSA 2015 Schedule

 

THURSDAY, MAY 28

 

 

 

2:45 PM - 4:30 PM

3319—Roundtable: Shareholders, Stewardship & Accountability

Room: Mercer 

 

 

 

 

FRIDAY, MAY 29

 

 

 

9:30 AM - 11:15 AM

3321—Corporations and Their Constituencies: Employees, Customers, Creditors, and the Public

Room: Adams

1:30 PM - 3:15 PM

3322—Banking, Securities, and Beyond: Evaluating Financial Regulation in Varied Contexts

Room: Adams

3:30 PM - 5:15 PM

3325—Business Decisionmaking and Business Law: Exploring Implications for Constituencies and Communities

Room: Adams 

5:30 PM - 7:15 PM

3326—New Insights on Law and Regulation’s Evolution and Efficacy

Room: Adams

 

 

SATURDAY, MAY 30

 

 

 

8:15 AM - 10:00 AM

3320—Ownership and Control: New Considerations on Litigation, Governance Structures, and Shareholder Activism

Room: Adams

May 27, 2015 in Anne Tucker, Conferences, Corporations, Securities Regulation | Permalink | Comments (0)

Monday, May 25, 2015

In Remembrance of Those Who Fell

In Flanders fields the poppies blow
Between the crosses, row on row,
That mark our place; and in the sky
The larks, still bravely singing, fly
Scarce heard amid the guns below.

We are the Dead. Short days ago
We lived, felt dawn, saw sunset glow,
Loved and were loved, and now we lie
In Flanders fields.

Take up our quarrel with the foe:
To you from failing hands we throw
The torch; be yours to hold it high.
If ye break faith with us who die
We shall not sleep, though poppies grow
In Flanders fields.
          -John McCrae, In Flanders Fields


Today is Memorial Day. Before you run to the beach or the park, or wherever you’re spending the holiday, take a moment to remember those dear soldiers who have fallen. They won’t be going to the beach or park today. They gave their lives so you could live.

You may think, as I do, that some of our more recent battles were better not fought, but that doesn’t make the sacrifices of the soldiers who fought in them any less noble or honorable. The loss of life is even more tragic or regrettable when stupid politicians needlessly send young men and women off to die.

To those of you who have lost loved ones in battle, my heartfelt condolences. To those who have fallen, my eternal gratitude for your sacrifice.

May 25, 2015 in C. Steven Bradford | Permalink | Comments (1)

Sunday, May 24, 2015

ICYMI: Tweets From the Week (May 24, 2015)

May 24, 2015 in Stefan J. Padfield | Permalink | Comments (0)

Saturday, May 23, 2015

Did legal realism kill scholarship for judges?

Judge Diane Wood of the Seventh Circuit has published an essay in the Yale Law Journal that surveys citations to legal scholarship emerging from the Seventh Circuit.  She argues that movements like Legal Realism and its descendants challenge the concept of “judging” as a distinct activity from lawmaking, and as a result, scholarship that emerges from these traditions is not helpful to a sitting judge attempting to identify “what the law is.”  She further argues that within the academy, the effect is exacerbated by a norm that values theoretical scholarship over practical “doctrinal” work, and hypothesizes that the type of doctrinal scholarship that judges are most likely to find useful is also more likely to be found in journals that carry less prestige.

Interestingly, Jeffrey Lynch Harrison and Amy Rebecca Mashburn reached similar conclusions.  They studied judicial citations and found that judges – far less than academics – do not appear sensitive to the prestige in which an article appears, thus kicking off a debate regarding the purpose and value of legal research (see posts here and here).  Among other things, Michael Risch defends legal scholarship on the grounds that its usefulness – to judges, to practitioners – is not the point; it is a good in and of itself.

I’m a recent convert from practice to academia, and that’s a sentiment I’ve frequently heard (usually as I’m being advised to write less like a practitioner).  And while I don’t disagree with it, I also can’t help but notice that academics take quite a bit of pride in having their articles cited in judicial opinions – suggesting that their, um, revealed preferences are perhaps more nuanced.

In any event, I was recently thinking about how very often, both in my current research and earlier in my practice, I’ve found that some of the most interesting and helpful law review articles are the most thoroughly doctrinal – the ones that carefully synthesize and explain existing law, regardless of whether they also offer a more abstract theoretical framework, a realist attack on existing precedent, or recommend bold new path for change.  

But beyond that, I think the indictment of legal scholarship as too theoretical is at least somewhat unfair.  As Deborah Merritt points out, the citation counts actually aren’t all that bad, especially if one assumes a greater number of articles are consulted but not cited.  Certainly, there are plenty of highly theoretical works out there that may not be of immediate relevance in a particular dispute, and thus don't end up being cited in judicial opinions, but I also found that when I was practicing, I was able to find a number of more concrete pieces in my area (possibly it’s easier when you practice business law).  Sometimes I cited them in my briefing, which I assume increased their chances of being cited by judges (I know of at least one case where that occurred). 

In my experience, however, the biggest impediments to citation of legal scholarship from the practice end were twofold:  First, in any brief, space is at a premium.  I often could not afford to cite a law review article and possibly edge out court decisions that the judges might find more authoritative.  (And space may soon become even more scarce)

Second, and relatedly, I often found that legal scholarship was a few years behind the issues in which I was enmeshed.  Law review articles were most helpful to me when they dealt with a cutting-edge issue on which precedent had not hardened, but it can take years for an issue to bubble up in judicial opinions to the point where academics notice it.  From a practitioner’s perspective, by then it may be too late; the existing judicial opinions are what you want to address.  The solution to that, I suppose, is for academics to maintain contact with practitioners, so they can be alerted to new legal developments.

May 23, 2015 in Ann Lipton | Permalink | Comments (2)

Friday, May 22, 2015

The outsourcing of human rights enforcement to corporations- EU-style

I haven’t met Hollywood producer Edward Zwick, who brought the movie and the concept of Blood Diamonds to the world’s attention, but I have had the honor of meeting with medical rock star, and Nobel Prize nominee Dr. Denis Mukwege. Both Zwick and Mukwege had joined numerous NGOs in advocating for a mandatory conflict minerals law in the EU. I met the doctor when I visited Democratic Republic of Congo in 2011 on a fact finding trip for a nonprofit that focuses on maternal and infant health and mortality. Since Mukwege works with mass rape victims, my colleague and I were delighted to have dinner with him to discuss the nonprofit. I also wanted to get his reaction to the Dodd-Frank conflict minerals regulation, which was not yet in effect. I don’t remember him having as strong an opinion on the law as he does now, but I do remember that he adamantly wanted the US to do something to stop the bloodshed that he saw first hand every day.

The success of the Dodd-Frank law is debatable in terms of stemming the mass rape, use of child slaves, and violence against innocent civilians. Indeed, earlier this month, over 100 villagers were raped by armed militia. A 2014 Human Rights Watch report confirms that both rebels and the Congolese military continue to use rape as a weapon of war to deal with ethnic tensions. I know this issue well having co-authored a study on the use of sexual and gender-based violence in DRC with a medical anthropologist. With all due respect to Dr. Mukwege (who clearly know the situation better than I), that research on the causes of rape, but more important, my decade of experience in the supply chain industry have lead me to believe that the US Dodd-Frank law was misguided. The law aims to stem the violence by having US issuers perform due diligence on their supply chains. I have spoken to a number of companies that have told me that  it would have been easier for the US to just ban the use of minerals from Congo because the compliance challenges are too high. Thus it was no surprise that last year’s SEC filings were generally vague and uninformative. It remains to be seen whether the filings due in a few weeks will be any better.

To me Dodd-Frank is a convenient way for the US government to outsource human rights enforcement to multinational corporations. Due diligence and clean supply chains are good, necessary, and in my view nonnegotiable, but they are not nearly enough to deal with the horrors in Congo. Nonetheless, in a surprise move, the EU Parliament voted this week to go even farther than the US law. According to the Parliament’s press release:

Parliament voted by 400 votes to 285, with 7 abstentions, to overturn the Commission's proposal as well as the one adopted by the international trade committee and requested mandatory compliance for "all Union importers" sourcing in conflict areas. In addition, "downstream" companies, that is, the 880, 000 potentially affected EU firms that use tin, tungsten, tantalum and gold in manufacturing consumer products, will be obliged to provide information on the steps they take to identify and address risks in their supply chains for the minerals and metals concerned… The regulation applies to all conflict-affected high risk areas in the world, of which the Democratic Republic of Congo and the Great Lakes area are the most obvious example. The draft law defines 'conflict-affected and high-risk areas' as those in a state of armed conflict, with widespread violence, the collapse of civil infrastructure, fragile post-conflict areas and areas of weak or non-existent governance and security, characterised by "widespread and systematic violations of human rights".

(emphasis mine). I hope this proposed law works for the sake of the Congolese and all of those who live in conflict zones around the world. The EU member states have to sign off on it, so who knows what the final law will look like. Some criticize the law because the list of “conflict-affected areas” is constantly changing. Although that’s true, I don’t think that criticism should affect passage of the law. The bigger flaw in my view is that there are a number of natural resources from conflict-affected zones- palm oil comes to mind- that this regulation does not address. This law, like Dodd-Frank does both too much and not enough. In an upcoming book chapter, I propose that governments use procurement and other incentives and penalties related to executive compensation and clawbacks to drive human rights due diligence and third-party audits (sorry, I'm prohibited from posting a link to it but it's forthcoming from Cambridge University Press).

In the meantime, I will wait for the DC Circuit to rule on constitutional aspects of the Dodd-Frank bill. I will also be revising my most recent law review article on the defects of the disclosure regime to address the EU development. I will post the article next week from Havana, Cuba, where I will spend 10 days learning about the Cuban legal system and culture. Given my scholarship and the recent warming of relations between the US and Cuba, I may sneak a little research in as well, and in two weeks I will post my impressions on the challenges and opportunities that US companies will face in the Cuban market once the embargo is lifted. Adios!

May 22, 2015 in Corporate Governance, Corporations, CSR, Current Affairs, Financial Markets, International Business, Legislation, Marcia Narine, Securities Regulation, Travel | Permalink | Comments (0)

Time's Up

Although my guest blogging has been focused on white collar rationalizations, I can't help but mention that, just about any way you cut it,* ninety days have passed since former Attorney General Holder asked U.S. Attorneys investigating the financial crisis to report back on whether they could make criminal cases against any individuals.  I'm guessing that since we didn't hear any big announcements, there are no indictments sitting on current Attorney General Loretta Lynch's desk.  Or maybe the currency trading guilty pleas were the announcement.  Of course, those were charges against corporations, not individuals . . . and deals with the regulators have ensured the banks will continue to basically operate as usual . . . and hinky currency trading isn't what caused the financial crisis . . . and the banks involved weren't the biggest players in MBS in the run up to the collapse.  You get the point.  It looks like Wall Street executives may truly and forever be off the hook for what happened in 2008.  

* If AG Holder was speaking generally, three months since his February 17 announcement was last Sunday.  If he actually meant a hard ninety days, that elapsed last Monday.  If he's a kind boss and has been giving his AUSA's weekends off for the past seven years, there's still hope!   

  

May 22, 2015 in White Collar Crime | Permalink | Comments (0)

The Future of Respectability for Lawyers (Part 3)

In my first post of this series, I asked whether business leaders had unknowingly provided the legal industry with a long-term solution to declining interest in the legal profession and potential waning influence.  I suggested that business leaders may be the driving force that ends up saving the legal profession, and its "respectability".  In my second post, I discussed the current state of in-house attorneys.  In this post, I would like to look at the current state of private firms as it relates to the in-house attorney discussion.  My view is that the competitive marketplace reactions of a growing number of firms are partially contributing to the dimming of their own future prospects.  Firms will need to evolve rather quickly; how they can, I’ll discuss in a future post.  However, because of the firms’ relatively weaker position compared to corporations, many firms are in very precarious circumstances.

In this interim period between past firm dominance and the future corporate acceptance of Professors Bird and Orozco’s “corporate legal strategy” (in which attorneys are fully accepted and integrated as part of business teams in corporations, resulting in greater legal opportunities), firms are struggling.   From my discussions with attorneys, I have learned that many private firms are beginning to intentionally screen out attorneys that even appear to be on a path to in-house corporate life in the future.  They feel less inclined to provide expensive training for someone that has (in their perception) little intention of making a career of private practice, especially their private practice.  This diminishes the number of opportunities for new lawyers.  Firms have a harder time training the new lawyers they have, because much of the basic business work is now taken up by in-house counsel.  Corporations, for their part, have exacerbated the lack of work for new associates by using their increased influence and wealth to insist that only the most senior firm attorneys handle their corporate work—perhaps shortsightedly robbing firms of talent continuity that has historically benefitted the corporations in the end.  Expensive summer clerkships and recruiting drives have all but disappeared. 

Additionally, firms have become focused on hiring attorneys with portable business for the “quick hit” of income and are less concerned about hiring new law graduates.  This cannibalization of mature legal talent has always occurred, but it now seems to be a much greater part of firm business plans. It has resulted in some lawyers commoditizing themselves, rather than some of their clients doing so, perhaps further weakening the profession's "respectability".  Of course, because the legal industry is currently well staffed, this “horse-trading” approach will work for the present.  However, it will eventually be unsustainable—as lawyers retire, there will be fewer talented lawyers to replace them or have the capacity to buy out retiring partners’ percentages.  Of those, even fewer still will invite the rigors of private practice if the rewards diminish.

I, for one, am not a complete believer in the “end of Big Law”, or any size "Law", for that matter.  (The late Professor Larry Ribstein discussed the subject here--disappointingly, he only briefly touched on the in-house counsel effect, and instead, focused on the firms themselves.)  However, I do believe in the necessary evolution of “All Law”—where the legal industry (firm, in-house, and academia) evolves to a point of natural and mutual support which benefits society as a whole (creating greater “respectability” for all lawyers)—and businesses will initially play a dominant role.  How will businesses do so?  More soon in a post coming your way!

--Marcos Antonio Mendoza

 

May 22, 2015 in Compensation, Corporations, Current Affairs, Jobs | Permalink | Comments (9)

Summer Reading and Listening

Frankel OConnor Yale

Each summer, I try to read a few books related to work and a few books not related to work.

This summer, I have tagged Tamar Frankel's Trust and Honesty: America's Business Culture at a Crossroad and Flannery O'Connor's Everything That Rises Must Converge.

Open to other reading suggestions in the comments. I have a pretty deep "want to read" list, but am always looking for more additions.

I am also listening to a Yale online course called Philosophy and the Science of Human Nature, taught by Tamar Gendler. I am already more than halfway finished with the course - mostly listening in the car or while doing various chores. While I did not take any Philosophy courses in college, much of the material is more familiar than I would have thought. These open courses have been fun, and I am open to suggestions of other good courses.  

May 22, 2015 in Books, Haskell Murray | Permalink | Comments (0)

Thursday, May 21, 2015

Moultrie and Brooks on Defining a Proper Purpose for Books and Records Actions in Delaware

My former research assistant Sam Moultrie and his colleague Andrea Schoch Brooks have authored a short article entitled "Defining a Proper Purpose for Books and Records Actions in Delaware."

The article unpacks two recent Delaware books and records cases: AbbVie and Citigroup. Worthwhile reading for those who wish to stay current on this area of the law. 

May 21, 2015 in Business Associations, Corporations, Delaware, Haskell Murray | Permalink | Comments (0)

White Collar Rationalizations

My last post outlined the criminological and behavioral ethics theories that help explain why corporate executives commit unethical and illegal acts.  I’d like to unpack that a bit more by providing some specific rationalizations used by white collar offenders.  This list includes the first five rationalizations to be identified by researches (sometimes called the “famous five”), and then supplements three others that are particularly relevant.  Not surprisingly, there are disagreements as to exactly how many rationalizations there are and precisely how they operate.  But, as one team of researchers put it, what is interesting about rationalization theory is what rationalizations do, “not the flavors they come in.”

Denial of Responsibility.  Called the “master account,” the denial of responsibility rationalization occurs when the offender defines her conduct in a way that relieves her of responsibility, thereby mitigating “both social disproval and a personal sense of failure.”  Generally, offenders deny responsibility by claiming their behavior is accidental or due to forces outside their control.  White collar offenders deny responsibility by pleading ignorance, suggesting they were acting under orders, or contending larger economic conditions caused them to act illegally.

Denial of Injury.  This rationalization focuses on the injury or harm caused by the illegal or unethical act.  White collar offenders may rationalize their behavior by asserting that no one will really be harmed.  If an act’s wrongfulness is partly a function of the harm it causes, an offender can excuse her behavior if no clear harm exists.   The classic use of this technique in white collar crime is an embezzler describing her actions as “borrowing” the money—by the offender’s estimation, no one will be hurt because the money will be paid back.  Offenders may also employ this rationalization when the victim is insured or the harm is to the public or market as a whole, such as in insider trading or antitrust cases.

Denial of the Victim.  Even if a white collar offender accepts responsibility for her conduct and acknowledges that it is harmful, she may insist that the injury was not wrong by denying the victim in order to neutralize the “moral indignation of self and others.”   Denying the victim takes two forms.  One is when the offender argues that the victim’s actions were inappropriate and therefore he deserved the harm.  The second is when the victim is “absent, unknown, or abstract,” which is often the case with property and economic crimes.  In this instance, the offender may be able to minimize her internal culpability because there are no visible victims “stimulat[ing] the offender’s conscience.”  White collar offenders may use this rationalization in frauds against the government, such as false claims or tax evasion cases, and other crimes in which the true victim is abstract.

Condemning the Condemners.  White collar offenders may also rationalize their behavior by shifting attention away from their conduct on to the motives of other persons or groups, such as regulators, prosecutors, and government agencies.  By doing so, the offender “has changed the subject of the conversation”; by attacking others, “the wrongfulness of [her] own behavior is more easily repressed.”  This rationalization takes many forms in white collar cases: the offender calls her critics hypocrites, argues they are compelled by personal spite, or asserts they are motivated by political gain.  The claim of selective enforcement or prosecution is particularly prominent in this rationalization.  In addition, white collar offenders may point to a biased regulatory system or an anticapitalist government.

Appeal to Higher Loyalties.  The appeal to higher loyalties rationalization occurs when an individual sacrifices the normative demands of society for that of a smaller group to which the offender belongs.  The offender does not necessarily reject the norms she is violating; rather, she sees other norms that are aligned with her group as more compelling.  In the white collar context, the group could be familial, professional, or organizational.  Offenders rationalizing their behavior as necessary to provide for their families, protect a boss or employee, shore up a failing business, or maximize shareholder value are employing this technique.  Notably, female white collar offenders have been found to appeal to higher family loyalties more than their male counterparts.

Metaphor of the Ledger.  White collar offenders may accept responsibility for their conduct and acknowledge the harm it caused, yet still rationalize their behavior by comparing it to all previous good behaviors.  By creating a “behavior balance sheet,” the offender sees her current negative actions as heavily outweighed by a lifetime of good deeds, both personal and professional, which minimizes moral guilt.  It seems likely that white collar offenders employ this technique, or at least have it available to them, as evidenced by current sentencing practices—almost every white collar sentencing is preceded by a flood of letters to the court supportive of the defendant and attesting to her good deeds.

Claim of Entitlement.  Under the claim of entitlement rationalization, offenders justify their conduct on the grounds they deserve the fruits of their illegal behavior.  This rationalization is particularly common in employee theft and embezzlement cases, but is also seen in public corruption cases.

Claim of Relative Acceptability/Normality.  The final white collar rationalization entails an offender justifying her conduct by comparing it to the conduct of others.  If “others are worse” or “everybody else is doing it,” the offender, although acknowledging her conduct, is able to minimize the attached moral stigma and view her behavior as aligned with acceptable norms.  In white collar cases, this rationalization is often used by tax violators and in real estate and accounting frauds.

I’ve identified the use of these rationalizations by white collar offenders such as Rajat Gupta, Peter Madoff, Allen Stanford, and others.  But I’d be interested to hear from readers where they’ve seen “vocabularies of motive” in the white collar world.  (If you’re not sure, try starting with Bloomberg's oral history of Drexel Burnham Lambert, in what has to be the largest collection of rationalizations ever assembled.) 

May 21, 2015 in Corporate Governance, Ethics, White Collar Crime | Permalink | Comments (0)

Call for Papers: Business and Human Rights


Business and Human Rights Junior Scholars Conference
                          
The Rutgers Center for Corporate Governance, The University of Washington School of Law, and the Business and Human Rights Journal (Cambridge University Press) announce the first Business and Human Rights Junior Scholars Conference, to be held September 18, 2015 at the Rutgers School of Law – Newark in Newark, New Jersey, just outside of New York City.  The Conference will pair approximately ten junior scholars writing at the intersection of business and human rights issues with senior scholars in the field.  Junior scholars will have an opportunity to present their papers and receive feedback from senior scholars.   Upon request, participants’ papers may be considered for publication in the Business and Human Rights Journal (BHRJ), published by Cambridge University Press.
 
All junior scholars will be tenure-track professors who are either untenured or have been tenured in the past three years.  The Conference is interdisciplinary; scholars from all disciplines are invited to apply, including law, business, human rights, and global affairs.  The papers must be unpublished at the time of presentation.
 
To apply, please submit an abstract of no more than 250 words to msantoro@business.rutgers.edu andarama@uw.edu with the subject line Business & Human Rights Conference Proposal.  Please include your name, affiliation, contact information, and curriculum vitae. 
 
The deadline for submission is June 15, 2015.  Scholars whose submissions are selected for the symposium will be notified no later than July 15, 2015. We encourage early submissions, as selections will be made on a rolling basis.
  
About the BHRJ
 
The BHRJ provides an authoritative platform for scholarly debate on all issues concerning the intersection of business and human rights in an open, critical and interdisciplinary manner. It seeks to advance the academic discussion on business and human rights as well as promote concern for human rights in business practice.
 
BHRJ strives for the broadest possible scope, authorship and readership. Its scope encompasses interface of any type of business enterprise with human rights, environmental rights, labour rights and the collective rights of vulnerable groups. The Editors welcome theoretical, empirical and policy / reform-oriented perspectives and encourage submissions from academics and practitioners in all global regions and all relevant disciplines.
 
A dialogue beyond academia is fostered as peer-reviewed articles are published alongside shorter ‘Developments in the Field’ items that include policy, legal and regulatory developments, as well as case studies and insight pieces.
 
 

May 21, 2015 in Call for Papers, Conferences, Corporate Governance, Corporations, CSR, Current Affairs, Marcia Narine | Permalink | Comments (0)

Wednesday, May 20, 2015

Crowdfunding and the Public/Private Divide in U.S. Securities Regulation

Some of you may recall that I blogged last summer about a SEALS (Southeastern Association of Law Schools) discussion group on "publicness."  That post can be found here.  My contribution to the discussion group was part of a paper that then was a work-in-process for the University of Cincinnati Law Review that I earlier had blogged about here.

That paper now has been released in electronic and hard-copy format.  I just uploaded the final version to SSRN.  The abstract for the paper reads as follows:

Conceptions of publicness and privateness have been central to U.S. federal securities regulation since its inception. The regulatory boundary between public offerings and private placement transactions is a basic building block among the varied legal aspects of corporate finance. Along the same lines, the distinction between public companies and private companies is fundamental to U.S. federal securities regulation.

The CROWDFUND Act, Title III of the JOBS Act, adds a new exemption from registration to the the Securities Act of 1933. In the process, the CROWDFUND Act also creates a new type of financial intermediary regulated under the Securities Exchange Act of 1934 and amends the 1934 Act in other ways. Important among these additional changes is a provision exempting holders of securities sold in crowdfunded offerings from the calculation of shareholders that requires securities issuers to become reporting companies under the 1934 Act.

This article attempts to shed more light on the way in which the CROWDFUND Act, as yet unimplemented (due to a delay in necessary SEC rulemaking), interacts with public offering status under the 1933 Act and public company status under the 1934 Act. Using the analytical framework offered by Don Langevoort and Bob Thompson, along with insights provided in Hillary Sale’s work, the article briefly explores how the CROWDFUND Act impacts and is impacted by the public/private divide in U.S. securities regulation. The article also offers related broad-based observations about U.S. securities regulation at the public/private divide.

I hope that you are motivated to read the article--and that you get something out of it if you do read it.  The thinking involved in creating the article was often challenging (even if the expressed ideas may not reflect or meet that challenge).  Yet, writing the article, in light of the super work already done by Don Langevoort, Bob Thompson, and Hillary Sale, was joyful and illuminating for me in many ways.  

I often say that I stand on the shoulders of giants in my teaching and scholarship.  That was transparently true in this case.  If only all academic research and writing could be so rewarding.  

May 20, 2015 in Corporate Finance, Joan Heminway, Securities Regulation | Permalink | Comments (1)

Take Over Defenses: Vive La France!

Professor  Steven Davidoff Solomon posted this article to the DealBook yesterday highlighting France's new 2-votes for long-term shareholders law:  The Florange Law.  

The centerpiece of the Florange Law is a mandate that French companies give two votes to any share held for longer than two years. This goes against the historical one-vote-for-every-share system that most countries have. The law allows an opt-out if two-thirds of shareholders approve one by March 31, 2016.

ISS issued a guide (Download Impact-of-florange-act-france) opposing the law and encouraging investors to pressure directors to opt out of the law (through amendments to corporate bylaws) before the deadline.  

Professor Davidoff Solomon questions the strength of the one-share-one-vote corporate democracy in the U.S., noting that recent IPOs, like Facebook, went public with two classes of stock as a anti-takeover measure.  There is also the related question of what impact a law like this would have given the turnover rates of many institutional investors. 

-Anne Tucker

May 20, 2015 in Anne Tucker, Corporations, M&A | Permalink | Comments (0)