February 07, 2008
There's a new law professor blog up, The Faculty Lounge, involving Dan Filler, Laura Appleman, Al Brophy, and others. Looks like one to add to the Google Reader. But are they really going to give up the secrets of the faculty lounge? The on-call masseuses, the chilled caviar and champagne, the student workers on hand to peel grapes and cut the crusts off the cumcumber sandwiches? It turns out that there might be such a thing as too much disclosure.
But welcome nonetheless!
I just finished shredding today's credit card offers. My family receives an average of about three per day, and they all end up in the shredder.
Flyers from grocery stores, dentists, furnace repairmen, etc. go straight into the round file. No shredding necessary.
Now, I recognize that some people find this sort of mail useful, but I don't. And I am wondering why I can't instruct U.S.P.S. to stop delivering it to my house. I resent the time I spend processing it, I regret all of the wasted paper, and I worry about identity theft. Just take me off the list!
Not surprisingly, I am not the first person to think of this, and there are strategies for reducing junk mail. But shouldn't U.S.P.S. provide one-stop service on my mailbox?
The problem, of course, is that U.S.P.S. has no incentive to stop the flow. Since almost all useful correspondence now happens on the internet, the U.S.P.S. needs junk mail to survive. Last year, Colorado legislator Sara Gagliardi introduced a "no junk mail" bill in the Colorado legislature, but it died in committee. The U.S.P.S. opposed the bill, and in a story from that effort, U.S.P.S. spokesman Al DeSarro is quoted: "This is an infringement on commerce and an infringement on free speech."
Such silliness does not merit a reasoned response, but the Colorado experience suggests that changing this crazy system would require more than one impassioned state legislator. That's why I am willing to vote for the presidential candidate who proclaims,
"I look forward to nailing the going out of business sign on the front door of the United States Postal Service."
ISS has called “say on pay”--proposals seeking a non-binding shareholder vote on executive compensation—the most closely watched issue of the 2007 proxy season. So how did the issue fare?
It seems to be gaining a lot of momentum. According to riskmetrics' most recent proxy report, by the first half of the 2007 proxy season, some 41 say on pay proposals had gone to vote, averaging about 42% shareholder support, and seven proposals received majority support. Moreover, as of January of 2008, some 90 proposals have been submitted calling for a say on pay, while at least three companies have agreed to provide an advisory vote on compensation. Riskmetrics says all of these figures are remarkably high given the relative newness of the issue. In fact, Riskmetrics compared them to similar figures in the context of majority voting—which, after considerable activism, many agree now has become the norm in most major corporations. And like majority voting, the say on pay campaign is getting help from legislators. Indeed, the House passed legislation that would give shareholders an advisory vote on compensation and a similar bill was introduced in the Senate.
Of course the jury is still out both on whether the Senate bill will gain any momentum and, more importantly, whether say on pay will achieve its desired result. To be sure, say on pay measures are aimed at giving shareholders a voice in compensation issues in an effort to stem the seeming unending rise in executive compensation, particularly when such rise has occurred in the midst of economic downturn, underperformance and corporate scandals. Advocates of say on pay point to the UK experience since some UK data suggest that similar nonbinding pay votes have served to curtail the rise in compensation in the UK. Shareholder activists are hopeful that similar results can be achieved in the US. But some are skeptical. Most notably, at a recent corporate governance conference, Martin Lipton suggested that calls for say on pay were ill-advised because such measures would shift the compensation decision from boards to a small group of shareholders. Pointing to the UK, Lipton notes that because corporations in that region do not want to risk a negative vote on their pay packages, they feel pressured to negotiate with activists’ shareholders, often behind closed doors.
To be sure, one of the primary criticisms of almost all measures aimed at increasing shareholder power is that such an increase will improperly shift the balance of power, while placing such power in the hands of a small number of shareholders whose interests do not necessarily align with the broader shareholder class. It is a criticism that has some merit. However, most people seem to agree, albeit sometimes reluctantly, that the current balance of power has produced undesirable results, particularly with regard to compensation. So for now, I am willing to wait and see where the say on pay movement takes us.
Permalink | Corporate Governance | Comments (1) | TrackBack (0)
February 06, 2008
If you want to see just how complex it gets in the D.C. Circuit, check out today's grant of a collateral challenge to a prior environmental settlement as ultra vires re: the Army Corps of Engineers, and these cases affording neighbor standing but not bidder standing to plaintiffs who tried to stop the state of Maryland from turning a lovely old army base into a development site. A technical day for environmental lawyers.
We tend to steer away from political coverage here at the Glom, but Super Tuesday was worth some toe dipping. With a former, albeit brief, career as a Beltway political on my resume, I'm predisposed to be distracted by election coverage. And this election is taking the cake. I'm finding the blog coverage of the horse race to be especially distracting Marc Ambinder is newsy, Christopher Beam and Chadwick Matlin are insightful, Jonathan Martin is fantastic on the GOP side, and Matthew Yglesias and Ben Smith ain't bad on the Democrats. And then I have to stop reading so that some actual work can get done. With the exception of Kevin Drum, every blogger I read on politics is under thirty and a lot are under 25. I've found the coverage to be a cheery testament to blogging's-still-got-it claims, an exemplar of the wisdom of youth, and evidence that those rumors you sometimes hear that the best journalists these days would rather do online instead of print might be on to something.
This was the opening line of Mike Huckabee's speech yesterday, who, of course, is running on the idea of abolishing the IRS and all federal income tax. To be replaced with the "fair tax," a national consumption tax. To be sure, people disagree about whether the tax will be fair, or if it would hit low-income households harder than others because they sometimes pay more for the items that they consume. Nevertheless, it was an opening that received lots of cheers.
Having taught the first-year property course for eight years and instructed my students in the "bundle of sticks" model of property rights, I was fascinated to run across the following Chinese property law case a couple of days ago. (For those who can read Chinese, it's here.) By way of background, China passed its first comprehensive statute governing rights in rem (the "Property Law") last year, and it came into effect in October. Although it did not (at least in my opinion) fundamentally revolutionize anything - contrary to some breathless reports, private property existed and was protected in China prior to Oct. 1, 2007 - in any case we are now starting to see cases in which courts look to it for guidance.
In the case in question, Husband (H) and Wife (W) divorced by agreement in 2005. Their agreement provided that the 2-bedroom apartment held in W's name (China has a community property regime, so the nominal owner is not necessarily important) should be divided, with ownership over the southern room to H and ownership over the northern room to W. By 2007, W had had second thoughts about this arrangement, and brought suit in January to have the agreement declared invalid. She sought full ownership of the apartment, with a payment to go to H representing the value of his interest.
The Beijing No. 1 Intermediate Court agreed. (I believe the judgment was issued after Oct. 1, and applied the Property Law as the rule of decision.) According to the court, while there can be joint ownership over the same thing, there cannot be separate ownership rights over the same thing, and an apartment is the smallest "thing" you can have in real property law; you can't subdivide it any further.
The news report of the case appends an explanation from the judge who decided it, but it's not very helpful - there's a hint that what's driving the decision is China's property registration system, which doesn't have the capacity to register ownership of separate rooms within an apartment unit. But one also gets the sense that the judge thinks it's just self-evident that you can't own rooms within an apartment; he says specifically that you are not allowed just to make up ownership interests at will.
Interestingly, though, this is precisely what you pretty much are allowed to do in the US; there is no elementary particle of property rights. In my last post, I talked about the way Chinese law often seems centered around the needs of officialdom. That may go some way toward explaining the different approach to property rights as well. The creation of property rights in the US is highly decentralized and contractual. China is simply not willing to let individuals have this kind of undisciplined power to create property rights that the state is then going to have to protect. The state wants more control over what its coercive machinery is going to be asked to do.
Permalink | China, Comparative Law | Comments (0) | TrackBack (0)
February 05, 2008
If you have been to Berlin, I assume that you have sampled Currywurst. I prefer Bosner (or Bosna) Wurst, which I encountered as a Mormon missionary in Linz, Austria, but the core ingredients are the same: sausage/hot dog, ketchup/tomato sauce, and curry powder. (The Bosner also has onions and a bun.)
Butchers in Berlin who make sausages for Currywurst are upset by imported sausages from other EU member states. So the butchers have applied for "geographic indication" protection, like that afforded "Champagne" or "Parmigiano Reggiano." The butchers want their sausage to be known as "Berliner Currywurst." The problem is that the sausages don't become "Berliner Currywurst" until you top them off with tomato sauce and curry powder. As explained by Axel Nordemann is an attorney with Boehmert and Boehmert, one of Germany's top intellectual property law firms:
The sausage itself is not a Berliner currywurst, it needs something additionally to become a currywurst. You see, you can take this ground sausage for the currywurst, you can take it and eat it with mustard, and then it's certainly not a Berliner currywurst.
As noted by Nordemann, the average consumer of Berliner Currywurst can't tell the difference between the local sausages and the imports. "Es ist mir wurst," so to say.
Permalink | Food, Intellectual Property | Comments (0) | TrackBack (0)
Marketplace launched what promises to be an interesting series of commentaries yesterday by Charles Handy, founder of the London Business School and currently visiting at Claremont Graduate University's Drucker School of Business. In the first commentary, Handy addresses "Adam Smith's Great Conundrum":
Adam Smith, the father of economics, 250 years ago, said: "An investment is by all right-minded people to be commended, because it brings comforts and necessities to the citizenry. But, if continued indefinitely, it will lead to the endless pursuit of unnecessary things."
Now that I am living for a while in California, I am staggered by the amount of "unnecessary things" that I see in the malls that dot the suburbs. America is no different from anywhere else, of course -- just more so.
The conundrum is this: All that stuff creates jobs -- making it, promoting it, selling it. It's literally the stuff of growth. What I'd love to ask Peter Drucker is: How do you grow an economy without the jobs and taxes that these unnecessary things produce?
Maybe we should blame Adam Smith, but what I'd love to ask Handy is: how do you know that those things you see in malls are "unnecessary"? What do you mean by that term, anyway? When you begin with such fuzziness, the result is predictable incoherence:
The market, unfortunately, does not differentiate between good and bad. If the people want junk, the market will provide. So we have to fall back on the conscience of our business leaders.
Notice how Handy separates "the market" from "the people." It's a strange vision of the world in which the market is dictated from the top down rather than bubbling from the bottom up. From that vantage point, it makes sense to blame business leaders for making "unnecessary things," but that clearly was not what Adam Smith had in mind. Smith was worried about the citizenry's "endless pursuit of unnecessary things," not the market forces that would service the pursuers.
Happy Voting Day! Illinois is part of Super Tuesday, but you wouldn't know it around here. I suppose the conventional wisdom is that the state will go to its hometown Senator, Barack Obama, so we've had very little campaign advertising. I guess I shouldn't complain!
This primary marks the 20th anniversary of the first time that I voted in a primary. Woo-hoo! In case you're up for some trivia, I'll tell you the candidate I voted for in the 1988 primary below the fold. . . .
February 04, 2008
Flickr users are not taking the Microsoft bid for Flickr-parent Yahoo! lying down. They are doing what Flickr users do better than anyone else: uploading photos ...
This morning's financial news is all-Microsoft/Yahoo, all the time! The most important development in the saga of Microsoft's unsolicited bid is that Google has stepped into the fray, contacting lobbyists in Washington to try to stimulate antitrust review interest and also other companies to see if anyone else is interested in outbidding Microsoft. Although Google may be too large itself to be Yahoo's white knight, the media is speculating that Google could either tie up Yahoo's crown jewel of ad search placement by entering into a long-term contract or purchasing it outright. In another scenario, multiple bidders might bid for different parts of Yahoo. Even if these bids are ultimately unsuccessful, Google would benefit by forcing Microsoft to pay more (or even overpay) for Yahoo.
As the media scrambles to assess what the technology landscape would look like in a post-Yahoo world, it is tripping over itself to have as many stories in the news as it can, even if they are inconsistent. My favorite dueling headlines this morning were both in the NYT, and even share a common author:
Microsoft Adds Research Lab in East as Others Cut Back -- As other high-tech companies cut back on their research labs, Microsoft continues to increase its ranks of free-rein thinkers.
Another Difficulty for a Microsoft-Yahoo Marriage: Recruiting -- The crowds of engineering students stood as many as six deep at the recruitment table Google set up at a job fair at Stanford last fall. Facebook's representatives faced a similarly thick crowd clamoring for a few minutes of their time. At the Microsoft and Yahoo tables, by contrast, students looked, but generally did not linger.
Many thanks to Gordon for his kind introduction and for inviting me on as a guest blogger. I'm a regular reader of Conglomerate and it's an honor to be asked to join in.
My research interest is in modern Chinese legal institutions generally and corporate governance in particular; recently I've been looking not at the substantive rules of corporate governance, but at the institutions that would make those substantive rules matter, and the extent to which they exist in China.
One can't spend much time studying Chinese law without being struck by the tremendous gap between what the rules say and what actually happens. This goes beyond the usual law-on-the-books versus law-in-practice gap that one can find in any jurisdiction, where the gap is attributable to obsolescence, resource constraints, and political factors such as government unwillingness to enforce certain types of laws. In China it seems to arise sometimes from a different view of law altogether:
essentially a kind of didactic text that regulated parties are supposed to read and obey. If obedience is not forthcoming, the response is to blame the regulated parties for their willfulness. An alternative response would, of course, be to look at the enforcement structure provided by the regulations in question: do regulated parties have any reason to obey? But this response is relatively rare.
Thus, for example, the Chinese Company Law provides that joint-stock companies (more or less the equivalent of the Delaware corporation) shall have both a board of directors and a board of supervisors. The latter is supposed to keep an eye on the former. But it is elected by exactly the same body that elects the board (i.e., the shareholders) and, while it can ask questions of the directors or request explanations of certain acts, it has no real power to do anything if the answers aren't satisfactory. A recent revision to the Company Law (in 2005) gave it the power to call a shareholders' meeting, but that's about it.
Another example is the director's duty of care and loyalty. This is stated in one provision of the 2005 revised Company Law, but there is no right of action clearly attached to it. Where the law does not very clearly provide you with a right of action (and even in some cases where it does), Chinese courts are typically very unwilling to give you one.
This in turn stems from another feature of Chinese law: that it often seems to make sense more as a set of instructions to officials than as a rights-granting instrument. For example, one type of company under the Company Law may dispense with a board of directors if it is "relatively small" and has a "relatively small" number of shareholders. But the law provides no clue as to how we are to know what counts as "relatively small" in each case. If we think of the law as a recipe for entrepreneurs, it's bad drafting. But if we think of it as instructions to officials in the bureaucracy that handles corporate registrations, then it's easier to understand: it's telling them to make a discretionary judgment. The same thinking is behind regulations that look like private law but say that something or other "should normally" be done or "should in principle" be done.
One might reasonably ask, "But is that so different from US (or other Western) law? Surely we have vague terms such as 'due process' and 'reasonable' that we happily give to judges, juries, or administrative agencies to interpret." This is not a bad point. I think the difference, though, is in the fact that in the US system, we now have a pretty good idea of who has the power to interpret what; when people draft legislation, they could probably readily tell you which body would be interpreting which term and under which principles. Very few of these matters are well worked out in the Chinese legal system. Legislation will always have problems, but the courts have very little power and prestige, and thus aren't a good institutional solution to these problems. As a result, while all legal systems generate uncertainty and contradiction, China's is unusual in not having well-understood techniques for resolving that uncertainty and contradiction.
The bottom line is that when one hears that Chinese corporate law requires such-and-such or imposes such-and-such a duty, one has to ask whether there's any reason to think that this alleged requirement or duty is at all meaningful. One doesn't have to be a card-carrying Holmesian realist to wonder whether a duty that is in substance wholly hortatory should really count, and be reported, as a legal duty just like the legal duty to drive carefully, refrain from embezzlement, etc.
Permalink | China, Comparative Law, Corporate Governance, Corporate Law, Law & Society | Comments (2) | TrackBack (0)
Last week, we took a look at the Hedge Fund Working Group's proposed self-regulatory best practices. JW Verret has his own proposal, out in both the Delaware Journal of Corporate Law and the Administrative and Regulatory Law News. Here's the takeaway:
A self-regulatory model that utilizes the inherent advantage of firms regulating each other is a major theme of the policy recommendations presented. Crafting regulatory safe harbors, permissive information access, and designing legal defenses that encourage the operation of a self-regulatory entity to monitor this industry can help to overcome the severe disadvantage that bureaucratic regulators face in this field.
[snip]
The SEC should take steps to encourage creation of a private market intermediary. One step might be to make information gathered through a compliance process available to a select few officially chartered private rating agencies.
[snip]
The SEC should request the [industry association] to put together a proposal for a disclosure statement requirement in accordance with an original suggestion of the SEC staff SEC Report.
[snip]
The SEC should enhance coordination with other regulators. It should also exempt CFTC registrants from any future registration requirement. This would continue to encourage funds to register with the [industry group], thus continuing the benefits of self-regulation in this exceptionally complex and rapidly changing environment.
[snip]
The SEC should establish some statutory recognition to hedge fund best practices through safe harbor rulemaking to encourage registration with a self-regulatory body. It could provide a defense to regulatory enforcement action to any hedge fund that follows guidelines promulgated by such a body, in much the same way it recognizes such for firms that follow Generally Accepted Accounting Principles (GAAP), accounting rules promulgated by the FASB or broker-dealer best practices promulgated by the NASD.
[snip]
The Martin Act should be amended by the New York legislature to limit the powers of the New York Attorney General, so that activities in compliance with SEC regulations are statutorily exempt from the definition of fraud.
But there's more in the article, including some modeling, some more recommendations, and a bit of a history of hedge funds. Worth reading.
Don Clarke is Professor of Law at the George Washington University Law School, where he specializes in Chinese law. You may know him from Chinese Law Prof Blog, or from his interesting work on Chinese corporate governance (among other things). Over the next two weeks, Don will be blogging here, and we are grateful for his time. Welcome, Don!
I didn't watch the game, but the ads are available here. The top five, in my humble opinion, below the fold ...
February 02, 2008
Yesterday I drove into the Uinta National Forest, not far from here, for a Boy Scout winter camp, which insiders call a "Klondike." I am not in the habit of camping in February, but my twin sons were excited about their first winter camp. As I was packing, I asked my wife, "Who in their right mind would voluntarily leave a heated home for the sole purpose of sleeping in the snow?" As it turns out, a couple of hundred Scouts and adult leaders ... though I am not sure any of us was in a right mind.
The other adults in our group were thrilled by the weather: lots of snow and temperatures in the 20s. I grew up in Wisconsin, but even we wouldn't call this "camping weather." Anyway, my boys made a snow shelter (quinsey?), but I opted for a tent. It didn't matter. In the morning, we were all frozen stiff. After some time thawing in front of the fire, we participated in a series of exhilarating activities -- like constructing a tent blindfolded and learning to throw a rope to someone who has fallen through the ice. We ended the day with some hot chili, which was very tasty and a most welcome body warmer.
On the way home, one of my boys observed, "I learned one thing from this: I don't like winter camping." He's a chip off the old block.
Not quite, but close. According to the NYT, one issue remains unresolved:
A final sticking point had been compensation for ad-supported television programs that are streamed over the Internet after their initial broadcast. Companies were seeking a period during which they could stream such shows without paying a residual, and wanted to peg payments for a year of streaming at the $1,200 level established in the directors' contract. Writers were seeking 1.2 percent of the distributors' revenue from such streams, to ensure they would participate in any revenue gold mine discovered on the Web. How that issue was finally resolved in the informal talks remained unclear.
I am not sure whether streaming is a revenue gold mine, but I know that it has changed my viewing habits. I rarely sit in front of a television, but most evenings, after my children are in bed, I am in front of my home office computer, which is connected to cable television and the internet. This is my time to catch up on the day's email and blog reading, and I sometimes multi-task by playing an old episode of Chuck or Pushing Daisies.
Both shows are out of fresh content. So settle that strike, and give the writers their due.
February 01, 2008
So many questions ...
How does Yahoo! feel about this proposal? The companies have been talking about a deal for 18 months, and Steve Ballmer called Jerry Yang last night to tell him that Microsoft was going public with the offer. Ballmer's letter to Yahoo's board of directors includes the following:
In late 2006 and early 2007, we jointly explored a broad range of ways in which our two companies might work together. These discussions were based on a vision that the online businesses of Microsoft and Yahoo! should be aligned in some way to create a more effective competitor in the online marketplace. We discussed a number of alternatives ranging from commercial partnerships to a merger proposal, which you rejected. While a commercial partnership may have made sense at one time, Microsoft believes that the only alternative now is the combination of Microsoft and Yahoo! that we are proposing.
In February 2007, I received a letter from your Chairman indicating the view of the Yahoo! Board that "now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction." According to that letter, the principal reason for this view was the Yahoo! Board's confidence in the "potential upside" if management successfully executed on a reformulated strategy based on certain operational initiatives, such as Project Panama, and a significant organizational realignment. A year has gone by, and the competitive situation has not improved.
Based on this and the fact that Microsoft's offer is "unsolicited," we can safely infer that Yang is not enamored with the deal.
Does it matter what Jerry Yang thinks? Yang matters, of course, but probably not enough to stop this deal. The market reaction suggests that Microsoft has convinced many people that the deal will happen. The bid is $31, and Yahoo's shares are hovering around $28 (up about 45%). (Microsoft's shares are down around 6% ... perhaps suggesting that Microsoft is offering too much for a depleting asset?) So while it looks far from a done deal, Microsoft is obviously determined and Yahoo's shareholders might be willing to abandon ship. They saw prices like this as recently as last October, but the company hasn't looked like a world beater since the turn of the millennium.
How about antitrust? Former Glom guest, Danny Sokol, is wondering the same thing:
If Microsoft is as dominant as its critics claim, then why has it offered to acquire Yahoo in what seems to me to be a defensive move because of the threat of Google to Microsoft? It goes to show that antitrust needs to proceed carefully against unilateral conduct in markets that change so quickly (is anyone having an IBM case tingle?). The landscape of 10 years ago in which Microsoft was dominant looks quite different today.
Amen to that post. With Google out there, is Microsoft-Yahoo really worth the trouble? (No.)
What is the plan for the new company? The Ballmer letter mentions the dreaded S-word (synergy). But are these supposed synergies real? Elsewhere, Steve Ballmer stated, "The Windows experience increasingly needs to embrace the Internet." Umm ... yeah. Microsoft hasn't tried that before. So what happens to all of the competing pieces of these companies?
So many questions. At the moment, however, this sounds more like Time-Warner/AOL 2.0 (or the "deal of the dinos") than Google.
UPDATE: Larry Ribstein wonders about synergies, too.
So we are snowy here in Champaign (and at home due to K-12 school closures), but things seem to be heating up in the online search and advertising industry! Microsoft, after being rebuffed by Yahoo management, has gone public with its offer to acquire Yahoo at a 62% premium (that's over $44 billion to you and me). WSJ article here.
What will happen? Will Yahoo management feel pressure to accept this offer, coming on the heels of Yahoo news regarding layoffs, etc.? Will, as the article suggests, Microsoft "go hostile"? This could get very interesting. Here we thought that the acquisition world was increasingly dominated by private equity taking firms private, and here's a good, old-fashioned merger of two publicly-held companies! In addition, should Yahoo be acquired, Yahoo's disappearance may be a sign of the final end of the dot com era. After years of consolidation of the first search firms to arrive on the Internet scene, Yahoo will be the acquired, not the acquirer.
What about competition concerns? Will merger approval be easy or not so easy? (Those seem to be the only two possibilities these days, at least in the U.S.) Microsoft seems to be anticipating these concerns. In its letter to Yahoo management, Microsoft management tells us not-so-subtly that Microsoft is no longer the biggest kid on the block:
Today this [advertising platform provider] market is increasingly dominated by one player. Together, Microsoft and Yahoo! can offer a competitive choice while better fulfilling the needs of customers and partners.
Hmmm. Who could that "one player" be? While other combinations have cited Microsoft as creating competition in various markets, Microsoft is now pointing to Google as a reason to let this merger slide on by.
The "market for Yahoo" may not be as competitive as the advertising platform provider market. With Microsoft's big pocket, other bidders may stay away.
UPDATE: My colleague Larry Ribstein has more here.
