Business Law Prof Blog

Quick Review of Rudolph H. Weingartner's Fitting Form to Function

As a new Associate Dean for Academic Affairs & Research, I've taken on a number of administative functions this year. I'm still not at all clear that the administrative life is the one for me, especially at this point in my academic career. Having had a career before becoming a lawyer, I'm probably more comfortable with budgets, hiring and firing, and office politics than some. Of course, that doesn't mean I necessarily like it.  After all, I did leave that career to go to law school.  

Nonetheless, I agreed to take the position for a little while, and I'm committed to doing it as well as I can. Part of that has meant learning as much as I can about academic leadership and how academic institutions work. This is no easy task. Schools have very different sizes, characters, and resources, and this can have a significant impact on how to interpret even some of the "universal truths" of academic life.  

Further, while I have found real value in reading some of the materials from leaders in academic adminstration, I also sometimes find the tone and tenor of how administrators describe faculty both patronizing and unnecesarily polarizing, even if the description is largely correct. (See, e.g., Stanley Fish). Some of this may be "youthful" idealism on my part, but I don't think the relationship between faculty and administration needs to adversarial.  At least, not most of the time. I know that there are some faculty members who act like petulant children, but treating all faculty members as though they act that way means you are likely to facilitate similar behavior from others less inclined to do so. 

Recently, I've been reading Rudolph H. Weingartner's Fitting Form to Function.  It's a managable read that provides an nice "Primer on the Organization of Academic Insititutions."  There's not a lot groundbreaking here, and yet I notice that an awful lot of people (from educators to administrators to legislators) could use the information contained in the book. Even if it's all elementary information, it's clear that information is not being put to good use in a number of settings.  

The book also nicely provides a list of maxims to distill and "elevate[]" some "general truths" derived from the author's experience.  Here are some that I find useful:

Maxim 6: If the organizational chart is the right one, and micromanagement exists, either the supervisor or the supervised is the wrong person for the slot. 

Maxim 11: Committees whose mission is to perform routine and ongoing functions are ill suited to tasks that require them to move outside the framework within which they normally operate. 

Maxim 15: An office that lacks goals of its own will tend to give priority to getting the process right over getting the job done.

Maxim 21: Refrain from making rules that make normal business more cumbersome merely in order to prevent offense that might be committed on rare occasions. 

Whether you are an administator, looking for ways to help make a law (or other) school a little more efficient, or curious about why some things in academics work the way they do, this book is worth a look.

--JPF

Enjoyable reading

Over the holidays or when I’m traveling, I often like to read books related to business law, but that aren’t narrowly tailored to my current projects.  That is, books that feel like reading for enjoyment, but are still perhaps sowing the seeds for news ideas or adding some breadth to my day-to-day reading.

Here are a few of my recent picks:

American Property: A History of How, Why, and What We Own by Stuart Banner 

Recently, I’ve been thinking I should delve a bit more into property theory and the history of property law as I’ve suspected it might be helpful for corporate theory.

Stuart Banner’s new book is an interesting history of American property law that is especially notable for its contextual approach and nuanced view of property conceptions. Banner shows that our conceptions of property have changed over time and have always been contested. 

Banner doesn’t tackle head on issues of property held in the corporate form or the rise of corporations. But there are some parts that corporate law scholars might nonetheless find particularly interesting. For instance, his discussion of the changes to property law in the early nineteenth century that brought about greater liquidity or commoditization of land (e.g., getting rid of English rules of primogeniture and the fee tail), and the idea that Americans in the early nineteenth century expected forms of recognized property to change over time.  Corporate law scholars might note that this was a time when more property started to flow toward the corporate form and this window into property law of the time adds some depth to thinking about the history of corporations.

Folks pondering the viability of the “concession theory” of corporations might find interesting Banner’s discussion of police power, the line between constitutional government regulation and takings, and the notion that property is a form of delegated governmental power.

Confidence Men: Wall Street, Washington, and the Education of a President by Ron Suskind

This book made a splash when it came out earlier this Fall. It tells a story of Barack Obama from the campaign trail to the presidency, with a focus on the financial crisis which the author portrays as a crisis of confidence.  

I can’t say that I wholeheartedly recommend it, but I can report that lots of interesting details and some attention-getting material (tales of insubordination in the Obama administration, concerns about sexism, behind the scenes maneuvering…) kept me reading through this hefty hardback. I don’t read a lot of books with this style of political journalism – the novelistic inside narrator tone often made me wonder how the heck the author knew that was what happened. (Suskind says it’s based on hundreds of hours of interviews with over 200 people; there was quite a bit of controversy when the book came out – many people quoted in the book recanted or challenged descriptions.)

Cultivating Conscience: How Good Laws Make Good People by Lynn Stout

This is a fun and very interesting read.  It came out several months ago now, and if you haven’t had a chance to read it yet this is a good season for it. We could use some optimism about human nature.

In a nutshell, the book explores the idea of acting with a conscience (or “prosocial behavior”), arguing that the focus on the “homo economicus” model of human behavior in law and policy discussions has neglected the important role of conscience. Stout takes the reader through social science evidence about people engaging in unselfish, ethical behavior and argues that law and policy should take account and encourage this kind of behavior in politics, business, and other areas. 

Next on my reading list will be Daniel Kahneman’s Thinking, Fast and Slow.  Feel free to add ideas from your holiday reading lists in the Comments section!

--Elizabeth Pollman

 

The Underground Economy: Stealth of Nations

I just finished an interesting book on the shadow, or informal economy—the merchants and service providers who operate outside government regulation and licensing requirements. The book is Robert Neuwirth’s Stealth of Nations: The Global Rise of the Informal Economy.

Neuwirth is at his best when he’s describing the various markets throughout the world. His particular geographical areas of focus, not surprisingly, are Nigeria, China, and parts of South America. The book is less valuable when he ventures into theory and proposes policies to deal with the underground economy. For example, he sees the growth of these markets as inconsistent with neoclassical economic theory. In my view, these markets are exactly what neoclassical theory would predict as a way to avoid the cost of government regulation. I also think his attempts to prescribe government policies to strengthen these markets are often off-base. Government is unlikely to be able to do much to help the participants in markets whose very existence is an attempt to avoid government.

For all its flaws, the book is still worth reading, if only to appreciate how much the entrepreneurial spirit is still alive in today’s world. It also provides reminders of how people push back against government regulation and how regulation can have unintended consequences.

If you haven’t read Hernando deSoto’s masterpiece, The Other Path: The Invisible Revolution in the Third World, I would suggest you read it first.Then read Neuwirth’s book for an update.

-Steve Bradford

The Myth of Choice

Thanks so much for the warm welcome to Business Law Prof Blog. I'm delighted to guest blog here this month.

One reason I enjoy reading blogs like this one is that it helps me find interesting books and articles. In that vein, I thought I'd share a new book that I've recently enjoyed--The Myth of Choice by Kent Greenfield.

Kent Greenfield is of course well known for his progressive critique of corporate law from his previous book, The Failure of Corporate Law.

In The Myth of Choice, Greenfield takes on a new topic--constraints on choice and decisionmaking. Greenfield draws on brain science, psychology, political theory, and various other disciplines to show the complexity of choice in the realms of public policy and personal life decisions. He argues that while much of our law and culture exalts and fixates on the idea of choice, many factors actually limit what we think of as choice. Limiting forces include the way the human brain works, cultural norms, the role of power and authority, and markets.

The book is a fun and thought-provoking read. It takes on heavy subjects like free will and the rhetoric of personal responsibility, while weaving in lots of anecdotes and examples that bring the subject matter to life and make it enjoyable reading. I loved the book and felt hungry to hear more about how these ideas apply to the business law realm. Are the book's insights consistent with the rationale for the business judgment rule? What are the implications for optimal decisionmaking environments for directors and managers? Board diversity? Etc.

--Elizabeth Pollman

More Readings on Capitalism

Steve recently put up a helpful list of "Readings on Capitalism."  Since I am agnostic when it comes to the assertion that capitalism is the least worst system possible, and because I believe that even if we all agreed on that point we'd still have much to debate about as to the details, I asked Frank Pasquale and Kent Greenfield for a quick list of books identifying some of the shortcomings of capitalism.  Here it is:

• 23 Things They Don't Tell You About Capitalism (Pasquale: "Ha-Joon Chang's LSE and RSA podcasts are on iTunes; highly recommended")

• The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too

• The Illusion of Free Markets: Punishment and the Myth of Natural Order

• The Fifteen Biggest Lies about the Economy: And Everything Else the Right Doesn't Want You to Know about Taxes, Jobs, and Corporate America

• Wealth and Democracy: A Political History of the American Rich

• The Spectre at the Feast: Capitalist Crisis and the Politics of Recession

• New Capitalism

• The Confiscation of American Prosperity: From Right-Wing Extremism and Economic Ideology to the Next Great Depression

• Zombie Economics: How Dead Ideas Still Walk among Us

• Business as Usual: The Roots of the Global Financial Meltdown (Possible Futures)

• Wall Street at War: The Secret Struggle for the Global Economy (Pasquale: "particularly valuable as a testament to the ways in which finance capital has undermined productive enterprise")

SJP

Readings on Capitalism

I’m a fan of capitalism, but I think it’s been so long since we’ve tried it that few in the United States remember what it is. Capitalism is not the same as government support of business. Far from it, true capitalism requires government to remain neutral and not try to determine the winners and losers. Subsidies and government bailouts are as far from capitalism as one can get, notwithstanding the recent claims in the media that “capitalism” caused the recent economic collapse.

So what is capitalism and what are its advantages? That topic is much too complicated for a blog post and, as a law professor, I’m not the most qualified person to expound on the subject anyway. I can, however, suggest a few resources for those who really want to know more about capitalism. I would start with the following three books. Each is very well written and none of them demand any technical expertise of the reader.

1. Milton Friedman, Capitalism and Freedom

2. Arthur Seldon, Capitalism (Unfortunately, this book doesn’t appear to be available for purchase by itself anymore, but you might find it in your local library. Otherwise, you will have to buy this.)

3. F. A. Hayek, The Road to Serfdom

Two other books worth reading if you’re interested in cutting through some of the nonsense that passes for political debate about economics are:

1. David R. Henderson, The Joy of Freedom: An Economist’s Odyssey

2. Henry Hazlitt, Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics

And, if you really want to burrow deeply, I suggest Ludwig von Mises, Human Action: A Treatise on Economics. But don’t go there unless you have a lot of time and are willing to work. It’s not an especially easy read.

-Steve Bradford

"Poker for Law Students" Course Update

I've previously written about my desire to teach a "Poker for Law Students" course (here).  To that end, I am always on the lookout for supporting documentation and course materials (as I've also previously blogged about here).  So, just in case this sort of thing interests you I thought I'd pass on a couple of additional items I've come across recently:

1. A PokerNews item on "Poker Players and Entrepreneurs: A Compatible Match"

2. A Texas Hold'Em Guide to Winning in Business

Somewhat relatedly, the American Gaming Association recently released a white paper that many feel is the best articulation yet of why and how the U.S. should legalize and regulate online poker.

SJP

If you love corporations, you might want to start taking the protesters a bit more seriously.

Yesterday, Stephen Bainbridge explained why he loves corporations.  In the course of his post he referenced "The Company," by John Micklethwait and Adrian Wooldridge.  I, too, am a fan of that book--though not because (as Bainbridge notes) the authors identify the corporation as "the best hope for the future of the rest of the world."  (I am at best agnostic on that point.)  Rather, my recollection of the book (which I admit may well be distorted by the passage of years since I last read it) is that the authors did a decent of job of acknowledging that the history of corporations is marked by evil as well as goodness, including "imperialism and speculation, appalling rip-offs and even massacres" (p. xx).  Of course, the authors do note that corporations "pillage the Third World less than they used to" (p. 188).

What I liked about the book is that the authors recognized that "[t]o keep on doing business, the modern company still needs a franchise from society, and the terms of that franchise still matter enormously" (p. 186).  Furthermore, they acknowledged that "[t]here is a widespread feeling that companies have not fulfilled their part of the social contract: people have been sacked or fear that they are about to be sacked; they work longer hours, see less of their families--all for institutions that Edward Coke castigated four hundred years ago for having no souls" (p. 188).  (Note that these are all pre-financial crisis quotes.)

All of which leads me to conclude that if you love corporations you might want to start taking the "Occupy" protesters a little more seriously.  You may think they are "illiterates," silly and absurd--but they are growing in number and they may well end up having something to say about the nature of the franchise corporations need in order to survive.

SJP

The History of an Industry, Nudge and Other Ways to Crowd Your Nightstand

After a summer hiatus, I am back at the Business Law Prof Blog, and excited to be rejoining the conversation.

I thought I would start with a warm-up post about reading lists to share with you two recent additions to mine and to solicit feedback on what you are reading, want to read, or wish your students would read.

While not yet on my nightstand, a book that is going into my Amazon “wishlist” is Bill Vlasic’s Once Upon a Car:  The Fall & Resurrection of America’s Big Three Auto Makers—GM, Ford, and Chrysler.  Raised in an automotive town (not Detroit, but Kokomo, Indiana where cars were also king), I grew up in the shadow of large manufacturing plants and next door to factory workers so the drama offered inside this book is particularly interesting to me.  The author’s perspective as the Detroit Bureau chief for the New York Times contributes a unique component to the story of near-financial collapse by GM and the long standing Ford/GM/Chryslers rivalries which unfolds in a retrospective on the financial crisis.  The reviews of the book praise it for weaving together a story that is both business and politics as it describes the race for green technology, the courting of a new President, and the tensions between the manufacturers, the unions, and the labors resulting from burgeoning labor costs.  The book was released yesterday, and featured in the New York Times and the Washington Independent Review of Books on Monday.

Only a year and a half late to the party, I am finally starting to read Nudge, Improving Decisions About Health, Wealth, and Happiness written by Richard Thaler and Cass Sunstein.  While I was recently attended the Midwestern Law & Economics Association conference someone finally mentioned a book during their talk that I had (a) heard of, and (b) was relatively confident that I could finish, so I ordered Nudge and will be reading it this month along with blogging.    The premise of Nudge is that no decision setting is neutral, thus the environment and context in which we make decisions influence the outcome of that decision.  In my business classes I talk about how the uniform rules or default statutes set a statutory preference for a certain outcome because changing the default requires positive action and incurring transaction costs.   Thaler and Sunstein make a similar argument regarding legal preferences in many areas of the law, particularly in the context of social issues, arguing that our laws predict outcomes in many respects through mechanisms like opt-out versus opt-in regimes and should be used to encourage socially-beneficial behavior.

I welcome your comments on what you are reading, want to read, or wish your students were reading.

Anne Tucker

Michael Lewis Returns with Boomerang

Michael Lewis, the author of Moneyball and The Blind Side, among other things, has a new book about the cheap credit crisis.  An interview with National Public Radio is here.  There is also an excerpt of the book available here.  Rather than paraphrase Mr. Lewis, here is an excerpt of the excerpt, to give you an idea of where this book is headed:   

In Kyle Bass's opinion, the financial crisis wasn't over. It was simply being smothered by the full faith and credit of rich Western governments. I spent a day listening to him and his colleagues discuss, almost giddily, where this might lead. They were no longer talking about the collapse of a few bonds. They were talking about the collapse of entire countries.

And they had a shiny new investment thesis. It ran, roughly, as follows. From 2002 there had been something like a false boom in much of the rich, developed world. What appeared to be economic growth was activity fueled by people borrowing money they probably couldn't afford to repay: by their rough count, worldwide debts, public and private, had more than doubled since 2002, from $84 trillion to $195 trillion. "We've never had this kind of accumulation of debt in world history," said Bass. Critically, the big banks that had extended much of this credit were no longer treated as private enterprises but as extensions of their local governments, sure to be bailed out in a crisis. The public debt of rich countries already stood at what appeared to be dangerously high levels and, in response to the crisis, was rapidly growing. But the public debt of these countries was no longer the official public debt. As a practical matter it included the debts inside each country's banking system, which, in another crisis, would be transferred to the government. "The first thing we tried to figure out," said Bass, "was how big these banking systems were, especially in relation to government revenues. We took about four months to gather the data. No one had it."

I haven't read all of his books, but I always enjoy Mr. Lewis's writing.  I hope to get to this, as soon as I work my way through the two books I am currently reading: (1) Predictably Irrational: The Hidden Forces That Shape Our Decisions, by Dan Ariely, and (2) Straight Man: A Novel, by Richard Russo.  

--JPF

Are Bookstores and Electricity Generation on a Similar Trajectory?

I happen to think so, but with news that Borders is almost certainly closing its doors, one has to wonder what the future holds for physical bookstores.  When I was young, most of the books stores were independents, with some kind of sad stores at shopping malls.  Then the shopping mall stores consolidated, got big, and put a lot of the independent books stores out of business.  

When I was in Ann Arbor in the late 1980s, Borders was a big, awesome, independent bookstore.  I thought it was great.  And a few independent books store remain -- the best one I have visited in the last few years is Powell's City of Books.  There is something great about wandering the stacks of books and pulling things off the shelf for a look.  The same is true for libraries, but the option of buying that great find, right then and there, is something unique. 

Perhaps the failure of some of the large chains will create new opportunities for smaller, independent, local stores to regain strength.  The assumption that larger scale is inherently good is not necessarily true.  This shift is happening in some areas of the electricity generation sector, too.  We have been following the Thomas Edison/Samuel Insull model of large central stations for years, with the assumption that bigger is better.  And sometimes it is, but not always.  

There is some interesting work in the area of microgrids that could help increase reliability while reducing the land used for electricity generation.  (If you're interested in such things, I recommend Sara Bronin's article, Curbing Energy Sprawl with Microgrids.)  This doesn't mean there won't be large generating facilities, but there will less, and we should not assume bigger is better. 

Hopefully, this is a market correction in both areas, and part of a cycle that is responding to other external changes (such as internet booksellers on the books side and better technologies and increased sensitivity to environmental concerns on the electricity side).  I'd hate to think it's just that we don't like books that much any more.  

--JPF

Douglas Irwin's Peddling Protectionism

This is going to mark me as a real finance geek, but I just finished reading Peddling Protectionism: Smoot-Hawley and the Great Depression, by Douglas A. Irwin. Irwin is an economics professor at Dartmouth who has authored a number of books and articles on trade, tariffs, and the Great Depression.

Peddling Protectionism is both a history of the Smoot-Hawley Tariff Act and an examination of its consequences. The best part of the book, in my opinion, is the political history in the first chapter. Irwin really brings the debate to life, providing a close look at the involvement of Congressman Hawley, Senator Smoot, President Hoover, and the many other players in the political process. It's amazing how close the tariff bill came to failure; I wonder how U.S. economic history would have changed if we had no Smoot-Hawley

Irwin’s analysis of the economic consequences of the bill is also interesting, and convincing. Some of it might be a little difficult for readers without at least some background in macroeconomics, but most of the discussion is accessible to general readers. Marshaling a variety of statistics, Irwin concludes that Smoot-Hawley was not responsible for the Depression, but certainly exacerbated it. He also finds that, “although . . . [Smoot-Hawley] . . . was not the principal reason for the general outbreak of protectionism that so damaged world trade in the early 1930s, it was a contributing factor.” And it most certainly was a major factor in diverting international trade away from the United States.

It’s almost impossible to have a debate about international trade without Smoot-Harley coming up; it is the bête noire of free trade advocates. (Irwin begins the book with Al Gore's invocation of Smoot-Hawley in his 1993 debate with Ross Perot on Larry King Live.) That makes this book required reading for anyone interested in international trade.

-Steve Bradford

Does Your Law School Need More Celebrities?

One of the benefits of blogging for a relatively popular blog like this one is that I actually get pitched with various books, etc., to blog about.  One recent such pitch involved the book "Celebritize Yourself" by Marsha Friedman.  At first, my reaction was a negative one because I must admit to not having the greatest opinion of celebrity status in our modern world.  But then the following line caught my eye:

"To celebritize oneself is not merely to gain fame or fortune.  It’s to share one’s life experiences with other who may be in search of, and in need of, your wisdom.  That’s the guiding philosophy for becoming a celebrity."

While I have not read the book, I have taken a closer look at the content and felt like it may well be something worth sharing with our readers.  In particular, I thought about the need for many law faculties to promote themselves in a world where, for better or worse, USNWR rankings rule and reputations may not properly reflect actual productivity.  You can browse the table of contents here ("Look Inside") -- I think it's worth a look.

SJP

Reckless Endangerment

I'm a little late to the game on this because I have spent the last week hiking in South Dakota's Black Hills, but there's a new book on the financial crisis that is receiving favorable reviews. It's Reckless Endangerment, byt Gretchen Morgenson and Joshua Rosner. Morgenson is a Pulitzer Prize-winning reporter for the New York Times. The New York Times review is here and the Wall Street Journal review is here. Neither review is completely satisfied with the slant of the book, which might be evidence of even-handedness. In any event, it does look worth reading.

-Steve Bradford

Books I'd Like to Read: "The Origins of Political Order" by Francis Fukuyama

You can find the book on Amazon.  And here's a short excerpt from the Publisher's Weekly review:

The evolving tension between private and public animates this magisterial history of the state. In his hominids-to-guillotines chronicle of humanity's attempts to build strong, accountable governments that adhere to the rule of law, international relations scholar Fukuyama (The End of History) advances two themes: the effort to create an impersonal state free from family and tribal allegiances, and the struggle—often violent—against wealthy elites who capture the state and block critical reforms.

SJP

 

What's on your Kindle (or similar) wish list?

Here's my current top 5 (most recent add first, etc.):

1. Lynn Stout, Cultivating Conscience: How Good Laws Make Good People

2. Robert Eli Rosen, Lawyers in Corporate Decision-Making

3. Ed Miller, Small Stakes No-Limit Hold'em

4. Amartya Sen, The Idea of Justice

5. Milton Friedman, Capitalism and Freedom: Fortieth Anniversary Edition

SJP

Lynn Stout on Cultivating Conscience

I just came across a recent new book from Lynn Stout: Cultivating Conscience: How Good Laws Make Good People.  Here's part of the summary:

Drawing from social psychology, behavioral economics, and evolutionary biology, Stout demonstrates how social cues--instructions from authorities, ideas about others' selfishness and unselfishness, and beliefs about benefits to others--have a powerful role in triggering unselfish behavior. Stout illustrates how our legal system can use these social cues to craft better laws that encourage more unselfish, ethical behavior in many realms, including politics and business. Stout also shows how our current emphasis on self-interest and incentives may have contributed to the catastrophic political missteps and financial scandals of recent memory by encouraging corrupt and selfish actions, and undermining society's collective moral compass.

Given that one of the reviews describes it as "a blistering attack on the 'law and economics' school," I have to admit that I'm quite looking forward to reading it.

SJP

Can Government Debt Be An Asset?

With a government shutdown successfully averted, the new issue is how to deal with the debt ceiling. The debt ceiling provides a statutory cap on the amount the federal government can legally borrow.  Of course, it's pretty well known that the debt ceiling needs to be raised, because Congress already committed to obligations in December that required raising the ceiling.  They conveniently punted on raising the debt ceiling then, and simply made commitments that would require future action.  As CNN.com explains: "[M]uch of the political rhetoric is misleading because the money has already been committed and lawmakers are arguing over whether to pay the bill, according to former Congressional Budget Office Director Rudolph Penner."

I am not a huge fan of our ever-increasing national debt, but I am even less fond of a national default on debt already incurred.  We, through our representatives, agreed to pay off our debt, and we need to follow through on those obligations.  It is possible that some cuts can be made to limit the necessary increase in the debt ceiling, too, which I support, but the solution needs to include not defaulting -- period.  

In the film (and book) Barbarians at the Gate, Henry Kravis was famously attributed with saying, "Debt can be an asset. Debt tightens a company."  Maybe that can be true for the government, too; maybe debt can tighten a country, so that our government can be more efficient, more focused, and more productive.  Of course, this can't happen if the nationl debt continues to increase without even acknowledging that the ceiling needs to be raised and accepting the concomitant criticism that follows at the time. The first order of business, then, should be to ensure that the government can't increase debt obligations without at least raising the debt ceiling (if needed) at the same time. There should be no punting the issue down the road.  By waiting to have the conversation about increasing the debt ceiling, the Congress that took on the obligations avoided the other consequence of taking on such debt, also as explained in Barbarians at the Gate: 

Henry Kravis: "Debt can be an asset. Debt tightens a company." 

F. Ross Johnson: "It does wonders for the sphincter, too."

Perhaps it's best that those go hand in hand when it comes to incurring government debt.

--JPF

Are Lawyers to Blame for Poor Risk Management?

In the past year, we have seen some significant and tragic environmental disasters in the oil industry.  The question I pose here:  are lawyers to blame?

As for the disasters, first, of course, was the Deepwater Horizon disaster in the Gulf of Mexico, which released 4.9 million barrels (205.8 million gallons) of oil into the Gulf. In addition to some $20+ billion in cleanup and spill-related claims, BP lost (by my estimate), $531,797,000.00 @ today's price of $108.53/bbl. A second, smaller spill occurred last year when Enbridge Inc.'s oil pipeline dumped 800,000 gallons of oil into Michigan's Kalamazoo River. That's about 19,047 gallons of oil, a loss of $2,067,238.10 at today's price per barrel. Enbridge today announced that the cleanup would cost about $550 million.  

I know some people feel differently, but I think it is pretty clear no one at these companies wanted anything like this to happen.  The economic incentives are clearly there to try to avoid such spills, even before you take into account the necessary (and far more expensive) costs of remediation. I do think, however, this highlights that people are often very bad risk managers, even when they are highly educated and highly sophisticated.  

This is true well beyond the oil industry.  As the flood waters have begun to rise again in the Northern Plains, we again see the risk that returns annually when significant and permanent flood-avoidance measures are delayed or avoided.  Fargo, North Dakota, and the rest of the area are once again working diligently to prepare for potentially disastrous flooding.  

In years past, as I have argued elsewhere, we have seen the dangers of such floods when a city lacks adequate protection. In 1997 in Grand Forks, ND, flooding and a related fire led to $4 billion in losses and a $400 million dike system to protect the city from similar future events. The impact of Hurricane Katrina, and the resulting flooding, on New Orleans was even larger: $100 billion lost ($40B private).  The present value cost (at least arguably) of flood protection is about $1.5 billion. Thus, in both circumstances, the cost of prevention was far cheaper than the cost of repair.  And in both cases, the cost of prevention was also incurred (or needs to be).

We see this problem with corporate managers every day.  Managers, of course, must deal with risks in a variety of ways.  As Robert Eli Rosen explained in his dissertation, Lawyers in Corporate Decision-Making:  a manager’s job is "balancing risks, developing a risk-portfolio, [and] securing support from others to minimize risks."  And it may be that lawyers are failing their client managers.  

Again, as Rosen explains: "The lesson to be learned in the risk analysis approach is that the lawyer must approach managers in a constructive fashion to effectively serve the corporation.  The lawyer must approach the manager from the position of helping the manager realize his objectives.  If the lawyer doesn't adopt this stance, the client will not consult him and will find ways to circumvent him."

Lawyers, especially in the non-litigation context, need to help their clients assess risk and help them solve problems. That can’t mean saying no all the time.  It means learning their clients’ business, and understanding what their clients need, then providing options and solutions.  Of course, some things are simply illegal. But, for the most part, it’s a not question of whether the clients can do something. It’s whether it’s worth it.

Risk management, obviously, can be done well.  For example, in Winnipeg (Canada), a floodway was completed in 1968 to protect the city from flooding of the Red River, which is the same (north running) river that flooded Grand Forks and threatens Fargo today.  Known as Duff's Ditch and Duff’s Folly (after its chief proponent, Manitoba premier Duff Roblin), it cost $63 million (about $300-$900m today, depending on how you do the calculation). In the years since its construction, "Duff's Folly" has saved billions of dollars, not to mention the human and social costs related to traumatic events.  

I’d like to think Premier Roblin had very good legal advice.

--JPF

Schools for Misrule

I recently read Walter Olson’s new book, Schools for Misrule: Legal Academia and an Overlawyered America. I opened the book expecting to like it. As a libertarian, I’m sympathetic to Olson’s claim that the United States is overregulated and over-lawyered. But, although Olson is a forceful advocate and the book is well written, I was disappointed.

To begin with, this is not really a book about legal education. Olson does talk about the work of law professors, but more as advocates and writers than as teachers. Except for a few obligatory comments about professors pushing a liberal agenda in class, the book does not venture into the classroom.

Olson’s real concern is law professors’ advocacy outside the classroom—in influential law review articles and as consultants and activists. He uses legal scholarship and the work of law clinics as starting points to criticize a number of developments in the law, from strict liability to international human rights. Olson’s basic thesis is that law professors have bad ideas, and those bad ideas become bad law. 

At the end of the book, Olson does call for law schools to train students “in the skills and knowledge they will need in legal practice.” But, since he doesn’t focus on curriculum, it’s difficult to know exactly what Olson would change. Olson’s bêtes noire are law school clinics, especially the so-called “public interest” clinics. But he focuses on the substance of their advocacy, not whether those clinics teach students the skills they will need in legal practice.

For the most part, Olson neglects the business-law side of law schools. In fact, he specifically singles out business law as one of the few areas where there is “a decided mix of left and right voices.” I like to think we business law professors have as many screwy ideas as the rest of the legal academy, so the lack of attention is disappointing.

People who disagree with Olson’s views of what the law should be aren’t going to find much of value in this book, for his main thesis is simply that the legal changes wrought by law professors are wrong. And people who agree with Olson’s substantive views are not going to find much new here. Olson relies almost exclusively on published sources and doesn’t appear to have done much hands-on investigation.
 
-Steve Bradford