Business Law Prof Blog

Captain Obvious: What Not to Do As A Securities Lawyer

The SEC has filed an administrative action against an attorney alleging that he falsified documents during an SEC examination.  (The full order is available here.) Here is a summary of the allegations (and keep in mind that, at this point, they are just unproven allegations):

"The SEC’s Office of the General Counsel alleges that David M. Tamman — in the course of an SEC examination of his client NewPoint Securities LLC in April and May 2009 — altered private placement memoranda (PPMs) purportedly used in the offer and sale of securities issued by NewPoint Financial Services. The original PPMs purportedly provided to investors stated that the funds raised in the offerings would be used primarily for real estate related investments. In fact, the vast majority of money raised in the offerings was misappropriated by NewPoint’s principal John Farahi.

"The SEC’s Office of the General Counsel alleges that Tamman — a member of the California Bar and a partner at a large international law firm — added language to the PPMs to make it appear that it was disclosed to investors that much of the money raised by NewPoint would be loaned to Farahi. The PPMs were then produced to the SEC’s examination and enforcement staff. According to the Office of the General Counsel, Tamman knew that the language he added to the documents was not included in the PPMs actually provided to investors."

Kids, don’t try this at home.

USDA and CFTC Begin Carbon Market Design Discussion

Today and tomorrow the CFTC and the USDA will host a workshop to discuss issues and opportunities related to creation of a carbon market.  According to the press release:

The workshop will bring together policymakers, industry participants, nongovernmental organizations and academics to discuss issues facing the establishment of efficient carbon markets in the United States.  The workshop will serve as a forum to consider the lessons learned from existing carbon/environmental markets to inform policymakers about potential hurdles to the design of domestic carbon markets.

This looks like an interesting conversation, and there are some great speakers on the agenda.  One thing I noticed, though, is that there does not appear to be anyone on the panel with a legal background, in academics or practice. I also didn't see anyone representing the people who would actually handle the nuts and bolts of operating in such a market. And there isn't clearly anyone representing the political perspectives. 

Don't get me wrong. I'm not questioning the background of the people at the conference or the value of the conference. I just can't help but notice that the scope of the speakers seems to underrepresent some key segments of creating and implementing such a market.

--JPF

Vermont Legislature Considers Constitutional Amendment Eliminating Corporate Personhood

As reported by truthdig (HT: Keith Bishop):

In Vermont, state Sen. Virginia Lyons on Friday presented an anti-corporate personhood resolution for passage in the Vermont Legislature. The resolution, the first of its kind, proposes “an amendment to the United States Constitution that provides that corporations are not persons under the laws of the United States.” Sources in the statehouse say it has a good chance of passing.

SJP

Chapman Symposium After Action Review

I just got back from the Chapman Law Review Symposium: From Wall Street to Main Street: The Future of Financial Regulation (videos of all the talks are in the process of being put up on the law school's home page).  A few quick comments: (1) I thought the event was exceptional from beginning to end and the entire Chapman School of Law should be proud--I doubt anyone left there with anything but the most positive impression; (2) California has sunshine, Cleveland has grey skies; California has warm breezes, Cleveland has snow ... no, I'm not bitter; and, (3) the overall view of Dodd-Frank was extremely negative.  At the very end of the last panel one of the students in the audience even asked something along the lines of: "Given all the negativity, would we be better off without Dodd-Frank?"  I think the response that was given was the correct one:  The negativity is not so much a function of there not being anything to praise in Dodd-Frank.  Rather, the negativity is a function of a seemingly pervasive sense (at least at this symposium) that Dodd-Frank represents more than anything a missed opportunity to deal with, among other things, the problems of the "Washington Consensus."

SJP

SEC Changes to Accredited Investor Miss the Point

As required by Dodd-Frank, the SEC today voted to proposed rules that would bring the definition of "accredited investor" into compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act.  As explained in the proposed rule (pdf here) Dodd-Frank section 413(a) required that the definitions of “accredited investor” in the SEC's rules "to exclude the value of a person’s primary residence for purposes of determining whether the person qualifies as an 'accredited investor' on the basis of having a net worth in excess of $1 million."  

The rule now provides:

Any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of purchase, exceeds $1,000,000, excluding the value of the primary residence of such natural person, calculated by subtracting from the estimated fair market value of the property the amount of debt secured by the property, up to the estimated fair market value of the property. 

Thus, in excluding the value of the primary residence, the calculation will net out any mortgage.  The SEC explains that under the old rules, an investor with a conventional calculation of net worth of $2 million with a $1.2 million primary residence (FMV) and a mortgage loan of $800,000, the investor’s net worth under the new accredited investor standard would be $1.6 million.  Before Section 413(a), the net worth would have been the $2 million.  The SEC thus reasons that, under the old rule, the "primary residence would have contributed a net amount of $400,000 to the investor’s net worth for purposes of the accredited investor net worth standard—the value of the primary residence ($1.2 million) less the mortgage loan ($800,000).  Under the proposed rule, exclusion of the value of the primary residence would reduce the investor’s net worth by the same amount of $400,000.   

Okay, but this has a potentially perverse effect. Here's my math:

Old Rule:

$1,600,000 Other Assets

$1,200,000 House

($800,000) home mortgage

$2,000,000 net worth

Proposed Rule:

$1,600,000 Other Assets

$1,200,000 House

($800,000) home mortgage

($400,000) value added by home

$1,600,000 net worth

This seems fine, but it also sends a message that I think conflicts with the intent of Section 413(a):  take on more debt to raise your net worth.  How?  

Under the proposed rule, the same investor can raise his or her net worth for accredited investor purposes by taking out a larger loan on the home.  

Proposed Rule, Bigger Loan:

$2,000,000 Other Assets ($1.6 million + the $400,000 cash from taking an additional mortgage)

$1,200,000 House

($1,200,000) home mortgage

$2,000,000 net worth

Okay, perhaps someone can't get a 100% loan today (certainly it's not as easy), but you can see the point. In my view, Dodd-Frank was intended to take the primary home out of the equation.  Under this rule, you do that to a point,  but if someone owns their home outright, they can take a loan on it, add that cash to their assets and raise their net worth. Perhaps better stated, the investor is encouraged to maintain debt for purposes of investment, even if it isn't quite this easy.  

For example, suppose someone has a $800K in non-primary-home assets, and a $1.2 million home with no mortgage.  This person has a conventional net worth of $2 million, but cannot meet the $1 million net worth calculation under the proposed rule.  If the same person takes out $400K in a mortgage, that money can be added to their non-home assets.  The new net worth is $1.2 million because the $800K goes to non-home assets and the SEC nets out the rest.  In fact, the SEC notes in the proposed rule that "The North American Securities Administrators Association (“NASAA”) has recommended that we not permit the exclusion of debt secured by a primary residence from the calculation of net worth if proceeds of the debt are used to invest in securities."  At a minimum, I think NASAA is right. 

The change in Dodd-Frank may be wrong but that's not the issue.  The SEC's proposed rule does not satisfy what I think was the point of the legislation. Thus, it may be the better rule, but it's not the right rule.  

--JPF

 

 

Best Business Movies?

The recent announcement of the Academy Award nominations has me thinking about movies—in particular, movies about business or business law.

Several lists of the best business movies are available online.  Business Pundit has one here. Forbes has one here.  And MSNBC has one here.

Some of the movies on these lists aren’t really what I would consider business movies.  For example, Clerks and It’s a Wonderful Life are both on the Business Pundit list.  I think Clerks is hilarious and It’s a Wonderful Life is one of my all-time favorite movies, but their focus isn’t really business, and certainly not the law of business.  All three lists also include at least one of the Godfather movies.  Again, great movies, but not what we usually think of as business--no business I ever represented, at least.

Business Pundit’s top move is The Godfather and Forbes’ top move is Citizen Kane. MSNBC just lists their top ten chronologically. 

My favorite, perhaps because I teach Securities Regulation and Mergers and Acquisitions, is Wall Street—the original 1987 movie, not last year’s lousy Money Never Sleeps sequel. [Great performances by Martin Sheen and Michael Douglas--and Oliver Stone somehow manages to keep his personal views out of the picture until the somewhat contrived bad-guy-gets-it-in-the-end conclusion. 

And, of course, who can forget Gordon Gekko’s immortal “Greed is Good” speech:  "The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."

So what are your favorite business law movies and why?

-Steve Bradford

Financial Crisis Inquiry Commission Issues Report

Relevant links can be found on the FCIC's website.  Here is the conclusion:

[T]his crisis was avoidable—the result of human actions, inactions, and misjudgments. Warnings were ignored. “The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done. If we accept this notion, it will happen again.”

Prof. Bainbridge responds here.

SJP

700+ Million Reasons to Comply with the Clean Air Act

The U.S. Environmental Protection Agency today announced a settlement with Hovensa LLC to resolve public health concerns and Clean Air Act violations at Hovensa's St. Croix, U.S. Virgin Islands, petroleum refinery.  The settlement provides for a $5.375 million civil fine and an agreement to spend more than $700 million in "new pollution controls."  

Hovensa LLC is jointly owned by Hess Corporation and Petróleos de Venezuela, S.A..  As a publicly traded company, I can't help but wonder if Hess (ticker: HES) might want to exercise a little more oversight of its joint venture LLC. After all, before this settlement was announced, Hovensa, at least on paper, was already a loser.  According to Hess's most recent 10-Q, Hovensa LLC lost $83 million for the three months ended September 30, 2010, and $174 million for the nine months ended the same date.  

Then again, that may have all been by design.  Regardless, I suspect this EPA thing would not have been part of any such plan.

--JPF

 

Davidoff, Morrison, and Wilhelm on Investment Banking

Steven M. Davidoff, Alan D. Morrison, and William J. Wilhelm Jr. have posted Computerization and the Abacus: Reputation, Trust, and Fiduciary Duties in Investment Banking on SSRN with the following abstract:

On April 16, 2010 the Securities and Exchange Commission (SEC) filed a civil complaint against Goldman Sachs in the U.S. District Court for the Southern District of New York. The complaint alleged that Goldman violated the anti-fraud provisions of the federal securities laws, in connection with a 2007 synthetic collateralized debt obligation (CDO) transaction, ABACUS 2007-AC1 SPV (ABACUS). Goldman agreed a $500 million settlement with the SEC on July 15, 2010. We analyze the ABACUS transaction and the SEC's complaint against Goldman Sachs in the context of recent technological changes within the investment banking market. Investment banking was historically a relationship-based business, sustained by reputationally intermediated tacit contracts. Recent advances in information technology and financial economics have codified many formerly tacit elements of investment banking. As a result, some investment banking deals are now transacted at arm's length, and rely more upon formal contracts; we argue that, for this type of deal, there is a stronger case for legal rules regulating the investment bank-counterparty relationship. However, some deals continue to be arbitrated by tacit rules and norms and, for these deals, legal rules are less appropriate, because it is very hard for a third party to ascertain tacit understandings made in the context of a long-lived relationship. An attempt to introduce legal rules into reputationally intermediated relationships may even impair the counterparties' ability to arrive at informal arrangements, and so to trade. The supervision of deals like ABACUS should therefore reflect the extent to which they are transactional or relational; we argue that in neither case is there justification for the application of legal rules or the gap-filling standard of fiduciary duties.

-ECC

It is with heavy pen...

...that I write my last Post tonight.  I wish to thank my co-editors Josh, Stefan and Eric for a great, insightful year.  My various teaching and writing responsibilities simply don't afford the time necessary for me to continue as an editor with the Blog, as much fun as it has been.

And what a year we've seen.  The attempt by Congress to fix the regulatory mosaic via Dodd-Frank.  Yet another SEC crusade against insider trading (this one with wiretaps!).  Countries being "downgraded" by credit rating agencies; a state sued for faulty disclosure.  "Investments" stretching to include dubious foreign baseball academies and more traditional wagers on life insurance proceeds.  The Wall Street Journal opining that the recession is over, with various economic indexes screaming that it's not.

Looking back on 2010, I hope in future days I recall it most as the great awakening on financial health.  People are scouring their mortgage statements for details, economists are juxtaposing remedies from different eras, and students are beginning to suspect that a number of supervisory failures can be tied to SEC clout and funding.         

We've learned to survive with minimal interest on our savings accounts, and without stock dividends.  We've patiently watched the stock market slowly creep back, and we've idealistically hoped for a steady rise in employment.  Overall, we've remained admirably calm for a nation with so many home mortgages still set to default.  

But we've also seen alarming numbers of people on the left and right delegate their judgment to TV personalities.  And that's why complacency remains our number one enemy.

So I sign off by saying do not go quietly into the news tonight.  Continue to debate the efficacy of government regulations, the accuracy of employment statistics, the value of net capital limitations, the reason why the big things don't seem to change.  Write posts and comments and blogs and sound off wherever possible to keep rational, civil debate alive.  For far more daunting than adjustable rate mortgages and CDOs is the specter that those who actually read the fine print will become indifferent.  As a reminder, we've got Basel III, mandatory arbitration, executive compensation, proprietary trading and extra-territorial application of fraud prohibitions all teed up for consideration.  With a President now tuned to global competitiveness, it may be more important than ever that academia explore novel, worldwide initiatives to prevent man from his own entrepreneurial carelessness or internecine greed.  There may be no simple solution to any of the suddenly pressing legal-economic problems confronting us, but let the future say that at least our decisions were adequately informed and robustly discussed.

In three words, "Blog On America," and I think we'll be alright.

---JSC, 1/25/11     

David Skeel on the Dodd-Frank Act

I just finished reading David Skeel’s new book on the Dodd-Frank Act, The New Financial Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences.  Skeel’s book is a very good introduction to the major provisions of the Dodd-Frank Act, including its regulation of major financial institutions and the new requirements relating to derivative clearinghouses and exchange trading of derivatives.  He has less to say about the corporate governance aspects of Dodd-Frank, but those provisions are, after all, a very minor part of the Act.  The discussion is straightforward and not laden with legal jargon, so this book is not only great for lawyers, but also for intelligent lay people wanting to know more about the Dodd-Frank edifice.

Skeel argues that Dodd-Frank, with its partnership between large financial institutions and government regulators, is a massive exercise in corporatism.  U.S. government corporatism didn’t begin in 2008, of course.  The recent government bailouts and government control of business corporations like GM continues a long-term trend that includes massive subsidies to ethanol and even the longstanding mortgage interest deduction. 

Recently, both liberals and conservatives have been criticizing corporatist polices.  This is an issue on which Tea Party conservatives and liberal populists could naturally coalesce, but I doubt it’s going to happen.  It’s hard to make common ground when you’re questioning each other’s character.

Skeel also argues that the discretion Dodd-Frank gives government regulators to intervene in business on an essentially ad hoc basis seriously undermines the rule of law.  Skeel and other worried about this issue cannot be comforted by developments in recent days at the Financial Stability Oversight Council.   Under the Council’s proposed rules, intervention depends on a determination that “the nature, scope, size, scale, concentration, interconnectedness, or mix of activities of the firm, could pose a threat to the financial stability of the United States.”  In other words, we’ll know it when we see it.  The Wall Street Journal recently ran an opinion piece on the ad hoc nature of federal intervention.  [This may be behind the WSJ's firewall, so a subscription may be required.]

Whether or not you agree with Skeel’s argument, the book is worth reading, and it’s only about 200 pages—less than a tenth of the size of the Act itself.

Steve Bradford

Midwest Corporate Law Scholars Conference -- June 15 at OSU

The Midwest Corporate Law Scholars Conference (MCLSC) meeting will be Wednesday, June 15th, at The Ohio State University Michael E. Moritz College of Law in Columbus, Ohio. This is the second annual meeting of the MCLSC, and we are opening up the meeting to all corporate law scholars.  Presentations will start in the morning and end late afternoon. There will be an on-campus lunch and breakfast, as well as an informal off-campus dinner Wednesday night following the end of the conference. We welcome all on-topic paper submissions and will attempt to provide the opportunity for all submitted papers to be presented.  Junior scholars are particularly encouraged to submit papers, and we will attempt to assign a commentator for each junior paper presented. 

To submit a presentation, email Profess Eric C. Chaffee at eric.chaffee@notes.udayton.edu with an abstract or paper by March 15, 2011. Please title the email “MCLSC Submission – {Name}”. If you would like to attend, but not present a paper email Professor Chaffee with an email entitled “MCLSC Attendance”.  Please specify in your email whether you are willing to serve as a commentator. A conference schedule will be circulated in May.

Conference Organizers

Barbara Black

Eric C. Chaffee

Steven M. Davidoff

-ECC

FCPA Cases Still Going Strong

The SEC today released another complaint alleging violations of the Foreign Corrupt Practices Act (FCPA), this time alleging that a former CEO of Innospec participated in a bribery scheme seeking to get and maintain business by paying Iraqi government officials. (pdf here) 

It seems like there have been a lot of FCPA cases this year, which apparently continues a trend noted at the Harvard Law School Forum on Corporate Governance and Financial Regulation last May ("Although enforcement of the Foreign Corrupt Practices Act ('FCPA') has been trending upward for several years, the first quarter of 2010 saw unprecedented developments in the enforcement of the statute.") 

Today's release follows recent SEC filings of FCPA charges against Alcatel-Lucent, S.A., and Pride International, Inc., and six other oil services companies.   

--JPF 

 

The SEC Broker/Investment Adviser Fiduciary Duty Study

Over the weekend, the SEC released its Study on Investment Advisers and Broker-Dealers. This is one of many studies required by the Dodd-Frank Act, in this case by section 913 of the Act.

The Staff recommends that the SEC adopt a uniform fiduciary standard for brokers, dealers, and investment advisers.  Under that standard, “all brokers, dealers, and investment advisers, when providing personalized investment advice about securities to retail customers (and such other customers as the Commission may by rule provide), shall . . . act in the best interest of the customer without regard to the financial or other interest of the broker, dealer, or investment adviser providing the advice.”  That fiduciary duty, the staff suggests, should be “no less stringent” than the fiduciary duty advisers currently owe under Section 206 of the Advisers Act.

The study raises a number of issues.  An obvious one is when, exactly is a broker, dealer, or investment adviser “providing personalized investment advice.”  The Study indicates that rulemaking or interpretive guidance will be needed to answer this question.  But the SEC won’t be writing on a blank slate.  Under the Supreme Court’s decision in Lowe v. SEC, 472 U.S. 181 (1985), personalized investment advice is a component of the definition of “investment adviser" under the Investment Advisers Act.

Another issue is how precisely a dealer, which is by definition buying or selling for itself, can act without regard to the dealer’s financial interest.  When selling, for example, must the dealer sell at its cost?  Or would disclosure of the dealer’s interest suffice?  (The Study has a lot to say about disclosure of conflicts of interest.)

Commissioners Kathleen Casey and Troy Paredes, the two Republican appointees on the Commission, released a statement that essentially disclaims the Study:  “ . . . we oppose the Study's release to Congress as drafted. We do not believe the Study fulfills the statutory mandate of Section 913 of the Dodd-Frank Act to evaluate the ‘effectiveness of existing legal or regulatory standards of care’ applicable to broker-dealers and investment advisers.”  They also point out, as the Study’s own title page makes clear, that studies such as this one express the views “of the Staff of the Commission and not necessarily those of the Commission as a whole or of individual Commissioners.”

It will be interesting to see how long it takes the SEC to come out with proposed rules, which, I assume, is the inevitable result of this Study.  We can probably count on at least two votes against any uniform fiduciary duty rule.  Stay tuned.  In the meantime, the Study is well worth reading.

Steve Bradford

An Introduction

I want to thank Professors Chaffee, Colesanti, Fershee, and Padfield for giving me the opportunity to guest blog here on the Business Law Prof Blog.  I follow the blog regularly and enjoy reading their posts.  In my time here, I will do my best to maintain the standard they have set.

A bit about myself: I’m a professor at the University of Nebraska College of Law, where I teach Business Associations, Securities Regulation, Accounting for Lawyers, Mergers and Acquisitions, and a course with the long-winded title, Securities Brokers, Mutual Funds, and Investment Advisers.  (If you can think of a pithier title, let me know.)  My scholarship focuses on securities law issues, but I’m also interested in the uses of technology in legal education.  Along that line, I have authored 14 computer-assisted legal instruction (CALI) lessons and have developed a digital statutory supplement for securities courses (or for anyone else who wants to use it), DIGITAL SECURITIES LAW: STATUTES AND REGULATIONS.  I also have a strong interest in legal humor, although I will try not to inflict that on anyone reading this blog.

If, for some odd reason, you want to know more, try here.

Enough about me.  On to the blogging.

-Steve Bradford

Welcome Guest Blogger Steve Bradford

We are pleased to welcome Prof. C. Steven Bradford, Earl Dunlap Distinguished Professor of Law at the University of Nebraska College of Law, to the BLPB for a month of guest blogging.  I'll leave the more detailed introductory bio to Steve, but I think it's fair to say that anyone who subtitles their webpage "The Best Securities Law Professor in Lincoln, Nebraska" is likely to have a few interesting things to say.  I'm really looking forward to reading his posts, and thank Steve for accepting our invitation.

SJP

Win Some, Lose Some

"Win": My short piece arguing that the majority in Citizens United embraced a presumption in favor of the nexus-of-contracts theory of the firm has been posted by the Harvard Business Law Review Online.

"Lose": My documented prediction that SCOTUS would affirm the Third Circuit's conclusion that corporations have the ability to claim personal privacy rights under FOIA appears to be faring badly.

All of which reminds me of the story about how, when it comes to picking winners and losers, it is often too soon to tell.

SJP

 

Do Catholics Love Renewable Energy?

I'm not sure, but I can give you a definite maybe with some data to support it. 

In my recently published article (available here) in the William & Mary's Environmental Law & Policy Review, When Prayer Trumps Politics: The Politics and Demographics of Renewable Portfolio Standards, I analyzed a variety of data looking for trends in states with renewable energy mandates. Energy issues often are touted as highly political and/or resource specific, but there's more to it than that. Here's the abstract: 

This Article seeks to understand who supports renewable energy mandates (and why) by analyzing a variety trends found in political and socio-economic data by state, as well as by state renewable energy opportunities (or the lack of such opportunities). The review finds little shocking in the way of politics: Democratic states tend to favor mandates and Republican states tend not to have mandates.  Somewhat surprisingly, the correlations among states with wind and solar resources (as well as most of the demographic data) ranged from limited to inconclusive.  In religion, however, a strong trend developed.  The states with higher Catholic populations strongly favored renewable energy mandates, and the states with higher non-Catholic Christian populations almost uniformly shunned such mandates.

The idea behind the article was to seek and analyze statistical information about who supports renewable energy mandates, by considering trends found in political and socio-economic data by state. To that end, I first considered possible correlations between renewable energy mandates and state choices for president in 2000, 2004, and 2008.  Next, I reviewed possible links between renewable mandates and state renewable energy resources, such as wind and solar.  Finally, I looked for possible correlations between renewable energy mandates and a wide variety of demographic data, including race, poverty rate, religion, and level of education attained. 

I don't claim to have figured out who specifically likes (or hates) renewable energy mandates, nor do I claim to have found a method to pass (or kill) such mandates.  Quite simply, I analyzed a variety of state by state data looking for "especially compelling trends and consistencies, i.e., more than mere majorities or slight leanings, among the people of the RPS states. From an evidentiary perspective, [the] article seeks trends closer to 'beyond a reasonable doubt,' or at least 'clear andconvincing evidence,' rather than a 'preponderance of the evidence.'"

This is all at best correlative -- I have no evidence to prove causation.  What it does show, though, is that nothing is as easy as it seems. Okay, not a groundbreaking conclusion, in itself.  But I can show that some commonly held beliefs often aren't supported by the data.  I can also show that some data, such as a state's religious make up, are as good or better predictors of a state's renewable energy laws than the state's political make up.  

There may be two dominant political parties, but people have views far more nuanced than those represented by Republican or Democratic party platforms.  It's just that, in almost all elections, those are the only two choices, and the candidates representing those two choices tend to be all in with their party's platform.  And this matters, whether we're talking about renewable energy mandates, financial regulation, or health care reform.  At least, it should.    

--JPF

Common Cause Requests Justice Department to Investigate Whether Justices Thomas and Scalia Should Have Recused Themselves in Citizens United

The New York Times story is here.  Common Cause's statement is here.

SJP

Internal Conflicts: Using Saleschildren to Close the Deal

As the proud parent of a five-year-old (excuse me, five and a HALF), my wife and I are experiencing kindergarten as parents for the very first time.  Overall, it's been a great experience.  Our son has an engaged and energetic teacher, a beautiful facility, and a usually nurturing and challenging environment.  Last night, however, brought home a new experience.  

Our public elementary school often has fundraisers to help supplement the school's budget. This year we have been to Turkey Bingo and bought pizzas to support the PTO. Last night a new option came home: a company selling books and magazines.  The program apparently involved bringing a salesperson into the school promising opportunities to win prizes if the kids brought back, the next day, ten postcards filled out with addresses of family and friends asking these people to support the school through purchases. If the kids did bring the postcards back filled out, they would win a small prize and be in a drawing to win a big prize.  Other sales accomplishments even lead to a chance to win a "cheeseburger phone."

Apparently the salesperson was very energetic and had the kids quite excited.  When my son gave me the envelope (he noted that the salesperson "actually said ON-velope, but that's okay, I knew they meant "EN-velope"), he said we "HAD to fill out the postcards and bring them back tomorrow."  Being obstinate, as I tend to be, I said, "We don't HAVE to do anything."  Then came the waterworks.  

In talking to him, it became clear that he equated this sales program to other things he brings home from school that are required -- like his homework or an approval form that needs our signature. After some conversation, I got him to calm down, and I explained that this is a nice thing to try to raise money for the school (I was being generous here), but that it's not required.  In fact, some people can't afford to buy extra things or may not have family or friends they can ask to help. I told him that we can, and that I would do it this time, but that it's not a problem if we don't do it.  Just as important, I wanted him to know that if someone in his class could not return the postcards and/or make an order, it did not make them bad or sad.  They may not be able to do it, may not be comfortable doing it, or may even have forgotten, and that it was okay whatever the reason.  

To be clear, I'm not someone who is opposed to paying taxes for public education (ours are quite high and I'm okay with that), and I think education deserves significant financial support. As it is, I think most teachers are both under paid and under appreciated, and I am thankful to have good schools in my neighborhood.  I don't fault administrators for trying to do more, and I'm willing to do my part to help in that quest. 

I do, however, have a problem with tactics linking a child's perception of success to a child's level of sales. I have a problem with linking reading to sales. And I have a problem with the school's stamp of approval that essentially made magazine sales a part of the curriculum. Beyond that, I don't like the potential conflict the school creates between parent and teacher, especially for five and six year olds.

The conflict?  If the school tells a child that something is very important and the school needs their help and support (i.e., sales)  and a parent has to tell the child that they cannot or will not buy something or distribute the sales cards, the parent is now undermining the teacher.  It is teaching the child that there are times when it is okay to ignore the teacher or administrator, which (barring wildly inappropriate behavior) is contrary to what we are teaching our child.  Quite simply, the message is wrong, even if the goal is right.  

And the link between this and business law?  Well, I'd say it's somewhat analogous to teaching young associates that the number of hours billed is more important than the quality of work. Of course it's important to have a good work ethic and work hard for your clients and employer, but quality of work should be first, not quantity.  And in most places, the ideal is both high-quality and high-quantity work, which is okay. I think the quantity over quality message (in that firms tend to track and reward hours a lot more than quality work, especially for young lawyers) is tough on young lawyers.  But at least in that case, they are both adults and lawyers, which makes it bearable, if not ideal.

--JPF