Business Law Prof Blog

Only 60% of 2010 law grads are in jobs that require bar passage.

According to The Lookout.  And I'm not sure I even want to know what the average salary for those jobs is ... or how it compares to average college grad salaries when adjusted for debt burdens and other opportunity costs.

SJP

Law Review Follow Up: Thanking Authors

After a couple posts about the law review experience (here and here), and espousing its virtues, I realized I have not taken the time to thank publicly some of the authors who made that experience so valuable and have served in various ways as resources along my journey into academic life.  I learned something from all of the authors I worked with, but the following people (in alphabetical order) have been especially helpful: 

Julie Davies: Assessing Institutional Responsibility for Sexual Harassment in Education, 77 Tul. L.Rev. 387 (2002).

Martin Davies: Time to Change the Federal Forum Non Conveniens Analysis, 77 Tul. L. Review 309 (2002).

Bill Henderson: Clear Sailing Agreements: A Special Form of Collusion in Class Action Settlements, 77 Tul. L. Rev. 813 (2003).

Colin Picker: "A Light Unto the Nations" -The New British Federalism, the Scottish Parliament, & Constitutional Lessons for Multi-Ethnic States, 77 Tul. L. Rev. 1 (2002)

Howard Wasserman: Compelled Expression and the Public Forum Doctrine, 77 Tul. L. Rev. 163 (2002)

It was a pleasure working with you almost ten years ago, and I appreciate your time, support, and respect.  If it weren't for the law review process, I probably wouldn't know any of you, and I might not even know that this is the career I wanted.  Thank you. 

--JPF 

 

Dueling Views on Money Market Funds

Today’s  Wall Street Journal contains a point/counterpoint from two law professors on whether investors should worry about money market funds. Jeff Gordon  argues that they should. Jonathan Macey  argues to the contrary.

Gordon argues that, if a single fund “breaks the buck,” all money market funds risk runs. Even if the fund is run by a strong financial institution, there’s no guarantee the institution will support the fund, as some did in the last recession. Gordon also argues that fund investors can’t count on the government bailing them out next time.

Macey argues that investments in money market funds are much safer structurally than bank deposits. According to Macey, stronger regulation of money market funds would drive money back into banks, where the return is lower and the risk to the system is greater. Macey argues that the problem in the last recession was due, at least in part, to the SEC’s laxity in letting poorly run funds invest in highly risky commercial paper.

Ironically, both Gordon and Macey conclude by endorsing the extension of government deposit insurance to mutual funds.

Definitely worth reading.

-Steve Bradford

Are the rule of law and intellectual diversity conservative?

Brian Leiter complains that conservatives aspiring for legal teaching jobs have an advantage because of programs like the Federalist Society’s  Olin-Searle-Smith Fellows in Law, which Leiter says “employ[s] ideological criteria for eligibility.”

The ideological criteria that Leiter is apparently complaining about? “Commitment to the rule of law and intellectual diversity in legal academia.” Seriously. Leiter provides no further explanation and this is the only thing I could find on the program’s web site  that even comes close to being ideological ideological criteria.

A commitment to the rule of law is certainly ideological, but hardly rightist. And who argues against intellectual diversity in legal academia? If support for the rule of law and intellectual diversity makes one a conservative, I would hope all law professors are conservative.

Leiter may be assuming that the Federalist Society awards fellowships only to those who support its ideology, and no one disputes that the Federalist Society has a conservative/libertarian philosophy.  But that’s not what Leiter says. He says the criteria themselves are ideological. If Leiter thinks the rule of law and intellectual diversity are conservative principles, then perhaps we do need more conservatives in legal academia.

-Steve Bradford

Call for Papers Announcement

AALS Section on Securities Regulation

Friday, January 6, 2012

10:30 a.m. to 12:15 p.m.

2012 AALS Annual Meeting

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The AALS Section on Securities Regulation will hold a program during the AALS 2012 Annual Meeting in Washington D.C. The topic is “Exploring the Regulatory Response to the Financial Crisis.”  The program will include presentations by SEC Commissioner Troy Paredes, Professor Lynn Stout (UCLA), Professor Robert Thompson (Georgetown), and two additional speakers chosen via this Call for Papers.

Eligibility:  Faculty members of AALS member schools are eligible to submit papers.  Faculty members of fee-paid law schools, Foreign, visiting and adjunct faculty members, graduate students, and fellows are not eligible to submit.

Submissions:  Eligible faculty members interested in presenting a paper should send a draft or proposal to William Sjostrom at william.sjostrom@law.arizona.edu by August 15, 2011.  Decisions will be announced by September 15, 2011.

Registration Fee and Expenses:  Call for Paper participants will be responsible for paying their annual meeting registration fee and travel expenses.

How will papers be reviewed?  Papers will be selected after review by members of the Executive Committee of the Section.

Contact for submission and inquiries:

William Sjostrom

Chair, AALS Section on Securities Regulation

University of Arizona

James E. Rogers College of Law

1201 E. Speedway Boulevard

P.O. Box 210176

Tucson, AZ 85721

520.626.6451

william.sjostrom@law.arizona.edu

 

-ECC

Zenger, Felin & Bigelow on Theories of the Firm--Market Boundary

Todd Zenger, Teppo Felin, and Lyda Bigelow have posted a paper on SSRN entitled, "Theories of the Firm--Market Boundary."  Here is the abstract:

A central role of the entrepreneur-manager is assembling a strategic bundle of complementary assets and activities, either existing or foreseen, which when combined create value for the firm. This process of creating value however requires managers to assess which activities should be handled by the market and which should be handled within hierarchy. Indeed, for more than forty years, economists, sociologists and organizational scholars have extensively examined the theory of the firm’s central question: what determines the boundaries of the firm? Many alternative theories have emerged and are frequently positioned as competing explanations, often with no shortage of critique for one another. In this paper, we review these theories and suggest that the core theories that have emerged to explain the boundary of the firm commonly address distinctly different directional forces on the firm boundary - forces that are tightly interrelated. We specifically address these divergent, directional forces - as they relate to organizational boundaries - by focusing on four central questions. First, what are the virtues of markets in organizing assets and activities? Second, what factors drive markets to fail? Third, what are the virtues of integration in organizing assets and activities? Fourth, what factors drive organizations to fail? We argue that a complete theory of the firm must address these four questions and we review the relevant literature regarding each of these questions and discuss extant debates and the associated implications for future research.

SJP

Stock Market Frenzy in . . . Mongolia?!?

The Wall Street Journal reports that the Mongolian stock market is booming, fueled by a mining boom and a government program that gave each Mongolian citizen 538 shares in a coal company that is soon to go public.

It will be interesting to see what happens here. Mongolia’s per capital annual income is only $2,000 and, according to the Journal, the IMF projects inflation above 20% by the end of the year. Also, a privatization in the 1990s that distributed free shares to all Mongolians didn’t go particularly well. If there is one lesson to learn from the post-Soviet privatizations in a number of countries, it is that privatization requires sufficient market infrastructure and investor education to be successful.

The article has a good historical perspective and is worth reading--if you can get past the Journal headline writer's cheesy reference to a "Mongol hoard."

-Steve Bradford

Energy Policy Lessons: Protect Me At All Costs (As Long As They're Your Costs)

Whether it's energy policy or financial policy, "people" want to be protected from bad things.  Things like blackouts, high gas prices, housing bubbles and failed credit markets.  But we also, apparently, want these things to occur cost free.  It's not clear to me whether "people" are the masses or our representatives in government, but it doesn't seem to matter. 

Take, for example, discussions about cybersecurity.  One report indicates that at least some in Congress believe our greatest national security threat is to the electric power grid.  In testimony before the House Energy and Commerce Subcommittee, ABC News quotes Rep. Trent Franks, R-Ariz. as saying the following about a national grid cyber attack:  

The sobering reality is this vulnerability, if left unaddressed, could have grave, societal-altering consequences. We face a menace that may represent the gravest short term threat to the peace and security of the human family in the world today.

Wow. That's a huge deal. And I agree it is a serious threat, even though I wouldn't go quite that far.  

To address these concerns, one of the legislative proposals is the GRID Act (H.R. 5026), proposed last year. That act:

Amends the Federal Power Act to authorize the Federal Energy Regulatory Commission (FERC), with or without notice, hearing, or report, to issue orders for emergency measures to protect the reliability of either the bulk-power system or the defense critical electric infrastructure whenever the President issues a written directive or determination identifying an imminent grid security threat. 

The Congressional Budget Office says the bill's "Statutory Pay-As-You-Go Impact" would be $0 over the next five years, and cost a little less than $7 million per year between 2015 and 2120. (See pdf here.) Pretty modest costs for the "gravest short term threat to the peace and security of the human family in the world today."

Similarly, Americans, and people around the world, support green energy, but are suspect of the cost. A June 2010, a Pew Research/National Journal Congressional Connection Poll found that 87% of those polled supported requiring "utilities to produce more energy from renewable sources." However, as a Financial Times/Harris poll found in October 2010 (press release pdf here), "When those who pay energy bills were asked how much more they would be willing to pay for renewable energy, most people in all countries said either no more or only 5% more." Interestingly, more people in the United States were willing to pay more than 5% for clean energy than those polled in Italy, Spain, France, Great Britain, and the United Kingdom. Australians also prefer green energy, according to The Economist, "So long as it doesn’t cost too much."

What does this tell us?  Well, a few things. First, we have great intentions on a lot of fronts, but those intentions are limited by our pocketbooks.  It's nice to want things, including safety, but we need to be willing to pay for them, too.  

Second, it appears Americans are more willing to pay more for some of these things in the energy context than many of our European counterparts, who are often held up as the great green societies. Of course, our European friends pay significantly more than we do for gasoline and diesel fuel.  But maybe that's the trade off. We're willing to pay more for electricity; they're willing to pay more for fuel. (Maybe those in Congress will pay attention to this dichotomy and focus efforts on places where they can actually effect change.)

Third, it sheds some lights on financial policies, too. We say we want to be protected from bad actors in the financial industry, but we don't seem to want to spend too much on that protection.  We'd rather (it appears) have some high-profile crackdowns on companies bribing foreign officials and those engaged in insider trading. 

Ultimately, it is possible that the political market is working and we're getting exactly what we want on both fronts. But that's not my sense, and the polls bear that out.  Then again, maybe polls just make us dumb.

--JPF 

Some Thoughts for Law Review Editors and Law Review Authors

As the discussion about law reviews and the value (or lack thereof) of student-edited reviews continues, I can't help but feel like some very thoughtful people are talking past each other. (See, e.g., here, here, and here.) As I mentioned last week, I see both sides of the story, and I often find myself agreeing in part with both camps. I am a former editor in chief (EIC) of the Tulane Law Review, and a law professor, and a law review advisor (the latter two at the University of North Dakota). I mention this because I feel like I have seen all sides of the law review process in a way that is (I think) different from many. 

As I noted before, I don't think that those who have expressed frustration with law reviews are mean spirited or inherently wrong. They have a point, but I can't quite get there. I simply think we can do better without scrapping everything. So, to add to the discussion (or further muddy the waters), here are some thoughts and examples from both sides of the experience:

(1) When I took over as EIC, I followed the format of prior editors, which involved a junior (usually 2L) member "sub and cite" edit, with oversight by a senior (3L) managing editor.  The article was then sent back to the author for the "initial edit."  (There were a few more internal steps, but this was roughly it.) The author would send the article back, and it would go through a more stringent review with the Senior Managing Editor, and then to me. One of our first articles came back from the author with a firm, but very thoughtful, and detailed response explaining why he believed many of our edits were wrong, and a request that I review the edits. 

During my review of the author's re-edits, I found that his original manuscript was right prior to our edits in most cases, and he was 100% correct in each place he took issue with our changes.  This was a great lesson for me.  I made his requested changes (and changed back some things he did not request), and apologized for adding to his workload, which we clearly did.  I also learned a valuable lesson. From that point forward, nothing went out of our office without my review. 

That may seem like a simple lesson, but it was not. I had a career before law school in public relations, and I had learned there that no PR plan, no press release, and no promotion prototype should go out without my review. And I still made the mistake because I stepped into a law review process and simply followed the system.  For me, there were many, many historical parts of the process I kept and found immensely valuable.  But nothing ever went out without me seeing it first after that. 

(2) I published an article for a symposium early after accepting my tenure-eligible position.  The symposium was great, and it was a wonderful experience.  The publishing, less so.  It took about a year for the article to get published, and when I asked for a redline of the article, I was told no.  Then I asked for a Word or Word Perfect version of the article, and despite some pleading, was again told no.  I wanted the article in print, so I said fine.  I then converted the PDF I was sent to a text, and ran a redline anyway.  It was hard, not easy to do, and probably missed some things.  In hindsight, I don't know why I accepted that, but I really wanted the article out. Awful. 

(3) I have since published with a number of different law reviews and journals, often related to symposiums.  Most of my experiences have been truly outstanding. The editors have been patient, detail oriented, and willing to work with me. Even when they have been wrong, they have been open to my rationale and explanation. And when I have been wrong, they have been courteous, intelligent, and thoughtful. 

Ultimately, I think student-edited law reviews can serve a great role in advancing scholarship, as long as we all better define and understand our roles.  Students could use help from experts in the field to know if the premise of an article is accurate and the foundation for an article is sound. And many editors are now getting that help. Students also ask good questions, and can help make sure a piece is accessible to more than just experts in an area. And, for the most part, they are smart and careful, and willing to look closely at details many people want to ignore. 

Plus, students learn more than just how to cite esoteric sources correctly and measure a margin.  They learn management, organization, and diplomacy.  These, too, are critical skills for lawyers, and there is no reason law reviews and journals shouldn't serve that role. For too many students, unfortunately, it is the only place they learn such skills in law school.  And they need to get those skills somewhere. 

As authors, we should be frustrated with student editors who don't treat articles and us with respect. (That applies to nonstudent editors, too, for that matter). We should expect deference to our positions and our style because it's our piece. But we should also respect the time and effort that goes into the process on the editing side. We should be respectful of students who care to spend countless hours with our work, and we should assume they are smart people trying to do the right thing, even if they aren't getting it quite right.  We just need to make sure they do get right.

At least for those of us who are professors, as most of us know, teaching doesn't end when the class period ends. We should offer help, input and constructive criticism when warranted. The authors who did that for me taught me invaluable lessons, and I am a better author, teacher, and scholar because of it.  

--JPF

Teaching Buy sell Agreements

Once again I am coming to the masses to see if you have any thoughts or suggestions about teaching Buy-Sell Agreements to students. I curently have students in my Unincorporated Business Associations class negotiate and draft portions of a Buy-Sell agreement as one of three negotiated drafting exercises that they do.  (If anyone is interested, you can  Download Buy Out Agreement Drafting Exercise:  it contains common facts, a balance sheet, a sample agreement and then secret facts for each client).  I have been thinking about how to approach teaching what is a fun, but complex tool.  (Also I just wrote a short article on buy-sell agreements, which I will link to when ready to go.)  With this on my mind, I am curious to know the following:

(1)  do you teach buy-sell agreements? if so, in what class?

(2) how do you teach buy-sell agreements? lecture, drafting, traditional cases, or supplemental "business" reading?

(3) does anyone have a citation for a great case that is illustrative of the purpose, pitfalls, or components of a buy-sell agreement? 

There have been 3 cases reported in federal courts in 2011, about 9 federal cases in 2010 and a handful of Delaware cases since 2000.  The search results lists are available to Download Buy-Sell federal litigation and Download Delaware Buy-Sell Agreement cases.

The most accessible (to students) description of buy-sell agreements that I have found is in Dwight Drake's Business Planning: Closely Held Entities book.

Anne Tucker

Corporate Law Conferences? What is on your radar?

As a new faculty member (and one without a VAP), one of my biggest challenges is building my network outside of my community at Georgia State.  A project of mine this last month has been trying to reach outside of my comfort zone by reading new authors, emailing with scholars and asking for feedback on early projects, and identifying business/corporate law conferences symposiums.  I've linked to the AALS Business Associations Section call for papers for the 2012 annual meeting in January in Washington D.C. Proposals are due July 20th.

I'd love to know what other conferences people are attending, or even where you are searching for this type of information. 

Anne Tucker

Canova on Central Banking

Timothy A. Canova has posted Black Swans and Black Elephants in Plain Sight: An Empirical Review of Central Bank Independence on SSRN with the following abstract:

This paper considers the constitutional and policy issues raised by delegations of monetary authority to privately-directed central banks. The paper critically reviews the empirical economic literature that seeks to correlate central bank independence with low inflation rates; analyzes the contested views of central bank independence in the history of economic thought; considers the constitutional issues in the context of recent transparency and disclosure reforms in the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The empirical literature that seeks to correlate central bank independence with lower inflation rates focuses on data prior to the 2008 collapse, thereby mimicking the flaws in risk management models that contributed to the financial crisis by relying on far too limited time periods of historical data. By so doing, they overlooked the possibilities of so-called “Black Swans,” those outlier events that do not fit neatly within the bell-shaped curves of probabilities, but which do occur and reoccur in history. The studies engage in a crude type of comparative analysis, comparing countries and inflation rates while ignoring all potential non-monetary factors, such as differences in regulatory and trade policies affecting consumer price levels. A more fruitful approach would be longitudinal studies that consider changes in one particular central bank’s structure and macroeconomic performance over a longer time period. By ignoring the data from the 1930s and 1940s for the United States in particular, the empirical literature overlooks perhaps the most significant decade when the central bank lacked de facto independence, inflation was kept low, and economic growth rates were at an all-time high. Likewise, by failing to consider more recent data from the 2000s, these studies ignore several “Black Elephants,” such as the relationship between central bank independence and agency capture, financial instability, and eventual financial collapse and bailout, as well as the rise of China with a politically-directed central bank.

Often been missing from both sides of the central bank debate is an appreciation for nuance and the wide spectrum of possible central bank structures. Too often the choices are presented as a false dichotomy between an independent but captured central bank and a central bank dominated by the politics of daily shifts in public opinion. In a diverse and pluralistic society, there should be other, alternative models that would achieve greater transparency and public accountability without sacrificing the objectives of price stability and economic growth.

-Eric C. Chaffee

Jay Brown on "The Consequences of the NYSE-Deutsche Combination on Listing Standards"

Over at The Race to the Bottom, Jay Brown has an interesting 8-part (to this point) series on the impact of the NYSE-Deutsche combination on listing standards.  Here are the topics:

• Introduction / Overview
  

• Ensuring Regulatory Independence

• Part 3 [Conflicts of Interest]
  

• The Issue of Funding

• Changes to the Definition of Director Independence

• Limits of Regulatory Independence

• SEC Review and German Ownership

• Regulatory Alternatives

SJP