Business Law Prof Blog

The Glom on ScamLaw

The Glom's Masters Forum on ScamLaw has wrapped up.  What is it?  Here's Usha Rodrigues: 

We Glommers thought it would be interesting for our Masters to weigh in on the LawScam critique which I take to be that legal education is hoodwinking prospective law students into law school and conspiring to produce an oversupply of lawyers that face diminished job prospects and crippling debt loads.

You can find the complete thread here.

SJP

Joe Yockey on Solicitation, Extortion, and the FCPA

I just finished reading Joe Yockey's paper on Solicitation, Extortion, and the FCPA. Joe points out the problems and uncertainties companies face under the Foreign Corrupt Practices Act, and suggests ways to correct some of the problems with the Act. But the paper's main point is that regulators should shift more of their focus to the demand side of bribery--the officials who seek bribes.

The article is very well written and Joe's argument is interesting and worth reading. I'm not sure his proposed solution will work. One of the reasons the FCPA focuses on the supply side in the first place is the difficulty pursuing foreign officials who demand bribes. As Joe points out, many of the countries where bribery and corruption are prevalent do little to prosecute those accepting bribes. And the U.S. and other jurisdictions that do care face jurisdictional, not to mention political, issues when they try to pursue corrupt foreign officials. Imagine what would happen if U.S. prosecutors tried to pursue a corrupt Chinese official for demanding a bribe from a U.S. company.

That's a very quick response to a very detailed, sophisticated argument. I strongly suggest you check out the article if you have an interest in the FCPA.

-Steve Bradford

Empirical Evidence on the Impact of Blogging

David McKenzie & Berk Ozler have posted The Impact of Economics Blogs on SSRN. Here's the abstract:     

There is a proliferation of economics blogs, with increasing numbers of economists attracting large numbers of readers, yet little is known about the impact of this new medium. Using a variety of experimental and non-experimental techniques, this study quantifies some of their effects. First, links from blogs cause a striking increase in the number of abstract views and downloads of economics papers. Second, blogging raises the profile of the blogger (and his or her institution) and boosts their reputation above economists with similar publication records. Finally, a blog can transform attitudes about some of the topics it covers.

I'm curious if this holds true for Business Law Bloggers, too.  My suspicion is that the findings would hold true across disciplines or at least many disciplines. As the authors explain:

This evidence is . . . consistent with the view that blogging helps build prestige and recognition in the profession, with bloggers being more likely to be admired or respected than other academics of similar (or in many cases better) publication records. This is of course only a correlation, and there are several caveats to consider. First, to the extent that blogging serves to increase the RePEc ratings by increasing downloads (as seen in the previous section) and citations, the observed correlation will be a lower bound on the causal impact of blogging. However, if bloggers are also more likely to be engaged in other activities of a public intellectual, such as media appearances, writing books etc., and if these don't all arise directly as a result of blogging, the estimates will conflate the impact of blogging with the impacts of these other activities, thereby overstating the impact of blogs. Nevertheless, given the large magnitude of the coefficient observed, it does not seem likely that all of the observed impact of blogging just reflects omitted variables, and therefore we view this evidence as strongly suggesting that blogging increases the influence, respect, or public image of the blogger. [footnote omitted]

There is always the risk a prolific blogger will get a greater (and disproportionate) share of recognition for being more "out there" more often than a non-blogging colleague.  That said, a consistent, if not prolific, blogger who has a similar publication record may be more connected to current events in his or her profession. And blogging demonstrates a willingness and ability to share opinions (for better or worse).  

Blogging can't, and shouldn't, replace other forms of scholarship. But in addition to tradtional scholarship, it adds to the overall depth, and especially breadth, of knowledge. At least, it does for me. I truly believe my scholarship and my teaching have improved because of blogging, even if, sometimes, it feels like a lot of "extra" work.  As long as it is making me better at what I do, it's work I need to do.

--JPF 

The SEC's Proposed Regulatory Review and the D.C. Circuit

Is the SEC setting itself up for another D.C. Circuit loss, or perhaps a whole series of such losses?

The SEC is seeking comments on a plan to do retrospective reviews of its existing regulations. The announcement and the release, as well as a link for comments, are available here. The SEC‘s request is in response to Executive Order 13579 (July 11, 2011), in which President Obama called on independent agencies to “consider how best to promote retrospective analysis of rules that may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned.”

The SEC release, in addition to requesting general comments, solicits responses to the following specific questions:

1. What factors should the Commission consider in selecting and prioritizing rules for review?
2. How often should the Commission review existing rules?
3. Should different rules be reviewed at different intervals? If so, which categories of rules should be reviewed more or less frequently, and on what basis?
4. To what extent does relevant data exist that the Commission should consider in selecting and prioritizing rules for review and in reviewing rules, and how should the Commission assess such data in these processes? To what extent should these processes include reviewing financial economic literature or conducting empirical studies? How can our review processes obtain and consider data and analyses that address the benefits of our rules in preventing fraud or other harms to our financial markets and in otherwise protecting investors?
5. What can the Commission do to modify, streamline, or expand its regulatory review processes?
6. How should the Commission improve public outreach and increase public participation in the rulemaking process?
7. Is there any other information that the Commission should consider in developing and implementing a preliminary plan for retrospective review of regulations?

In my academic career, I have proposed changes to many SEC rules. I’m not a fan of some of the things the SEC has done. But I seriously doubt this review is going to have much effect, and I would rather see the Commission use its resources for fraud enforcement than to waste money on superficial reviews that are likely to result in marginal tweaking of the rules. I suspect the entire undertaking is an exercise in public relations, and there are better ways to spend the SEC’s limited funds.

But there is at least a possibility that the effort will backfire. When the SEC engages in rulemaking, it has a statutory obligation to consider whether its action will promote “efficiency, competition, and capital formation.” See Securities Act § 2(b); Exchange Act § 3(f); Investment Company Act § 2(c); Investment Advisers Act § 202(c). The recent Business Roundtable decision in the D.C. Circuit, which I and Stefan Padfield  blogged about earlier, relied on one of these provisions to hold that the SEC’s failure to adequately consider the economic consequences of its proxy access rule violated the Administrative Procedure Act.

If the SEC sets up a formal, public process to review its rules, is it setting itself up for another D.C. Circuit failure? Assume, for example, that the SEC initiates a public review of Regulation D, which exempts certain securities offerings from the registration requirements of the Securities Act. Some of the commenters propose revisions that would substantially liberalize Regulation D, arguing that exempting more offerings would promote capital formation without significantly affecting investor protection. The SEC rejects those comments and makes only marginal changes to the regulation. Could the proponents of more radical change successfully argue that the SEC failed to adequately consider their economic arguments?

It’s possible that the SEC, at the President’s behest, is about to open a Pandora’s box.

-Steve Bradford

Awrey on Complexity, Innovation and the Regulation of Modern Financial Markets

Dan Awrey has posted his paper, “Complexity, Innovation and the Regulation of Modern Financial Markets,” on SSRN.  Here is the abstract:

The intellectual origins of the global financial crisis (GFC) can be traced back to blind spots emanating from within conventional financial theory. These blind spots are distorted reflections of the perfect market assumptions underpinning the canonical theories of financial economics: modern portfolio theory; the Modigliani and Miller capital structure irrelevancy principle; the capital asset pricing model and, perhaps most importantly, the efficient market hypothesis. In the decades leading up to the GFC, these assumptions were transformed from empirically (con)testable propositions into the central articles of faith of the ideology of modern finance: the foundations of a widely held belief in the self-correcting nature of markets and their consequent optimality as mechanisms for the allocation of society’s resources. This ideology, in turn, exerted a profound influence on how we regulate financial markets and institutions.

The GFC has exposed the folly of this market fundamentalism as a driver of public policy. It has also exposed conventional financial theory as fundamentally incomplete. Perhaps most glaringly, conventional financial theory failed to adequately account for the complexity of modern financial markets and the nature and pace of financial innovation. Utilizing three case studies drawn from the world of over-the-counter (OTC) derivatives – securitization, synthetic exchange-traded funds and collateral swaps – the objective of this paper is thus to start us down the path toward a more robust understanding of complexity, financial innovation and the regulatory challenges flowing from the interaction of these powerful market dynamics. This paper argues that while the embryonic post-crisis regulatory regimes governing OTC derivatives markets in the U.S. and Europe go some distance toward addressing the regulatory challenges stemming from complexity, they effectively disregard those generated by financial innovation.

SJP

Delaware Supreme Court LLCs Must Follow Rules

I have some thoughts on the Delaware Supreme Court's decision in CML V, LLC v. Bax, which I plan to share soon. In the interim, let's start with the people you should really read.  First, Francis Pileggi provides a nice overview here.  He's pretty much the place to start for big Delaware cases. Second, Larry Ribstein, the Uncorporation guru, gives his take here.  Whether or not you read my follow up, these are worth your time.

--JPF

 

Hazen & Hazen on Nonprofit Governance

Thomas Lee Hazen and Lisa Love Hazen have posted Punctilios and Nonprofit Corporate Governance – A Comprehensive Look at Nonprofit Directors’ Fiduciary Duties on SSRN with the following abstract:

The law on nonprofit directors’ obligations is sparse and fragmented. Most of the discussion over the years is lore rather than law based on commentators’ suggestions for best practices. This article attempts a comprehensive and systematic analysis of the law relating to nonprofit directors’ obligations. On the one hand, there is a basis for suggesting that since nonprofits implicate public trust issues, nonprofit directors should be held to standards higher than those imposed on for-profit directors. On the other hand, in order to attract people to serve on nonprofit boards, states generally offer more insulation from director liability than is found in the for-profit world. How can this apparent contradict be reconciled? Perhaps the solution lies in recognizing that truly altruistic motivations for serving on nonprofit boards will result in directors having their own internal incentive to do the right thing and put in the time and effort necessary for effective nonprofit monitoring. To the extent that it is too much to expect the best from people, this article explores nonprofit directors’ responsibilities and how they relate to the law limiting directors’ accountability.

-- Eric C. Chaffee

Editors Wanted: The Business Lawyer

In case you are interested, the ABA publication, The Business Lawyer, is seeking editors.  Here's the call for applications:

The Business Lawyer Seeks Editors 

                  The Business Lawyer (TBL) plans to appoint at least one additional editor beginning with Volume 67. The responsibilities of an editor will be to:

                  (i) edit approximately sixty manuscript pages of each of the four issues that TBL publishes in each volume;

                  (ii) ensure that each statement of fact has an accurate citation that supports it;

                  (iii) conform all citations to the Blue Book; and

                  (iv) make sure that manuscripts satisfy TBL Author Guidelines.

Over the course of a volume, each editor should expect to work on a combination of articles, reports, and surveys that are published in TBL.

                  Since Volume 64, Professor Gregory Duhl of the William Mitchell College of Law has been responsible for all style editing, cite-checking, and Blue-Booking of TBL. Professor Duhl is the current Associate Editor-in-Chief, and the editors would work in collaboration with him, the Editor-in-Chief, who rotates yearly, and the Production Manager, Diane Babal, to ensure that TBL maintains its high quality and timeliness. The editors would also work closely with the Associate Editor-in-Chief to update the TBL Author Guidelines to maintain consistency in the journal.

                  TBL seeks editors from all business law disciplines, who have experience editing an academic publication, a keen attention to detail, and an ability to meet deadlines. Each editor would receive an honorarium upon completion of his or her work for that issue. If interested in this position, please e-mail a resume to Diane Babal, at Diane.Babal@americanbar.org. Any questions about the position can be addressed to Professor Duhl at Gregory.duhl@wmitchell.edu.

--JPF

Movie Trailer: "The Flaw"

 

SJP