August 13, 2011
Love One Another: Business, Law, and the Power of Serving Others
Peggy Noonan opines on the recent London riots in today's Wall Street Journal and suggests that, "What we're seeing on the streets in Britain right now is something we may be starting to see here." I tend to agree. She mentions the "flash mob" curfews in Philadelphia as evidence, and we have the same thing in the suburbs of Cleveland where I live. While reading the Wall Street Journal has taught me that no matter how bad the news, there is almost always someone profiting from it--it is likely fair to say that few businesses flourish in riots. So what, besides instituting curfews, is the law to do? Noonan notes that government is in general in no position to throw more money at the problem right now, and even churches "too are hard-pressed these days." What she offers as a solution is Love:
The problem, at bottom, is love, something we never talk about in public policy discussions because it's too soft and can't be quantified or legislated. But little children without love and guidance are afraid. They're terrified—they have nothing solid in the world, which is a pretty scary place. So they never feel safe. As they grow, their fear becomes rage. Further on, the rage can be expressed in violence.
But in fact the benefits of a version of Love--helping others--has already been quantified by Dr. Maria Pagano (who also happens to be my wife--but please don't hold that against her). Pagano has already proved that helping others improves the likelihood of staying sober in addicts; is currently studying the effectiveness of helping others in teenage populations that have come into contact with the judicial system and are struggling with substance abuse; and is in the process of submitting a grant proposal to study the benefits of helping others for reducing the incidence and spread of HIV/STDs. You can find her "Helping Others" website here.
Of course, actively leveraging the benefits of service would only constitute one part of what will need to be a much broader solution to the related problems we are currently facing. But it is arguably a relatively inexpensive solution and can reasonably be expected to produce less negative side effects than at least some other typical interventions. The application would include, for example, simply incorporating service into the sentencing of juvenile offenders. Nor is this a completely novel idea. "Service learning" is being incorporated into education programs here at Akron and elsewhere, and programs like the Law & Psychology one at Nebraska already include altruism as one of their areas of study.
August 12, 2011
Rewarding the Risk Averse
I just had a chance to read my most recent edition of ERN Economics of Networks eJournal Vol. 3 No. 107, 08/12/2011. In it, I found Professor Olufunmilayo Arewa's paper, Risky Business: The Credit Crisis and Failure, available on SSRN here. I have just started looking through it, but the following paragraph caught my eye (footnotes omitted):
Rhetorically bashing financial institutions has become common place among the media, public officials, regulatory agencies and the general public. A focus on blaming financial institutions, however, deflects attention from other failures that contributed to the credit crisis. Further, few discussions focus to a sufficient extent on dealing with the industry and regulatory failures that led to the credit crisis. The credit crisis aftermath could be seen as actually rewarding those most responsible for the failure to manage or regulate risky financial market business activities. Through programs such as the Troubled Asset Relief Program (TARP) and the Public-Private Investment Program (PPIP), which are government initiatives to address problems resulting from the presence of illiquid and troubled assets on financial institutions balance sheets, industry participants received government bailouts that permitted them to avoid assuming the full risk of their activities. The bailouts have thus rewarded risk management failures by averting firm failure, which presents the same significant moral hazard implications that spawned the current financial crisis in the first place.
I'm inclined to agree. In 2008, I argued that, "without any measures to mitigate the harm and cost of government intervention, all bailouts place government (meaning taxpayers) in the role of fee-free insurer for the largest companies." I look forward to reading more of Professor Arewa's article.
August 11, 2011
David Kershaw on The Path of Fiduciary Law
David Kershaw has posted "The Path of Fiduciary Law" on SSRN. Here is the abstract:
Contemporary accounts of corporate legal evolution view lawmakers as highly responsive to the economic interests of both pressure groups and markets. Through this lens law is understood to be the product of pressures exerted by managers, investors, institutional shareholders and the Federal Government, and the incentives of state lawmakers to accommodate the interests of these pressure groups. This lens dominates our current understanding of corporate legal evolution in the United States and is becoming highly influential in comparative accounts of corporate legal variation. This article sounds a note of objection. The article argues that the disciplinary pendulum has swung too far toward external accounts of legal evolution and too far away from internal accounts of legal change which view the path of law, at least in part, as the product of the internally generated constraints of the legal system – the relative autonomy of the law. To make this argument, the article considers the internal constraint of the conception of the corporation in 19th century US and UK corporate law and the evolution of self-dealing law in these two jurisdictions. It shows how two jurisdictions that started from the same legal proposition about self-dealing diverged rapidly as a result of the interaction of this proposition with profoundly different conceptions of the corporation. Contrary to the dominant account of the evolution of self-dealing law in the United States, the contemporary self-dealing rule is not the legally unexplained product of external market pressures but the logical and consistent product of the path of fiduciary law trodden through the corporate conception. The article shows that for contemporary corporate law a significant dose of inevitability was administered at the inception of general incorporation.
August 10, 2011
Teaching Lawyers to Innovate
I have been traveling around the country for the last couple weeks (for both work and pleasure), and will be home just in time for orientation, which starts on Monday for the University of North Dakota. As I prepare for the coming year, I have been looking for interesting articles and ideas to help provide a more holistic educational experience.
To that end, The Economist has an interesting article about a study called “The Innovator’s DNA”, co-written by Clay Christensen, Jeff Dyer and Hal Gregersen. The study find "five habits of mind that characterise disruptive innovators: associating, questioning, observing, networking and experimenting. Innovators excel at connecting seemingly unconnected things."
The question is posed: can we teach people to be innovators? And can we teach lawyers to be innovators? The Economist story ends this way:
For all their insistence that innovation can be learned, Mr Christensen and co produce a lot of evidence that the disruptive sort requires genius. Nearly all the world’s most innovative companies are run by megaminds who set themselves hubristic goals such as “putting a ding in the universe” (Steve Jobs). During Mr Jobs’s first tenure at Apple, the company’s innovation premium was 37%. In 1985-98, when Mr Jobs was elsewhere, the premium fell to minus 30%. Now that Mr Jobs is back, the premium has risen to 52%. The innovator’s DNA is rare, alas. And unlike Mr Jobs’s products, it is impossible to clone.
Obviously, we can't teach every one of our students to be the most innovative lawyers any more than every CEO can be Steve Jobs. But it doesn't mean we can't try, right?
August 9, 2011
Yosifon on Corporate Speech
David G. Yosifon has posted Discourse Norms as Default Rules: Structuring Corporate Speech to Multiple Stakeholders on SSRN with the following abstract:
This Article analyzes corporate speech problems through the framework of corporate law. The focus here is on the “discourse norms” that regulate corporate speech to various corporate stakeholders, including shareholders, workers, and consumers. I argue that these “discourse norms” should be understood as default terms in the “nexus-of-contracts” that comprises the corporation. Having reviewed the failure of corporate law as it bears on the interests of non-shareholding stakeholders such as workers and consumers, I urge the adoption of prescriptive discourse norms as an approach to reforming corporate governance in a socially useful manner.
-- Eric C. Chaffee
Christensen on Securities Regulation
Grant Christensen has posted Allocating Loss in Securities Fraud: Time to Adopt a Uniform Rule for the Special Case of Ponzi Schemes on SSRN with the following abstract:
The Global Financial Crisis precipitated a condensing of capital and a fall in global equities markets that resulted not solely in the necessity of government bailouts of the financial industry but also exposed a number of Ponzi schemes that collectively will cost investors tens of billions of dollars. With a new wave of litigation by innocent investors against Ponzi scheme operators just beginning, and likely to take years, it becomes important to clearly identify the methodologies used to value the loss and allocate existing assets among remaining creditors. To that end I offer this article to argue that courts ought to use a comparatively new approach – the loss to the losing victim methodology originally pioneered in criminal law – to determine how equally innocent victims share the losses these schemes precipitated. By standardizing the calculation of loss to investors in both criminal and civil law, the courts will not only make the determination of loss considerably easier, but also more equitable.
-- Eric C. Chaffee
August 7, 2011
Skeel on Dodd-Frank
David A. Skeel Jr. has posted Making Sense of the New Financial Deal on SSRN with the following abstract:
In this Essay, I assess the enactment and implications of the Dodd-Frank Act, Congress’s response to the 2008 financial crisis. To set the stage, I begin by very briefly reviewing the causes of the crisis. I then argue that the legislation has two very clear objectives. The first is to limit the risk of the shadow banking system by more carefully regulating the key instruments and institutions of contemporary finance. The second objective is to limit the damage in the event one of these giant institutions fails. While the new regulation of the instruments of contemporary finance - including clearing and exchange trading requirements for derivatives - is promising, its treatment of systemically important financial institutions is likely to create a troublesome partnership between these institutions and the government. I also argue that our financial world is just as prone to bailouts after Dodd-Frank as it was before, and that it would have made a lot more sense to focus on bankruptcy as the solution of choice for troubled financial institutions.
After this initial assessment, I discuss the CEO compensation issues that have gotten so much attention in the press. I conclude by considering the legislation from a distinctively Christian perspective.
-- Eric C. Chaffee
Seto on Law Firms
Theodore P. Seto has posted Where Do Partners Come from? on SSRN with the following abstract:
Which law schools produce the largest numbers of partners at national law firms? This article reports the results of a nationwide study of junior and mid-level partners at the 100 largest U.S. law firms. It identifies both the top 50 feeder schools to the NLJ 100 nationwide and the top 10 feeder schools to those same firms in each of the country’s ten largest legal markets. U.S. News rank turns out to be an unreliable predictor of feeder school status. Hiring and partnering by the NLJ 100 are remarkably local; law school rank is much less important than location. Perhaps surprisingly, Georgetown emerges as Harvard’s closest competitor for truly national status. (Any school that believes the author’s count is inaccurate is requested to supply corrected information.)
-- Eric C. Chaffee
J.W. Verret Starts Open-Source Article Writing Project on SEC Rulemaking
By that I mean blogging about an article idea and updating it as I progress. Some say it’s a bad plan…people might steal your ideas, or maybe you expose yourself to the possibility of being wrong. I don’t think it’s an issue, particularly if readers take my musings in the rough-and-tumble blogging spirit. If you think I have interpreted a provision incorrectly, great. Email me and tell me why. Better that you send me a case I missed than I learn about it after the article is published.
He then goes on to outline a project to define what he describes as the four guiding principles of securities regulation as set forth in the National Securities Markets Improvement Act of 1996: (1) investor protection, (2) efficiency, (3) competition, and (4) capital formation. You can read the full post here.
I agree with Joan Heminway (as she states in a comment to the post) that the project is certainly a worthy one. However, I am even more excited to watch the open-source article writing process itself, since I think there could be all sorts of interesting offshoots from that project that could improve collaboration, interdisciplinary work, and the overall utility of our scholarly works.