January 1, 2011
Law Profs and Labor
The annual meeting of the American Association of Law Schools is set to kick off in San Francisco next week. For the past few months, the academy has been struggling with how best to deal with the on-going labor dispute at the hosting Hilton hotel. You can get some of the relevant info here. In the interest of full disclosure, I must admit that I haven't paid as much attention to this issue as I probably should. I did make my reservation at an alternate hotel, but I most likely will attend events at the Hilton if they are specifically related to my core teaching and scholarly interests or my duties as an AALS rep.
What I want to blog about today, however, is a recent email distributed by Gary Peller on behalf of the "Ad Hoc Committee of Law Professors to Support the Hilton Boycott." The email included a letter "translated from a conversation with Guadalupe Chavez, a 30-year housekeeper at the Hilton Union Square. Ms. Chavez is a Union Shop Steward, a Negotiating Committee Member, Executive Board Member, and grandmother."
I have been cleaning rooms for 30 years. I push a cart that easily weighs 100 pounds. I am constantly under pressure from management to clean 14 rooms a day. Stretching to clean the mirrors and shower doors, bending to clean the floors and make the beds has led to constant pain in my hands, back and knees. I cannot quit working now, because my family depends on me for the affordable health insurance. I am not alone in this situation. There are many workers still working with disabilities now. It’s like a circus when we’re changing into our uniforms. We smell like Bengay and have braces all over. Many of us have medical conditions. People call it the handicap room, because so many of us are injured, but we all still need to work to put food on the table, pay our rent, save for our kids’ college tuition. Blackstone wants me to clean 20 rooms a day, they want me to pay hundreds of dollars a month for health care, they want to freeze my pension, and they want to combine jobs so there are more layoffs. . . . Meanwhile, Blackstone is making millions of dollars in profits and recently told the Wall Street Journal that it is giving all of its corporate employees 12% raises.
I think I know what a diehard capitalist's response to this complaint would be. Something along the lines of Blackstone needing to provide a significant return to its employees and owners in order to retain their services and investment in a competitive environment. Were Blackstone not to provide this return, it would likely not be able to invest in a business like Hilton and then employees like Ms. Chavez would be left with either worse or no jobs.
This is certainly a reasonable response. It does suffer, however, from being a suspiciously convenient story for those most commonly advancing it, often the very folks who also happen to be in the best position to advance an alternate story. It also suffers from forcing critics to argue hypotheticals. While there may be good reasons to believe the alternative consequences the story threatens are legitimate, the fact is there is no real way to know since the only reality we have to examine is the one which currently exists.
While I think there is a lot to be said for the capitalist story, and while my personal actions clearly convey my own ambivalence, I'm ultimately not ready to give up the belief that we can do better.
December 31, 2010
A Possible Introduction Via the FCPA: Alcatel Meet Caremark
On December 27, the SEC charged Alcatel-Lucent, S.A., with several Foreign Corrupt Practices Act (FCPA) violations claiming the company was bribing foreign government officials to obtain business illegally. According to the press release:
The SEC alleges that Alcatel’s subsidiaries used consultants who performed little or no legitimate work to funnel more than $8 million in bribes to government officials in order to obtain or retain lucrative telecommunications contracts and other contracts. Alcatel agreed to pay more than $45 million to settle the SEC’s charges, and pay an additional $92 million to settle criminal charges announced today by the U.S. Department of Justice.
The SEC also stated that "the bribery scheme was the product of a lax corporate control environment at the company” and that the company "failed to detect or investigate numerous red flags."
Jones Day has a nice list of "ten questions "Ten Questions Every Director Should Ask About FCPA Compliance" (available here) that I suspect Alcatel directors are wishing they had considered right about now. Given that $133 million were need just to settle the various civil and criminal charges, I have to imagine that a shareholder derivative suit is already in the works, notwithstanding significant questions about the merit of most such cases. Regardless of what you think about these types of claims (and the obvious difficulty of winning such claims), this kind of oversight failure just screams "Caremark!"
December 29, 2010
A Few Thoughts on Holiday Sales, Gas Prices, and the Economy
Is the economy finally on the rebound? According to reports of holiday retail sales (see, e.g., here), the answer seems to be yes. Holiday sales are up 4% over last year, which was viewed as something of a stabilizing year after a fairly large downturn.
In addition, as of early December, gas prices were up to a two-year high, which had some concerned that holiday sales would suffer as a result. If sales did suffer because of the current $3+ per gallon prices, the economy may be in even better shape than the sales numbers indicate. As someone who drove more than 2700 miles in the past week, I can assure you that it's pretty easy to notice gas prices are higher than they have been in a while when you are on a big road trip.
I think this shows that, at a minimum, people are more comfortable that the current state of the economy is stable, if not robust. Not great news for those without jobs, but I think it does indicate that people are less apprehensive about continued and widespread job losses. And that is a good thing.
More Insider Trading: Caveat Emptor?
If you're an investor who thinks that the playing field is level today, with draconian insider trading penalties and massive enforcement efforts, you are too stupid to be allowed to go out in public let alone put money in the stock market. Look, any investor with the common sense God gave gravel knows that insider trading is rampant.
Whatever your view of insider trading, that's good stuff. I'm not sure whether I laughed out loud more vigorously at those lines or an earlier Bainbridge rant about modern law faculty hiring:
Maybe 20 years ago law schools valued things like high grades, law review membership, and prestigious clerkships. Not any more, however. As far as I can tell, what is valued these days are:
- Ability to network with people you knew in graduate school that got hired last year
- Having a PhD
- Having multiple publications, even if they demonstrate the author's utter lack of doctrinal knowledge or inability to do basic legal research
- Knowing what Rawls (or Dworkin) would think of X
- Being able to run linear regressions
- Being able to run regressions about what Rawls would think about X
I probably laughed harder at the latter because I had previously sent a paper proposal to Bainbridge to get his feedback and the paper was entitled "How Would Rawls Teach Citizens United." And lest there be any doubt, when I say this stuff makes me laugh out loud I mean it as a compliment. Anyone that can more or less suggest you are an idiot and still get you to chuckle in the process is worth reading regularly.
But I digress. On the insider trading point, I remain unconvinced that "a fool and his money are soon parted" makes for good regulatory policy. There is a meaningful body of precedent for the SEC pursuing boiler room operators for bilking retirees out of their social security checks by promising annual returns of 1,000% and the like. Obviously, no "reasonable" investor would believe such hype. But is saying "good riddance" really the best we can do?
Bainbridge also notes that the stock market has continued to thrive in the face of repeated insider trading scandals and that "[i]f any investors believe that the SEC’s enforcement actions drove insider trading out of the markets, they are beyond mere legal help." For me this raises the question of how much we actually know about investor behavior and beliefs. I wouldn't be surprised at all if a meaningful number of retail investors responded to the scandals by breathing a sigh of relief knowing the regulators were on the job. That may be stupid, but I think we need more evidence before we decide it is good policy to disabuse these types of investors of their beliefs. Bainbridge's point about the efficacy of other markets that don't prize the prosecution of insider trading as much as we do is muted somewhat for me by the question: As compared to what?
What I'd like to see more of in this area is the type of work done by Andrew Torrance in the area of intellectual property, specifically as regards traditional notions of the tragedy of the commmons. Maybe we'll get some more of this as a result of Dodd-Frank's encouragement of the SEC to do more investor testing.
Ultimately, this is all just convincing me that my next paper needs to be on insider trading. And who knows, after delving into the relevant materials more deeply I may find that a number of my questions have already been answered in a way I would find counterintuitive. If that turns out to be the case, I won't hesitate to change my tune.
December 28, 2010
Wisdom From A Different Yogi...
My Regulation of International Markets class engaged in a lively discussion today. The topic was insider trading - not the frequency, the prohibitions, or the penalties, but the cause. The varied theories shared by the 2Ls and 3Ls served as testament to how little of which we can be sure concerning the crime that perpetually tops the business regulator's public enemy list.
Is the cause simple greed? From Martha Stewart to the notorious "Yuppie Five", numerous cases belie the notion that the violation is triggered by the desire for more or easier money.
Thus, is the desire to become a "player" as strong as Oliver Stone would have us believe? It's truly frightening to think that, after 50+ years of criminalization, market cheating is so readily mistaken for status or competitive advantage.
Separately, is insider trading motivated simply by custom or practice? Those of us who have spent time on stock exchanges Floors are consistently impressed by how much is dictated by simple routine. And as the Specialist cases revealed, the young trader may blindly adopt the tendencies of the more experienced around him.
Ultimately, is the violation unavoidable? Years ago, a student summed up the SEC's "abstain or disclose" rule as effectively requiring someone to stand on a track while the train arrives. The students polled today noted that in so many areas of life, knowledge is power, and secrets cannot be kept.
Personally, I found my thoughts returning to the various SEC officials I've heard over the years who remind that, although the crime shall always be with us, that's no reason to lessen its punishment. Parallels are inevitably drawn to prostitution and drug dealing, both of which continue unabated despite a society's best intentions to combat them.
This may be so, but with scant SEC resources, a globalized market with non-harmonized rules, and yet another anti-insider trading crusade underway, I sure wish we'd see more research as to what primarily motivates an educated professional to risk career, fortune, and/or liberty. Methinks it's all too often the desire to prove one's self smarter than the average bear (or bear's self).
December 27, 2010
AALS Hot Topics Panel: The BP Blowout Oil Spill and Its Implications
I have the pleasure of joining a Hot Topics panel for AALS 2011 in San Francisco. The panel will occur, Friday, January 7th from 10:30 a.m. to 12:15 p.m. Here's the panel description:
The well-publicized BP oil spill in the Gulf of Mexico, which began in April, 2010 and continued for 86 consecutive days, was an environmental and human disaster of the first order. This panel will focus on a number of the broad policy implications of the spill. Topics to be discussed will include the implications of the BP spill for the conceptual framework used in planning for environmentally important places, regulatory privatization, regulatory capture, the systemic lessons to be learned from both the BP and Exxon Valdez oil spills, the extent to which environmental law is adequate to prevent future oil spills, the implications of the spill for implementation of the National Environmental Policy Act, environmental justice issues raised by the spill, and approaches to teaching law students about the spill. The panelists have promised to keep their remarks relatively brief in order to allow ample time for comments and questions from the audience.
Speaker: Rebecca M. Bratspies, City University of New York CUNY School of Law
Speaker: David A. Dana, Northwestern University School of Law
Speaker: Professor Joshua P. Fershee, University of North Dakota School of Law
Speaker: Victor B. Flatt, University of North Carolina School of Law
Moderator: Joel A. Mintz, Nova Southeastern University Shepard Broad Law Center
Speaker: Hari Michele Osofsky, University of Minnesota Law School
Speaker: Cymie Payne
Speaker: Zygmunt J. Plater, Boston College Law School
Speaker: William Snape, American University Washington College of Law
If this is of interest, I hope you can join us.
December 26, 2010
Insider Trading is Illegal
Would you invest in the stock of publicly traded companies if you knew that every time insiders became aware of market-moving information they would first trade on it themselves, then share it with their quid-pro-quo "friends" who would then also proceed to trade on it, and only then release the information publicly? Sure, by the time you sold (assuming it's bad news) your stock could well be very accurately priced--but how much consolation is that? And even if a bunch of really smart people could present you with some nifty arguments about how you're actually not hurt (heck, you're actually better off) by allowing this sort of activity--are you really rushing off to pay to play this sort of game? How much of a discount is sufficient to make this sort of playing field level for you?
Let's assume that insider trading remains illegal despite all the protestations to the contrary because a great bulk of investors don't like it and the regulators have this silly thing about maintaining confidence in the stock market. Lynn Stout suggests that there may be something about hedge funds that uniquely sets them up to cultivate criminals in this area. Specifically, she notes: (1) the top-down emphasis on returns uber alles; (2) the influence of the "weeded garden" that remains after all those who can't keep up with the cheaters' returns are let go; and, (3) full digestion of the enabling message that insider trading doesn't hurt anyone. Geoffrey Manne responds by opining that this all adds up to nothing more than generic agency costs and human behavior. But I think Stout may be on to something because "size matters"--that is to say, while the levers at work may be generic the force with which they are being manipulated may well be unusual in the hedge fund context.
None of which is to say that I don't remain open to being convinced that holding insider trading to be illegal results in a net loss to society--I just haven't been convinced yet.