March 17, 2007
Despite Usual Joke, The Legal Profession Is Not Immune To Shark Attack
Consider Howard Bashman's report in How Appealing that professional courtesy was inexplicably denied to the right arm of one surfing South Florida lawyer. Truth is not stranger than lawyer light-bulb jokes, or Jaws reduced to 30 seconds and played by bunnies (or for that matter, a bunny version of Borat).
News reports say the attack victim is a local prosecutor (fortunately he will recover). There is no truth to the tasteless rumor that two leaked internal White House emails reveal a secret plan by Karl Rove to replace the prosecutor piecemeal. The shark did concede, however, that "bites were made." (In any event, I am confident the attack was performance related, not shark politicization.) No sign of The Fonz on water skis, either. Nor is there any known involvement by Oscar Goldman or Rudy Wells, though it should be noted the injury was to the lawyer's brief-writing hand. Didididi.
Sen. Feinstein's Editorial Says U.S. Attorneys Issue Is Checks & Balances
Dianne Feinstein published an editorial today in the Los Angeles Times, apparently in reply to the paper's previous editorial saying that her proposed legislative response to the U.S. Attorney controversy was political and premature. Hers is called "Why Democrats are raising a stink," and the paper provides the subheading "Congressional investigations into the firing of U.S. attorneys are about checks and balances, not politics, says Sen. Dianne Feinstein."
Her editorial is a thoughtful and systematic refutation, highlighting the particular constitutional end-run concern and not just the sense of PR misdirection or the reputational damage to the fired prosecutors. But to be fair to the LA Times' original editorial, it was written January 26 (seems so long ago) and said that legislative action was [then] premature and in response to "rumors." Obviously many of the more worrisome facts, particularly as to the intended use of that last-minute Patriot Act provision to avoid Senate confirmation of the pod USAs, are not just rumors anymore. I suspect (hope) that even the original editorialist felt dismay and maybe a bit of betrayal later, upon reading administration emails touting the end-run strategy's political advantage -- and brazenly reasoning What's the point of having that executive authority if not to use it? -- thereby bruising exactly the checks and balances interest that Feinstein expresses and understandably values.
Others are arguing that the costs from this issue will be widespread in federal courts, as criminal defense attorneys challenge the replacement USAs and their prosecutorial legitimacy in light of recent revelations. They see a system-wide shock from playing such unvarnished and unchecked politics with such an important professional post, particularly without Senate confirmation of the subs. Already such defense motions are being filed, reports say here and here. Like this motion challenging Tim Griffin's appointment, filed in an Arkansas death penalty case. (Plus here is the White Collar Crime Prof Blog's Ellen Podgor on the Little Rock motion, and the blog's Peter Henning here on several recent DOJ/WH emails and especially prosecutor neutrality vs. "loyalty.") Expect many, many more like this motion, or better. They are not just limited, already, to Bud Cummins' replacement with Griffin in Arkansas.
On Tuesday, the Senate is likely to vote on the proposal to bring the U.S. Attorney appointments process back into confirmation by the Senate and have interim appointments made by U.S. District Courts, a system that was set up in the Reagan administration.
The Art of Misconduct
There were an interesting set of facts that underpin a recent disciplinary case decided by the Oregon Supreme Court. The attorney represented a client in a commercial transaction in which the client received 23 Rodin bronze sculptures in a trade for three classic cars. The sculptures were delivered prior to the cars. Three were displayed in the lawyers law office as a marketing tool and as informal security for the fee (apparently there was some concern about fee payment). When the transaction broke down, the law firm sought and obtained a secured interest in the sculptures while the lawyer assured the other side that no such interests existed. The lawyer also falsely contended that the sculptures had been delivered to an art gallery as had been agreed in order to protect the interests of the opposing client. The court rejected the contention that the lawyer had engaged in no misconduct and ordered a one year suspension. (Mike Frisch)
March 16, 2007
Vicarious Movie Preview for the Legal Profession: A Lawyer Walks Into A Bar...
At Legal Blog Watch, Robert Ambrogi has this post recommending a new movie, "A Lawyer Walks Into A Bar...", which premiered in Austin, Texas, at the SxSW Film Festival. It's a documentary about taking the bar exam. I also heard yesterday from a friend of mine in Austin, a non-lawyer, who reports that it was very entertaining and deserves to get wide release. [Alan Childress]
Why Overly Analytical Law Professor Blog Editors Need to Do a Better Job Suspending their Disbelief
Samuel Taylor Coleridge (right) articulated that state of mind that is necessary for us to enjoy any fiction: the willing suspension of disbelief. The ultimate consequence of the failure to suspend belief, which of course caused all the male viewers not to be able to suspend theirs (as it merely accentuated the general lameness of the plot), while their dates or spouses were weeping uncontrollably, was in the ultimate chick flick, Somewhere in Time, when Christopher Reeve, having successfully willed himself back to 1912 to meet Jane Seymour, sees the present date on a penny and comes back to reality. Hum to yourself Rachmaninoff's Rhapsody on a Theme of Paganini as you read this. (Bit of name-dropping trivia. One of the supporting actors in Somewhere in Time was Teresa Wright, left, who won an Academy Award in the early forties in Mrs. Miniver, and played Peggy, Al's daughter in The Best Years of Our Lives. She passed away not too long ago. I have a DVD of Best Years autographed by her, because her grand-daughter lives here in Indianapolis, and was a schoolmate of one of my children.)
But I digress. Note that what follows ought not be a plot-spoiler, but it may cause you also to fail to suspend your disbelief. We rented the DVD of the latest James Bond movie, Casino Royale, and I'm about 40 minutes into it. While I like the hard edge very much - Daniel Craig has more charisma in the role than anyone since Sean Connery - a bit of dialogue at the very beginning took me right out of my suspension at least until the next big chase scene. The main villain, Le Chiffre, is in Uganda taking several suitcases full of cash to bank on behalf of a local "freedom fighter." Here is the dialogue:
Freedom Fighter: Do you believe in God, Mr. Le Chiffre?
Le Chiffre: No, I believe in a reasonable rate of return.
Freedom Fighter: I want no risk in the portfolio.
In an instantaneous analysis worthy of Paul Caron himself (or perhaps Kate Litvak or Larry Ribstein), I thought "how can he get a reasonable rate of return and have no risk in the portfolio?" Then I had a flash image of the slides Alan Palmiter (Wake Forest) uses to explain return on investment to his Securities Regulation classes, and particularly the one about stashing cash in a mattress. Then I wondered why the freedom fighter didn't just buy T-bills from a Swiss bank account, and if he wanted no risk in the portfolio why was he giving the money to a guy I know James Bond is going to kill by the end of the movie. But by then we had moved on to Madagascar, and bigger and better things.
ABA Journal Reviews New BlackBerry and Uses For Lawyers
The ABA Journal's online eReport, today, has this story comparing the new BlackBerry 8800 to the upcoming Apple iPhone. Links to the story were also sent via an "abanet" email entitled, "Is new BlackBerry good for lawyers?" ["Good" in what sense?, I wonder.] Their ambiguous query reminded me of a glossy ad that I saw in the California bar magazine in the late 1980s touting the newfangled Pager with the scenario: You are an associate in a law firm, it is a Friday evening, you just left the office, and a partner is looking for you. How can you live without this new device called a Pager? As an associate at Brobeck, Phleger & Harrison at the time, I recall seeing the ad and reacting out loud: Worst. Ad. Ever.
The eReport also features a review of new Adobe Acrobat 8's features that are lawyer-friendly, like redaction and Bates numbering. (Alternatives in PDF to Adobe are then reviewed here.) I also vaguely recall, during long days and stacked boxes of document production, wondering whether the term "Bates stamping" was a euphemism for the bad luck that befell Scarlett O'Hara's sister in that Psycho shower.
NY Times Editorial on Prosecutor Squattergate + Using Patriot Act Under Radar
Well-stated editorial in Wednesday's New York Times on-line on the flip-flopping about the firing of U.S. Attorneys 'for cause.' Cynically, "What’s the point of having power if you don’t use it to get more power?" [Alan Childress]
Worse Than DOJing Questions on Squattergate? Legal Ethics Profs Speak Out About Gonzales Cutting Off OPR Wiretaps Investigation That He'd Just Learned Would Likely Target Gonzales
Posted by Alan Childress
Most media and blogs currently are understandably focusing their ethics antennae on the questions surrounding whether U.S. Attorneys were not allowed to stay on in their current post for political or worse reasons (thankfully not yet dubbed Squattergate), and dissembling about the replacement reasons afterwards (apparently "performance-related" in a public firing means not "loyal Bushies" in emails). The WSJ law blog, for example, has certainly followed closely the legal profession ramifications of the prosecutor firings, and we had here posted on David Iglesias' dismissal and senatorial intervention.
Meanwhile, legal ethics landmarks Stephen Gillers (NYU) and Charles Wolfram (Cornell) have just been quoted agreeing that something somewhere else in Denmark is at the very least unethical: the reported specific intervention of Alberto Gonzales with President Bush to have the latter cut off an ongoing DOJ Office of Professional Responsibility investigation into faulty domestic wiretapping by the NSA -- an investigation that then-AG Gonzales had recently learned from his staffers would likely focus on Gonzales. Then the President himself intervened and denied security clearances to OPR investigators (though other offices investigating leaks about NSA surveillance to the New York Times were granted clearance), effectively shutting down the OPR investigation. As the National Journal reports in Aborted DOJ Probe Probably Would Have Targeted Gonzales:
Shortly before Attorney General Alberto Gonzales advised President Bush last year on whether to shut down a Justice Department inquiry regarding the administration's warrantless domestic eavesdropping program, Gonzales learned that his own conduct would likely be a focus of the investigation, according to government records and interviews.
The National Journal quotes both Steve Gillers and Charles Wolfram as saying that this, if true, is wholly unacceptable. The OPR had notified the AG's staffers that they were going to interview Jack Goldsmith in the DOJ Office of Legal Counsel (now a Harvard Law prof) about the wiretapping authorizations and their legality. (He had had internal but famous pushback against Gonzales's view of their legality.) "Law enforcement officials said that Gonzales's senior aides then informed him that OPR wanted to launch its inquiry by interviewing Goldsmith" and another DOJ lawyer. Responds Gillers, apparently in understatement: "If the attorney general was on notice that he was a person of interest to the OPR inquiry, he should have stepped aside and not been involved in any decisions about the scope or the continuation of the investigation." If so, added Wolfram, Gonzales abused "the discretion of his office" for his own benefit.
In open response to this National Journal story on this new allegation, four Senators and a member of the House have now sent unbelievably powerful and irate letters to Gonzales demanding specific answers, now. More pointed than any letter I saw them issue, or public question I have heard them ask, about the prosecutor firings. And as of yet Leahy has not even written a letter; looking forward to that one.
Wolfram and Gillers are of course correct (and by the way, don't always agree in such media inquiries). There is no good spin to this one. I'd say that as unseemly and possibly perjurious as the prosecutor firing matter has become, this charge--if proved--would look a lot more like hard core obstruction of justice. It is not yet on the New York Times' radar (as of now the focus is on the rock group Rove and the USAs), possibly because it does not hold the nationwide attention span of various firings in several home jurisdictions and public pronouncements about it being a "personnel matter" that only a few days later appear to be what magicians call misdirection. (Or because the USA story suggests lying to Congress.)
But it will be. The letters from congressional members with that tone, urgency, and specificity are by themselves news. The agreement of noted ethicists that there is (my characterization) no other side to this issue--and there is not--will make it very hard to define away as mere politics, just internal DOJ personnel stuff, or the "everybody does it" canard. The only denial has to be a factual one--that he did not so intervene, that he was not told he would be a likely focus, that he did not ask the President to stop the OPR from doing its normal investigation. In other words, the only acceptable true answer to the congressional demand letters will have to be "It did not happen at all," because there is no way to spin this one into anything other than Actual Watergate without that being the right answer. I can think of no acceptable reply that also includes an admission as to the underlying factual scenario. This one is just too close to the public turning point of Watergate: the firing of Archibald Cox.
Is it too late to switch a "most likely to succeed" vote at the upcoming 25-year Harvard Law School reunion, away from the Attorney General and toward the new governor of Massachusetts? Go Class of '82! Not really: I am guessing that neither is eligible for "succeed" since Gonzales left a partnership at Vinson & Elkins for a . . . government job, much like classmate Deval Patrick. (I glean this criterion from the fact that alumni questionnaires from every other institution I have dealt with survey my income with a default bracket of $0-50,000 or less, while Harvard starts at $0-250,000. Thanks; makes it easier for me to fill out their forms by reflex and without any discerning calculation on my part. And I see I understate Patrick's so-defined success; after heading DOJ's civil rights enforcement, reportedly "He went on to become executive vice president for Coca-Cola in 2001, and [then held] a year-long $2.1 million consulting stint with the company." And he once was a partner at Hill & Barlow.)
Yet I have to say I now am curious as to whether, when I had Archibald Cox for Constitutional Law -- or that time he gave a presentation describing the moment Robert Bork had delivered the message to him at home that he was fired ("It took a Yale man to fire a Harvard man," I recall Cox adding very dryly) -- was Alberto Gonzales sitting in that classroom too? If so, law school teaches more real-world how-to things than people say. I certainly recall that I first found out about Cox's firing while I was selling Cokes in the stadium aisles of a Jackson State football game [apparently part of Gonzales's bio story, his being Rice games, for having a poor youth to rise out of], and even as a kid, I--vividly, viscerally--could not believe how fundamentally wrong that was.
The world has changed since 1973. Or even 1984. There are no erased 18.5 minutes of analog audiotape never to be heard again. Everything--everything--is on someone's hard drive somewhere. The digital revolution is just too immutable to be spun very well. If these allegations are true, this one deserves its own name and historical moment that is not just an echo of, or pun to, Watergate. It is not just squattergate. Yet I have to admit that it was eye-opening to see that the home offices of the National Journal are actually at 600 New Hampshire Ave. NW here in DC -- and I would not be surprised if whoever leaked this story to them particularly is aware of that irony too. At least I am pretty sure it was not Mark Felt. But Hal Holbrook is still alive, and the dark Rosslyn, Virginia parking garage is just on the other side of the Teddy Roosevelt Bridge from the National Journal's offices in . . .The Watergate.
Texas Considers Requiring Civil Litigation Internships
Susan Saab Fortney (Texas Tech) reports a bill has been introduced in the Texas legislature that would bar any lawyer from having primary responsibility for civil litigation (including family law matters) unless he or she had first completed a two year internship (paid or unpaid) with a supervising lawyer or judge. The word is that the bill will not move forward, but primarily because it was filed late in the session.
March 15, 2007
Illinois Records Net Gain
Law & Society Annual Meeting - Panel on The New Formalism
Posted by Jeff Lipshaw
I thought, particularly after taking the MPRE without too noticeable an increase in my heart rate, I was beyond getting too nervous about professional challenges any more. But this one may test my aerobic condition.
Larry Solum (Illinois) has organized an otherwise luminous round table for Saturday afternoon (2:30 pm), July 28, at the Law & Society Association's annual meeting at Humboldt University in Berlin, and somehow got confused and included me on it. The subject is "The New Formalism," and in addition to Larry, the participants will be Dennis Patterson (Rutgers-Camden), Randy Barnett (Georgetown), and Mariah Zeisberg (Michigan - Political Science, left). Here's the abstract of the planned discussion:
Formalist modalities of legal reasoning have recently come to the fore in a variety of contexts. In the theory of constitutional interpretation, the so-called “new originalism” or “original meaning originalism” has gained new prominence and transcended association with conservative judicial politics. In the theory of statutory interpretation, plain meaning or textualist approaches, once considered outre, are increasing dominant in both judicial practice and scholarly debates. Even in the realm of common-law judicial decision making, instrumentalist approaches are challenged by advocates of “strong stare decisis”. This roundtable will discuss the “new formalism,” from the a variety of perspectives, including jurisprudence, political theory, and the philosophy of language.
I will be making my first official appearance with "Suffolk Law School" on my badge. If my voice does not quaver too much, I will offer some thoughts on formalism and neo-formalism in contract law.
sunEthics has a recent post of a decision of the Supreme Court of Florida rejecting a recommendation for conditional admission by its Board of Law Examiners. The applicant was found to have had an arrest record over a 13 year period with charges as recently as 2002. He also was found to have provided false information (1) to his law school in the admissions application, (2) to the court in his application to participate in a law school student practice program and (3) in his bar application. He had begun recovery from alcohol addiction but the court was "not persuaded that ... alcoholism excuses, explains or really addresses..lack of candor or honesty, or that there is even a nexus between alcohol and the most significant aspects of his egregious misconduct." A dissent favoring conditional admission suggests that the court failed to properly defer to its board's findings with respect to the facts and credibility determinations. (Mike Frisch)
McMorrow on Attorney Norms Before International Courts: Adversarialness vs. Judge-Made Norms
Posted by Alan Childress
Judith McMorrow (Boston College--Law) has posted to SSRN her article, "Creating Norms of Attorney Conduct in International Tribunals: A Case Study of the ICTY." It also appears at 30 B.C. International & Comparative Law Review 139 (2007). Here is her abstract:
Using the International Criminal Tribunal for the Former Yugoslavia (ICTY) as a case study, this Article explores the merger of legal cultures at the ICTY. The ICTY was crafted in a high-stakes international environment and brings together lawyers and judges who have been trained and inculcated typically in a common law/adversarial system or a civil law/non-adversarial system. Lawyers and judges come to the ICTY not only with a distinct understanding of their roles within their home jurisdictions, but also with different skill sets. Merging the legal cultures has not always been smooth. By comparing how attorney-conduct norms are created in the United States - socialization, malpractice, market controls, regulatory processes, and procedural rules - with the practice at the ICTY, it becomes evident that the judges are the dominant source of norm creation in this international court.
These norms are created, however, in an environment in which it appears that most of the substantive interaction between the judges, prosecutors, and defense counsel occurs in formal court settings. Future international courts would benefit from additional discussion among the judicial, prosecutorial, and defense functions as norms are created, including shared discussion about codes of conduct for judges, prosecutors, and defense counsel.
Call 4 Papers: SOX, SEC Reforms, and Sec Reg for AALS in NYC 1/08
Posted by Alan Childress
This from the Legal Scholarship Network of SSRN, with submission info here below the fold:
CALL FOR PAPERS:
AN EVALUATION OF RECENT SECURITIES LAW REGULATORY REFORMS AND LITIGATION
AALS SECURITIES REGULATION SECTION MEETING--Jan. 2-6, 2008 in New York City
After the collapse of Enron, Adelphia,
Worldcom and other
high flyers of the 1990s, there was a crisis of confidence
in American business and securities regulators. Numerous
federal and state enforcement and regulatory actions
occurred in the wake of these scandals. These included: the
passage of the Sarbanes-Oxley Act of 2002; the research
analyst prosecutions by the New York Attorney General and
the Securities and Exchange Commission and the reform of
the regulation of analysts; and prosecutions of mutual
funds and reform of mutual fund governance. A torrent of
criminal prosecutions and civil litigation under Rule 10b-5
and other securities law statutes also occurred.
Numerous law review articles have been written, explaining,
praising or criticizing these developments. Currently,
several high-powered decision makers have asserted that the
U.S. capital markets are becoming less competitive than
overseas markets due, in part, to the U.S. regulatory and
litigation environment. Further, there has been a push
back in the courts as to expansive interpretations by the
SEC of its authority and expansive district court opinions
regarding the reach of the anti-fraud provisions.
We are seeking papers for
the January 2008 meeting of the
AALS Securities Regulation Section in New York discussing
any aspect of these developments. A broad range of topics
is possible, and we hope to have a lively discussion on
whether regulatory and litigation developments have gone
too far, not far enough or have appropriately dealt with
the problems which led to the 1990s stock market bubble and
its collapse. A special issue of the Brooklyn Journal of
Corporate, Financial & Commercial Law will be devoted to
PAPER SUBMISSION PROCEDURE:
Please submit an abstract of any proposed papers and
available drafts by March 30, 2007, either by email or post,
CONTACT: Roberta S.
Brooklyn Law School
Postal: Brooklyn Law School
250 Joralemon Street
Brooklyn, New York 11201
Web Page Ethics
sunEthics is an excellent web site that focuses on lawyer ethics issues in Florida. The site took me to a web page created for the Florida Bar committee that is receiving comments on a proposed rule governing computer-accessed communications such as lawyer web pages beyond the home page. There is also proposed new commentary on client testimonials. (Mike Frisch)
Marks on Ethics of DOJ 'Deputizing' Outside Counsel Via McNulty Memo
Posted by Alan Childress
Colin Marks (St. Mary's--Law) has posted to SSRN--Evidence & Evidentiary Procedure his article, "Thompson/McNulty Memo Internal Investigations: Ethical Concerns of the Deputized Counsel." [I have dubbed it the McMemo or the McNulty Pocket Part, and posted previously there.] Marks's article is forthcoming in St. Mary's Law Journal (2007). Here is his abstract:
Outside counsel who conduct internal investigations for corporate clients have always faced ethical concerns, especially when interviewing employees. Generally, a carefully crafted blanket statement at the beginning of the interview explaining outside counsel's role was sufficient to address these concerns. However, recent charging policies adopted by the Department of Justice ("DOJ") have drastically changed the rules. These policies, articulated in what is now commonly referred to as the "Thompson Memo," after the author and then Deputy General Larry Thompson, allowed prosecutors to consider factors such as waivers of the attorney-client privilege and work-product protections and whether the company provides legal fees for employees when deciding whether to charge a corporation. These policies have led to what some have dubbed the deputation of outside counsel. Though the DOJ recently amended these policies, under the recently released McNulty Memo, concerns over privilege waivers and the deputation of outside counsel remain.
As a "deputy" of the DOJ, a new set of ethical concerns has emerged. This Essay explores some of the possible ethical concerns that outside counsel engaged in such investigations may face. The Essay begins by discussing the traditional scope and purpose of internal investigations including the application of the attorney-client privilege and work product protections. The Essay then tracks the development of the Thompson and McNulty Memos and how they have led to the deputation of outside corporate counsel. Finally, the Essay explores the ethical concerns the Thompson/McNulty Memos raise in the context of interviews by outside corporate counsel during internal investigations.
March 15, 2007 in Abstracts Highlights - Academic Articles on the Legal Profession, Privilege | Permalink | Comments (0) | TrackBack
March 14, 2007
Ghostwriting Briefs in New Jersey: Don't Do It On The Sly
Posted by Alan Childress
We have posted on "unbundled" legal representations, or discrete-task services provided by an attorney without generally appearing for the party. One such task, allowed in several states at least for particular types of courts or cases, is giving assistance in a pro se litigant's brief-writing or pleadings, even to the point of ghostwriting. A federal court in New Jersey recently has surveyed ghostwriting across the country, and has expressed ethical issues with it being done by an attorney, at least without disclosure. It may also raise conflicts problems (though in this case it ultimately did not). A helpful summary, from the Freivogel on Conflicts website [by William Freivogel] as its second New posting (3/13/07), is also reproduced here below the fold. Mike had already linked in this post an Arizona opinion which also surveys ghostwriting in various jurisdictions.
NEW (posted March 13, 2007) Delso v. Trustees for Plan of Merck & Co., Inc., 2007 U.S. Dist. LEXIS 16643 (D.N.J. March 5, 2007). Although the plaintiff was appearing pro se, the defendants moved to disqualify a lawyer who was ghostwriting the plaintiff’s pleadings. In a routine former client/substantial relationship analysis, the court found no such relationship and denied the motion for that reason. The court did, however, make a finding that undisclosed ghostwriting violates several ethics rules and the spirit of FRCP Rule 11 and should not be permitted in the District of New Jersey. The court also ordered that the lawyer either make a formal appearance for the plaintiff or stop communicating with her about the case. This opinion contains a comprehensive review of ghostwriting around the country. In a nutshell, the problem with ghostwriting is that courts give pro se litigants more slack. That puts the other side at a disadvantage when the pro se litigants’ pleadings are ghostwritten by lawyers.
Bebchuk, Cremers, and Peyer on CEO Pay Slice
Posted by Jeff Lipshaw
Lucien Bebchuk (Harvard), Martijn Cremers (Yale - Management), and Urs Peyer (INSEAD) have posted Pay Distribution in the Top Executive Team on SSRN. Here is the abstract, with some comments following.
We investigate the distribution of pay in the top executive team in public companies. In particular, we study the CEO's pay slice (CPS), defined as the fraction of the aggregate top-five total compensation paid to the CEO. The level of a firm's CPS might reflect the relative centrality of the CEO in the top executive team in terms of ability, contribution to the firm, or power.
We find that CPS has been going up over the past decade. During this period, CEOs have increased their fraction of both equity-based compensation and non-equity compensation. The level of CPS is associated with various characteristics of the top team and the firm's governance arrangements. Among other things, CPS is high when the CEO has long tenure; when the CEO chairs the board; when few other executives are members of the board; and when the firm has more entrenching provisions.
High CPS is associated with lower firm value as measured by Tobin's Q. Using a simultaneous equations approach yields findings consistent with the possibility that this negative correlation is at least partly due to high CPS, or the relative CEO centrality it might reflect, bringing about a lower Tobin's Q. Consistent with the negative correlation between high CPS and Q, high CPS is associated with a less favorable market reaction, and a higher likelihood of a negative market reaction, to acquisitions announced by the firm. We also find that high CPS is associated with lower variability of stock returns over time. Overall, our results indicate that the distribution of compensation in the top executive team is an aspect of pay arrangements and corporate governance that deserves researchers' attention.
This is an interesting paper, and a real learning experience to study on both a methodological and substantive basis.
First, what is Tobin's Q? It is the ratio (developed by James Tobin, above right, winner of the 1981 Nobel Prize in Economics) between a firm's enterprise value (its market capitalization and its debt) and the replacement value of its assets. Intuitively, we can understand what this is saying. If it would cost $100 million to replace all the assets of Company A today, but the market values Company A at $200 million, the management of Company A is doing something right with those assets! And that management team is doing a better job than the team at Company B, which has $50 million of replacement value assets, but whose enterprise value is $75 million (although Company B is still being rewarded by the market).
Both Company A and Company B are preferable to Company C, which has replacement value assets of $200 million, but whose enterprise value is $150 million. The management of Company C would appear to be destroying asset value. The Tobin's Q of Company A would be 2, that of Company B would be 1.5, and that of Company C would be .75.
That is one side of the correlation work. The other side is the chunk of pay that the CEO takes relative to a few of the other very senior executives. The SEC's rules for proxy disclosures for public companies for the last twenty years or so have required companies to disclose the compensation of the CEO and the next four most highly paid executives within the firm. So the study calculates CPS or "CEO Pay Slice" as a percentage of those highest paid executives.
Understand what is and is not being measured here. The measurement is NOT the extent to which there is pay differential within the entire company, nor is it even measuring the pay differential among the executives of the company. It is measuring simply the slice of pay the CEO takes of the top five who are reported.
And the study shows that there is a negative correlation between CPS and Tobin's Q. What does that mean? For some reason, as a rule, when there is a big relative pay difference between the CEO and the next few highest paid executives, the firm doesn't get as much market bang for the buck out of its assets.
Putting aside the highly theoretical question whether Tobin's Q is a good measure of firm performance (it is used in finance studies, and Bebchuk et al do appear to have done what is usually done to account for the fact that determining replacement value of assets, particularly intangible assets and assets that have been around for a long, is a dicey business), the conclusion is an fascinating one to me. What, if any, causal explanation is there? I like the phrase "the relative CEO centrality it might reflect." Does a firm that pays its CEO not necessarily too much or too little on an absolute scale, but a lot relative to the rest of the team, tend also to have, perhaps, command-and-control CEOs who do not exploit their human assets, much less their physical assets?
In my view, having hung out in that neighborhood, that is a really good question.
McKenzie & Vaughn on How Computers Change the Way Lawyers Think
Posted by Alan Childress
In addition to our previous post on Richard Danner's article, consider that Elizabeth McKenzie and Susan Vaughn, both law librarians at Suffolk (and Betsy McKenzie is a law prof and the library's director), have posted to SSRN their article, "PCs and CALR: Changing the Way Lawyers Think." It is also linked in PDF here from bepress. Here is their abstract:
Computers are changing the way lawyers and judges think. The authors measured differences in analogical reasoning in briefs and decisions written before computers were used in law, and now. They argue that the changes found mandate changes in legal education, that students need more emphasis on careful reading and analysis.
Who is Patrick O'Donnell and Why Does He Write Such Thoughtful Things?
If you peruse some of the more popular law blogs, PrawfsBlawg, Concurring Opinions, and the like, from time to time you see a comment from Patrick O'Donnell (pictured, left), and it is apparent that this is a very, very literate fellow on the subject of moral philosophy and the law. Dean Jim Chen once mentioned to me that Patrick O'Donnell was a teacher in a community college somewhere in California. After a colloquy a couple weeks ago over in the comments following Nate Oman's post on the power of badly written judicial opinions, and after seeing another insightful comment the other day, I sent Patrick an e-mail with the subject heading "Who Are You?" With his permission, I offer the following only slightly edited autobiography.
I'm an adjunct instructor at Santa Barbara City College for seven years now ('Comparative World Religions' in the Philosophy Department and 'Political Thinking' in the Political Science Department. Prior to that I was a finish carpenter: when re-building a home here that burned down in the Painted Cave Fire some years ago, the owner asked if I would substitute for her at the college (Nandini, my closest friend, was my teacher at UC Santa Barbara in the Religious Studies Dept. [Sanskrit, philosophy of religion, etc.], and I took courses in political thought in the Political Science Dept. from her late husband, Raghavan Iyer [author of nonpareil study of Gandhi's moral and political philosophy]; their son, the travel writer, essayist and novelist [and dear friend: we're the same age] Pico Iyer, wrote about his narrow escape from the fire for Time magazine), and I was eventually offered my own courses (critical thinking and world religions), whereupon I hung up my tool belt. I was in my 40s when I started teaching (I also do landscape maintenance for our small condo. assoc.; fortunately my wife earns the bulk of our income, and will continue to do so as long as I publish something now and again). Dennis Patterson at Rutgers (Law and Philosophy) is my gracious cyberspace mentor in all-things-jurisprudential and Oliver Leaman (Univ. Kentucky, Philosophy) has served as same in Islamic Studies (in which I've published a few things).
When I asked Patrick for permission to post about him, he told me what I had so far was too flattering, so I needed to add "that I'm a vegetarian that looks like anything but; that I've never flown in a plane (although I did fly in a helicopter with the USFS to fight a fire in an otherwise remote area of Ojai); that I don't own a cellphone, a microwave oven or have any credit or debit cards; that I've never owned (and probably never will own) a car less than 20 years old (were it not for the heat, in other words, I'd be perfectly at home in Cuba); that I don't own a suit; that I absolutely abhor (get quite clausterphobic in) crowds (which means I'm confined to watching the Dodgers on television [but if Vin Scully is announcing it's about as close to heaven as I can imagine]); that I won't live anywhere in which the necessities of life are not within bicycling distance; etc., etc."