Friday, January 3, 2014
Yesterday, I attended the Annual Meeting of the Society of Socio-Economists. Unfortunately, I was only able to participate in the second half of the program due to flight delays, but the discussions I did participate in were fantastic and I hope to publish a number of posts passing on some key points. Today, I’d like to start by highlighting the book “The Citizen's Share: Putting Ownership Back into Democracy” by Joseph R. Blasi, Richard B. Freeman, and Douglas L. Kruse (I understand Joseph Blasi was one of the presenters at the meeting--though I was chairing a concurrent plenary session at the time). Here is a description from the Yale University Press:
The idea of workers owning the businesses where they work is not new. In America’s early years, Washington, Adams, Jefferson, and Madison believed that the best economic plan for the Republic was for citizens to have some ownership stake in the land, which was the main form of productive capital. This book traces the development of that share idea in American history and brings its message to today's economy, where business capital has replaced land as the source of wealth creation. Based on a ten-year study of profit sharing and employee ownership at small and large corporations, this important and insightful work makes the case that the Founders’ original vision of sharing ownership and profits offers a viable path toward restoring the middle class. Blasi, Freeman, and Kruse show that an ownership stake in a corporation inspires and increases worker loyalty, productivity, and innovation. Their book offers history-, economics-, and evidence-based policy ideas at their best.
Monday, December 9, 2013
If you have an interest in entrepreneurship and innovation, or if you just want to know more about the company whose boxes are currently appearing on porches across the nation, read Brad Stone’s new book, The Everything Store: Jeff Bezos and the Age of Amazon.
Stone is not a corporate shill; his portrait of Bezos is not always flattering. But the book is well written and entertaining, and a good study of what made Amazon successful. Budding entrepreneurs could derive a number of important lessons from Jeff Bezos.
The Goal of a Business is to Serve Customers
Entrepreneurs often chase the wrong rabbit. The goal of a business is not to create the fanciest technology. The goal of a business is not to get ready to make a public offering. The goal of a business, and the way it makes money, is to serve customers—to fulfill some customer need more effectively than any other company.
It’s clear that customers have been Bezos’ top priority from the beginning, and that’s what has made Amazon successful. The most obvious example of that philosophy? Putting both positive and negative customer reviews on the Amazon web site. We take that for granted now—many online retailers do it—but it was business heresy at one time. I have foregone some purchases because of those negative reviews, but those reviews are also one of the main reasons I keep going back.
Innovation: You Have to Break Eggs to Make an Omelet
Forgive the cliché, but innovation depends on risk-taking. For every success, there are many, many failures. Jeff Bezos has wasted a lot of money going down blind alleys, but once in a while, those ideas have paid off in a major way. Amazon is successful because of its willingness to fail.
“Good Enough” is Not Good Enough
It is clear from The Everything Store that Bezos is driven to succeed. He demands results and he doesn’t tolerate failure. I don’t think I would want to work for Bezos. If Stone’s portrayal is accurate, Bezos can sometimes be an unpleasant person; ridicule is one of his tools. But that drive, that demand for results, is one of the reasons Amazon has become such a giant.
Costs Matter Too
Profitability depends on two things, revenues and expenses. You have to be willing to spend money to make money (Cliché No. 2). But that doesn’t mean you should spend as much money as possible. I read a lot of business history and the level of extravagance at some start-up companies amazes me.
Bezos is, to put it bluntly, cheap. He doesn’t waste money. He may take the idea so far as to make it a fetish, but that’s better than the alternative.
The “Everything” Store
I highly recommend Stone’s book. It’s an entertaining look at how one company went from start-up to behemoth.
Saturday, November 30, 2013
- If you are looking for some books to help you better understand our economic history, try: Timothy Shenk on “The Long Shadow of Mont Pèlerin” – reviewing Angus Burgin’s The Great Persuasion (“[U]ncovering a history where the supposed founders of the American chapter of neoliberalism at the University of Chicago reprimand Hayek’s The Road to Serfdom for overdoing its indictment of the state while Keynes reports himself “in a deeply moved agreement” with the very same text.”).
- I thought I knew what it felt like to be scatterbrained and distracted, then I started spending time on Twitter. Let’s just say my belief that meditation is an integral part of work-life balance was reinvigorated. Relatedly, try: (1) bidushi on “The corporate world’s flirtation with meditation” and (2) “Free Video – ‘3-minute breathing space’ Guided Meditation” from the Oxford Mindfulness Centre.
- For the blogroll: Jennifer Taub’s "perpetual crisis" blog (“a blog on banking, corporate governance, and financial market reform”).
- Finally, you might be interested in Michael Pettis on “When Are Markets ‘Rational’?" (“To me, much of the argument about whether or not markets are efficient misses the point. There are conditions, it seems, under which markets seem to do a great job of managing risk, keeping the cost of capital reasonable, and allocating capital to its most productive use, and there are times when clearly this does not happen. The interesting question, in that case, becomes what are the conditions under which the former seems to occur.”).
Saturday, November 23, 2013
I was reading the introduction to the 35th anniversary edition of Atlas Shrugged the other day, and a number of quotes taken from Ayn Rand’s related journal entries struck me (bold highlights are mine):
- I must show in what concrete, specific way the world is moved by the creators. Exactly how do the second-handers live on the creators. Both in spiritual matters—and (most particularly) in concrete, physical events. (Concentrate on the concrete, physical events—but don’t forget to keep in mind at all times how the physical proceeds from the spiritual.)
- [I]t is proper for a creator to be optimistic, in the deepest, most basic sense, since the creator believes in a benevolent universe and functions on that premise. But it is an error to extend that optimism to other specific men. First, it’s not necessary, the creator’s life and the nature of the universe do not require it, his life does not depend on others. Second, man is a being with free will; therefore, each man is potentially good or evil, and it’s up to him and only to him (through his reasoning mind) to decide which he wants to be. The decision will affect only him; it is not (and cannot and should not be) the primary concern of any other human being.
- [A] creator can accomplish anything he wishes—if he functions according to the nature of man, the universe and his own proper morality, that is, if he does not place his wish primarily within others and does not attempt or desire anything that is of a collective nature, anything that concerns others primarily or requires primarily the exercise of the will of others.
To the extent one can sum up the foregoing as asserting that some type of essentially limitless creative power exists within humans, which is exercised via thought or reason, and need not – in fact should not – concern itself with the success or suffering of others, this sounds an awful lot like some of the rhetoric associated with “The Secret” or “The Law of Attraction.” For those not familiar with the law of attraction, here is an excerpt from a review of “The Secret” that might help (for a version of the law of attraction presented by a disembodied spirit, as channeled by Esther & Jerry Hicks, go here – you might also want to check out Frank Pasquale’s post on the false advertising implications of The Secret here):
Supporters will hail this New Age self-help book on the law of attraction as a groundbreaking and life-changing work, finding validation in its thesis that one's positive thoughts are powerful magnets that attract wealth, health, happiness... and did we mention wealth? Detractors will be appalled by this as well as when the book argues that fleeting negative thoughts are powerful enough to create terminal illness, poverty and even widespread disasters.
I am certainly not the first person to have considered the possible connection between Ayn Rand’s philosophy and the law of attraction. For other examples, go here (“Homage to Atlas Shrugged & Ayn Rand” page on “Powerful Intentions,” which describes itself as “a unique Law of Attraction Online Community”) or here (“50 Prosperity Classics,” citing Ayn Rand, The Secret, and Esther & Jerry Hicks). The Atlas Society itself suggests (in a post entitled, "False Beliefs and Practical Guidance"): “If practical advice from ‘law of attraction’ preachers helps you keep focused on your goals, then use it.”
Anyway, I have not spent a lot of time researching this question (readers that have made it this far are likely now thinking either, “good” or “you’ve already spent way too much time on this”), but I would be curious to hear from anyone who knows of some better sources that either associate Ayn Rand with, or distinguish her from, the law of attraction.
Sunday, November 10, 2013
Martin Gelter & Geneviève Helleringer posted “Constituency Directors and Corporate Fiduciary Duties” on SSRN a few weeks ago, and I’m finally getting around to passing on the abstract:
In this chapter, we identify a fundamental contradiction in the law of fiduciary duty of corporate directors across jurisdictions, namely the tension between the uniformity of directors’ duties and the heterogeneity of directors themselves. Directors are often formally or informally selected by specific shareholders (such as a venture capitalist or an important shareholder) or other stakeholders of the corporation (such as creditors or employees), or they are elected to represent specific types of shareholders (e.g. minority investors). In many jurisdictions, the law thus requires or facilitates the nomination of what has been called “constituency” directors. Legal rules tend nevertheless to treat directors as a homogeneous group that is expected to pursue a uniform goal. We explore this tension and suggest that it almost seems to rise to the level of hypocrisy: Why do some jurisdictions require employee representatives that are then seemingly not allowed to strongly advocate employee interests? Looking at US, UK, German and French law, our chapter explores this tension from the perspective of economic and behavioral theory.
Friday, November 8, 2013
The Economist has an interesting piece on how “[a] mutation in the way companies are financed and managed will change the distribution of the wealth they create.” You can read the entire article here. A brief excerpt follows.
The new popularity of the [Master Limited Partnership] is part of a larger shift in the way businesses structure themselves that is changing how American capitalism works…. Collectively, distorporations such as the MLPs have a valuation on American markets in excess of $1 trillion. They represent 9% of the number of listed companies and in 2012 they paid out 10% of the dividends; but they took in 28% of the equity raised…. [The] beneficiaries, though, are a select class. Quirks in various investment and tax laws block or limit investing in pass-through structures by ordinary mutual funds, including the benchmark broad index funds, and by many institutions. The result is confusion and the exclusion of a large swathe of Americans from owning the companies hungriest for the capital the markets can provide, and thus from getting the best returns on offer….
Another booming pass-through structure is that of the “business development company” (BDC). These firms raise public equity and debt much like a leveraged fund.… What they all share is an ability to do bank-like business—lending to companies which need money—without bank-like regulatory compliance costs….
Andrew Morriss, of the University of Alabama law school, sees the shift as an entrepreneurial response to a century’s worth of governmental distortions made through taxation and regulation. At the heart of those actions were the ideas set down in “The Modern Corporation and Private Property”, a landmark 1932 study by Adolf Berle and Gardiner Means. As Berle, a member of Franklin Roosevelt’s “brain trust”, would later write, the shift of “two-thirds of the industrial wealth of the country from individual ownership to ownership by the large, publicly financed corporations vitally changes the lives of property owners, the lives of workers and …almost necessarily involves a new form of economic organisation of society.” … Several minor retreats notwithstanding, the government’s role in the publicly listed company has expanded relentlessly ever since.
November 8, 2013 in Business Associations, Books, Corporate Governance, Corporations, Current Affairs, Financial Markets, LLCs, Partnership, Securities Regulation, Stefan J. Padfield, Unincorporated Entities | Permalink | Comments (0)
Sunday, October 27, 2013
Jennifer Taub has published a new book, “Other People's Houses: How Decades of Bailouts, Captive Regulators, and Toxic Bankers Made Home Mortgages a Thrilling Business.” Here is an excerpt from the Yale University Press description:
Focusing new light on the similarities between the savings and loan debacle of the 1980s and the financial crisis in 2008, Taub reveals that in both cases the same reckless banks, operating under different names, received government bailouts, while the same lax regulators overlooked fraud and abuse. Furthermore, in 2013 the situation is essentially unchanged. The author asserts that the 2008 crisis was not just similar to the S&L scandal, it was a severe relapse of the same underlying disease. And despite modest regulatory reforms, the disease remains uncured: top banks remain too big to manage, too big to regulate, and too big to fail.
UPDATE: The book will be in bookstores in May, but can be pre-ordered now.
Sunday, October 13, 2013
1. Russell G. Pearce & Brendan M. Wilson on Business Ethics
This Essay makes three contributions to the field of business ethics …. First, the Essay identifies the dominant approaches to business ethics as profit maximization, social duty, and ordinary ethics, and summarizes the claims made by proponents of each perspective. We intend this categorization as a way to refine the distinctions between and among various views of business ethics and to address the conundrum that John Paul Rollert has described as the “academic anarchy that is business ethics…. Second, the Essay explores the strengths and weaknesses of these three approaches. It suggests that their emphasis on viewing business persons and organizations as existing autonomously, rather than within webs of relationships, helps explain why the field of business ethics has had minimal influence on business conduct, as does the false dichotomy between economic and ethical conduct that proponents of these approaches often embrace…. Third, the Essay proposes an alternative approach that would locate business ethics at the center of business conduct. This approach embraces the relational character of business behavior. It offers a conception of self-interest that recognizes the relational dimension of self-interest and identifies mutual benefit as the goal of business conduct. The text of the essay is available in the book itself or on Professor Pearce's Fordham University web page.
2. John Robinson Jr. on Social Public Procurement: Corporate Responsibility Without Regulation
The growing perception in the developed world that multi-national corporations conduct social and environmental exploitation abroad raises numerous questions about corporate social responsibility. That those corporations would not get away with, nor probably even attempt, such exploitation in their home countries complicates the dialogue: to what extent are the home governments responsible for ensuring their native corporations act responsibly abroad? The E.U. answers this question affirmatively and takes an active role in promoting social responsibility. One major mechanism they use is socially responsible public procurement, which incentivizes good social outcomes by awarding contracts based, in part, on social criteria…. This Essay explores the E.U.’s framework for achieving these social goals and suggests that the U.S. should undertake many of the same policies.
3. Tony A. Freyer & Andrew P. Morriss on Creating Cayman as an Offshore Financial Center: Structure & Strategy Since 1960
The Cayman Islands are one of the world’s leading offshore financial centers (OFCs). Their development from a barter economy in 1960 to a leading OFC for the location of hedge funds, captive insurance companies, yacht registrations, special purpose vehicles, and international banking today was the result of a collaborative policy making process that involved local leaders, expatriate professionals, and British officials…. [T]his Article describes how the collaborative policy making process developed over time and discusses the implications of Cayman’s success for financial reform efforts today.
Saturday, October 12, 2013
Hardcover book forthcoming. Here is a description from the Amazon product page:
Since the 1980s, society's wealthiest members have claimed an ever-expanding share of income and property. It has been a true counterrevolution, says Pierre Rosanvallon--the end of the age of growing equality launched by the American and French revolutions. And just as significant as the social and economic factors driving this contemporary inequality has been a loss of faith in the ideal of equality itself. An ambitious transatlantic history of the struggles that, for two centuries, put political and economic equality at their heart, The Society of Equals calls for a new philosophy of social relations to reenergize egalitarian politics. For eighteenth-century revolutionaries, equality meant understanding human beings as fundamentally alike and then creating universal political and economic rights. Rosanvallon sees the roots of today's crisis in the period 1830-1900, when industrialized capitalism threatened to quash these aspirations. By the early twentieth century, progressive forces had begun to rectify some imbalances of the Gilded Age, and the modern welfare state gradually emerged from Depression-era reforms. But new economic shocks in the 1970s began a slide toward inequality that has only gained momentum in the decades since.
Friday, October 11, 2013
Jennifer S. Taub has updated “What We Don’t Talk About When We Talk About Banking” on SSRN. Here is the abstract:
The run on the shadow banking system in 2008 is routinely identified as the event that transformed the nonprime mortgage securities meltdown into a full-blown Global Financial Crisis. Yet, the components of this shadow sector have not been brought into the light let alone under adequate regulatory supervision. The government-initiated reform measures enacted to date lack consistency and cohesion. Too little attention has been paid to how the varied pieces of this system interconnect with each other and with “real” banking. For example, the multi-trillion dollar repurchase agreement (“repo”) market was ground zero for the sudden, severe withdrawal of liquidity from the banking system in the United States. Yet little has been done to address the dependence upon this short-term, often overnight funding market. Conversely, some shadow players like money market mutual funds, (MMFs) that were already subject to heavy structural controls, have been further regulated. While these new rules were designed to strengthen the funds, making them less prone to runs by their own investors, these same changes may create even more instability and risk for bank and shadow bank counterparties who depend upon them for short-term financing. Additionally, with regard to some of the most risky “nonbank” financial firms, such as hedge funds, the regulatory reform measures to date have been flimsy at best. Accordingly, this chapter first will describe what is meant by “shadow banking,” and the role it played in the financial crisis. Next, it will highlight two key components of shadow banking system: MMFs and the repo market, including the regulatory reforms accomplished to date and proposals being studied. And, finally it will present alternative suggestions for further reform.
Wednesday, October 2, 2013
Is there a sociological explanation for why Wall Street--and other large, complex and interconnected systems--are rigged for crisis? Charles Perrow, author of Normal Accidents: Living with High Risk Technologies says yes. Normal accidents occur when two or more unrelated failures interact in unpredicted ways. As applied to Wall Street, the theory is that as the number of trades, a steeply rising number, increases and as the market becomes increasingly technology dependent, the likelihood of these normal accidents occuring also increases. Examples of normal accidents in the financial markets include the flash crash based on the false tweet that there were explosions at the White House last spring, the NASDAQ software glitch that caused the flash freeze in August, and the unprecedented trading losses suffered during the financial crisis of 2008. This article in the Atlantic provides a provocative description of Wall Street's normal accidents, predicts that more are to come, and suggests that limiting the number/volume of trades is one place to start in thinking about reducing the occurance and significance of these normal accidents.
A specific example of a normal accident is: "one trader at JP Morgan Chase" racking up a "$6 billion in trading losses while the company’s CEO, Jamie Dimon, thinks everything is under control."
That natural accident and other alleged misdeeds of JP Morgan have the company and its legal troubles back in the news. After the company's September settlement with the SEC, which included an admission of wrong-doing and a $200 million fine, there is talk of a global settlement of all state and federal inquiries into its mortgage practices. The settlement, news of which broke last week, is rumored to be around $11 billion, but is in jeopardy. The FDIC is opposing an indemnification provision of the settlement that would put an indemnificaiton responsibility on the FDIC 5 years after the settlement and push approximately $3.5 billion in liabilities on to the FDIC.
This article (also from the Atlantic) provides a great description of the conduct at the center of JP Morgan's legal troubles and outlines the company's ongoing litigation related to the financial crisis and subsequent scandals (i.e., the Libor scandal).
Saturday, September 28, 2013
A friend recently asked me to suggest some books that might help him improve his meditation practice. Operating under the assumption that if the topic is appropriate for the Wall Street Journal ("Doctor's Orders: 20 Minutes Of Meditation Twice a Day"), then it's good enough for this blog, I thought I'd pass on my suggestions to interested readers. The first 3 make up my personal list of "classics," and the last is a shameless plug for a book of edited dharma talks I wrote based on my year of studying under sensei Ji Sui Craig Horton of the Cleveland Buddhist Temple. While my suggestions all focus on Buddhist/Zen meditation, there are certainly more "generic" approaches to learning about meditation -- for example, one might visit the website for the Center for Contemplative Mind in Society, which seeks to transform higher education "by supporting and encouraging the use of contemplative/introspective practices and perspectives to create active learning and research environments that look deeply into experience and meaning for all in service of a more just and compassionate society" (I was made aware of this source while attending a panel discussion on "Engagement, Happiness, and Meaning in Legal Education and Practice"). Regardless, here is my promised recommended reading list:
- Zen Mind, Beginner's Mind
- Everyday Zen
- The Heart
of Buddhist Meditation
- Sun Breaks Through Gray Skies: The Dharma Lives in Cleveland
Friday, September 27, 2013
Peter Huang recently published a review of Leo Katz’s “Why the Law Is So Perverse” in 63 Journal of Legal Education 131 (you can download the paper via SSRN here). I have only briefly skimmed the paper, but I believe there is much of value here for corporate law scholars. The following excerpt is from the introduction:
This book is an imaginative tour of legal paradoxes that are related to the field of social choice, which studies the aggregation of preferences. In a non-technical and accessible way, Katz discusses many complex and subtle ideas, using the language of legal cases, doctrines and theories. As he notes on page 6, some legal scholars have applied social choice theory to analyze diverse and fundamental legal issues. Two recent examples are how social choice illuminates the reasonable person standard in torts and other areas of law and the notion of community standards underlying the doctrine of good faith performance in contract law…. Katz's book explicates four fundamental legal paradoxes as the logical consequence of the perspective that legal doctrines entail multi-criteria decision-making. This means that each of these foundational doctrines is logically related to a voting paradox and its corresponding literature in social choice. Katz aptly describes the four legal puzzles he analyzes by choosing as titles to the four parts of his book these four questions: Why does law prohibit certain win-win transactions? Why are there so many loopholes in the law? Why does so much of law have a dichotomous nature? Why does the law not criminalize all that society morally condemns?
Importantly, Peter adds a valuable appendix entitled, “A Brief Social Choice Primer for Legal Scholars,” which he describes as follows:
This appendix provides legal scholars a guide to social choice in general and four distinguished impossibility theorems in particular. It offers motivating examples and precise statements of those impossibility theorems. The conventional interpretations for these theorems and the field of social choice are negative in the sense that most commentators view social choice theory as mathematically proving that no voting procedure is fair. These commentators include legal scholars applying impossibility theorems and concluding that difficulties are unavoidable with all collective or group decision-making processes. There is a vast social choice literature full of extensions and refinements of these and other impossibility theorems. Current social choice research tends to be philosophical or technical. Katz's book mostly eschews the technical and emphasizes the philosophical. This appendix does the opposite, while still avoiding mathematical details and emphasizing conceptual understanding. Additionally, it highlights research by Donald Saari and his coauthors that explains what goes wrong in these impossibility theorems and provides benign interpretations and positive versions of them.
Tuesday, September 17, 2013
I (Josh Fershee) will follow up with a post of some (I hope) substance shortly, but I thought I’d take a moment to briefly re-introduce myself. When I last wrote for BLPB, I was teaching at the University of North Dakota School of Law. Last fall, we made the move to West Virginia University College of Law. (I say “we” because my wife (Kendra Huard Fershee) not only moved with me, but because she is also on the law faculty.) I joined WVU as part of a university-wide energy-law expansion and work with the Center for Energy and Sustainable Development.
I teach business law courses and energy law courses, with most of my research relating somehow to energy business and regulation. I teach Business Organizations, Energy Law Survey, Energy Business: Law & Strategy, and Energy Law and Practice. I plan to add a Hydraulic Fracturing Seminar, too, in the near future.
Of perhaps some interest to our readers, I have taught my Energy Business: Law & Strategy course once, and I plan to do so again in the spring. I think it is a unique class, especially in the law school environment, with its focus on how law comes to be and how businesses are strategic in their use of law and regulation. (Note: I am of the mind that this reality is important to understand whether you want to work for businesses and employ such strategies or if you want to work to limit businesses in the ability to do so.) I have the students work in groups, and they draft a written final project, which they also present to the class.
Below the jump, I provide the books, course description, goals, and assessment items for the course. I welcome any comments or suggestions for additional teaching materials or concepts.