Business Law Prof Blog

Soft Skills

Business schools are focusing on teaching "soft" people skills to potential business leaders.  Law schools are not far behind.  Having read a serious of biographies of great business leaders at the turn of the century recently (Frick,; Carnegie, Ford, J.P. Morgan, Rockefeller), I cannot but help observe that it was not "soft" people skills that made them leaders.  Many were tough nuts.  What all had, however, was discernment at critical points, and strong commitment and drive.  How does one teach discernment (judgment)??

Shilling for Seton Hall Law Schhool by Dean Hobbs

The Dean of Seton Hall, Patrick E. Hobbs, has written a letter to the WSJ responding to Richard Epstein's op-ed of Nov. 28 in the same paper.  Professor Epstein makes the point that the United States Attorney for New Jersey over stepped the bounds of his office when he forced Bristol-Meyers to endow a chair of ethics at his alma mater, Seton Hall Law School, as a condition to granting a deferred prosecution agreement settlement to criminal charges.  The Dean of Seton Hall rose to the bait and used the opportunity to tout the Seton Hall program.  His bragging on ethics education, no less, did not deal with the ethical problem of his school's accepting a chair ( i.e., aiding and abetting an ethic breach) from a company that had been coerced by a federal prosecutor to give it.  This is a highly controversial practice.  Prosecutors should not use their office to fund their alma mater.  Indeed, one can make a good argument that prosecutors should not use their office to fund any chartable institution this way.   Analogies abound:  We, for example, routinely condemn corporate insiders' use of gifts to the alma maters of outside directors as a way of compromising the outsiders' integrity (is it a bribe?).  How is this different??  Has the company paid a version of a kickback to the prosecutor in the form of a gift to an alma mater?? It is, of course an ethical question, that the Dean ignores completely in his rush to hype his school's ability to teach -- well -ethics.   

Congratulations Class of 2006

I wish to take a moment to congratulate the 3rd year graduating class at Moritz College of Law.  It contains a delightful group of talented new business lawyers, forty or more have taken at least three of my business law classes (eighty or so have taken two).  They gave me the ultimate tribute --second in the vote for graduation speaker -- I do not have to prepare a speech this year as last;  they also roasted me in the Hearsay with a very funny "news" story and an award for working the most "non-law" into law school class.  I greatly enjoyed the privilege of getting to know many of you folks both in and out and class and wish you well.  Bess you folks. 

Stanford Corporate Governance Center

Standford University is creating a new Arthur and Toni Rember Rock Center for Corporate Governance. The Center is financed by a $10 million gift from a Silicon Valley venture capitalist, Arthur Rock and his wife.  Two law professors, Robert Daines and Joseph Grundfest will run the Center.   

Professor Crespi Question

Professor Crespi from SMU has asked me to include the following observaton about law teaching:

TOPICAL COVERAGE IN THE INTRODUCTORY

LAW

SCHOOL

BUSINESS LAW COURSE

            I regularly teach the four-credit Business Enterprise course at the SMU School of Law, our basic introductory course to corporation law.  I have found that I have to spend two full weeks at the outset covering in some detail the basic principles of agency law and partnership law, since those topics are essential for understanding most of the relevant governing frameworks for the many other entity forms, and are no longer covered in a dedicated Agency and Partnership-type course in our curriculum.  In addition, I have to spend at least one class covering basic accounting principles, one or two classes covering basic federal and state entity taxation principles, and two full weeks of basic finance and statistical concepts (discounting, expected values and variances, risk analysis, diversification and portfolio theory, the capital asset pricing model, option pricing theory, the efficient capital market hypothesis, etc.), since as Bernard Black, Roberta Romano and numerous others in the field have made clear at least a basic grasp of all of those concepts is now absolutely essential for one to be able to provide competent transactional and legislative/administrative representation in the large law firm setting.  This all means that fully 20 of my 56 50-minute class periods are already committed before I can begin to delineate the major features of each of the now many proliferating legal entities, and to address corporation or securities law issues.   The price that I and my students must pay for this breadth of introductory treatment is obviously more limited coverage of significant corporate and securities law issues.  It is unfortunate (and probably inadvertent) that the basic business law course at SMU (and, I suspect, elsewhere as well) has had to become in recent years the primary locus of very concentrated and consequently somewhat superficial remedial education for aspiring corporate lawyers who either do not have other access to, or are not advised of the importance of, or who simply unwisely choose not to first take more extensive preparatory courses in these areas I have noted above before enrolling in corporation law courses that necessarily must presuppose some such background if cutting-edge issues are to be discussed.     I welcome comments regarding my observations.   Greg Crespi   

      

 

SEC Controls on Shareholder Voting: An archaic, cumbersome system

Each year I teach shareholder voting in the basic corporations course, I have to re-acquaint myself with the cumbersome system of shareholder voting that we accept for our publicly-traded companies.  When done, I always come to the same conclusion:  the procedure we use to enable the individual equity investors of United States companies to vote their interests is hopelessly outdated.   

The corporations solicit votes by asking shareholder to vote by "proxy."  A proxy is not an absentee ballot but a grant of agency to an individual who will be at the meeting.  Firms hire a company, usual Georgeson Shareholder Communications, Inc., to prepare the proxy solicitation materials and count the votes.  The proxy rules require that shareholders get a stylized, jargon laden two hundred page or so document (proxy statement) along with a single page form proxy.  The requirement proxy statement begs to be thrown in the trash, if it is even opened.   

Most individual equity investors, however, do not get the mailings from the company.  The investors hold shares as beneficial owners in brokerage accounts or as investors in mutual funds.

A) The shares held in brokerage accounts are held in "street name."  Legal title to the shares is held in a depository company maintained by the brokerage firm or a group of brokerage firms and equitable title goes to the beneficial owners (i.e. the shareholders).  So the company material goes to the depository company that forwards it to the brokerage house that forwards it to the beneficial owners, the shareholders, with additional cover materials.  The brokerage houses hire another firm, Automatic Data Processing Inc., to send out the materials and collect the votes.  If the beneficial owners, shareholder do not vote, the brokerage company can vote the shares.  Shareholder can choose to keep their identity secret, even from the company.  They are OBOs (objecting beneficial owners).  If they do not care they are NOBOs (non-objecting beneficial owners).  The "pass-one" procedures vary for each brokerage firm.  Companies must pay for their own mailings and the mailings of the intermediaries.   

B) Shares owned through mutual funds are voted by the managers of the funds and until recently, the funds resisted disclosing their votes at all.  The funds are still protesting the new rules forcing miminal vote disclosures.  In any event, those investors owning shares in mutual funds (technically not shareholders at all) do not receive any information from the firms in the fund nor do they have any impact on how the funds votes.

  This all means that individual shareholders do not vote and corporations cannot talk to their own investors in ways that shareholders may listen and read. 

It is hard to believe that we are content to live with such a system.  With all the calls for more shareholder participant in corporate governance, we should look at the system of communication we are pushing shareholder to use first.  It would be easy to 1) reform the broker default vote rule for brokerage accounts (requiring a mirror rule/a vote that mirrors the percentages of votes actually turned in by beneficial owners) and 2) force mutual funds to solicit views from their large holders of beneficial stakes (with stakes large enough to give the investor an undiluted interest in at least one share of the company in issue).    

Where Do the Nation's Largest 250 Law Firms Hire??

  See the discussion on conglomerate.org for a discussion of a new National Law Journal study on which schools place the highest percentage of their graduates in the nation's top 250 law firms by size.  There are some surprises in the list (Notre Dame and Illinois).  A supplemental study on where the nation's most lucrative law firms (by mean partner salary)  hire would also be informative.