BA(MasonJones-1)

I wanted to get there first, but friend, co-blogger, and Nova Southeastern Law colleague Jim Levy beat me to it.  In a blog post for Legal Skills Prof Blog, Jim wrote about the incredible similarities between the game show Hollywood Squares and Zoom teaching.  As I teach my last classes of the semester today–all online (thanks to our dean’s promotion of online teaching for the last two class days of the semester)–I continue to be stuck on  and struck by this similarity.  We are not the only ones to note this comparison, of course.  See, e.g., here and here and here.

I have called the Zoom squares the Hollywood Squares more than once during my class sessions this semester.   Unlike Jim, however, I have not yet endeavored to “play host” in a way that mimics the show.  He recalls (as do I) Peter Marshall’s lengthy stint as the show’s host.  But it does turn out there were others.

As I bid goodbye to the Fall 2020 semester, I leave you with a picture (above) of one of my class meetings earlier this fall.  UT Law alum and entrepreneur Mason Jones (founder of Volunteer Traditions, Inc.) visited our class to talk about the formation and basic governance attributes of the corporation he organized to conduct his business.  It’s a super-fun story–very instructive, too–and he is a humble and entertaining guy.  We were delighted to have him join our Hollywood Squares (and even be spotlighted, as he is here!) for this class day.  (Note that I was wearing a hat and t-shirt from his collection that afternoon while teaching.  Go Vols!)

I am still formulating some additional substantive thoughts on my first full semester of pandemic teaching.  I will post those reflections on a later date or dates.  For today, however, in this Thanksgiving week, I merely want to express gratitude–for the Hollywood Squares that are our Zoom teaching world and, more importantly, for my continued good health, my supportive family, my hardworking students, and my student-focused faculty and staff colleagues.  Without these blessings in my life, teaching through the pandemic would be so very much harder, if not impossible. 

Happy Thanksgiving, y’all. 

#HollywoodSquares 
#GiveThanks

On November 6, I had the privilege of participating in Case Western Reserve Law School’s George A. Leet Business Law Symposium, “Equity Holdings in the Three Index Funds: Anti-Competitive Effects, Fiduciary Duties and Environmental, Social and Governance Issues.”  The agenda for the full symposium is here; I spoke on the first panel, “Fiduciary Obligations of Index Fund Managers,” alongside Jill Fisch, Darren Rosenblum, and Bernard Sharfman (moderated by Anat Beck).  The entire symposium is now online at YouTube, so you can watch and, in particular, admire the care I took with my Zoom background:

 

 

 

 

Today is my birthday and the last thing I want to do is blog or work. So I’m off to take care of myself in this beautiful Florida sunshine. Tomorrow, I’m going to delve into these materials and all of the briefs about the Nestlé USA, Inc. v. Doe I and Cargill Inc. v. Doe I cases that the Supreme Court will hear on December 1. These cases will revisit the applicability of the Alien Tort Statute and extraterritoriality. This case could change the game in terms of corporate responsibility for human rights abuses abroad. Having spent the past three days listening to the virtual UN Forum on Business and Human Rights, I know that the issue is ripe for resolution. I’ll post about it in two weeks. In the meantime, have a safe, healthy, and Happy Thanksgiving. 

Carlos Berdejó recently posted a fascinating new article to SSRN, entitled Financing Minority Entrepreneurship.  In it, he examines the reasons why minorities struggle to access capital when starting businesses and takes a close look at how existing programs have not succeeded at increasing access to capital.  He argues that a successful program will increase equity and hybrid investment while also addressing informational asymmetry issues.  

He proposes that a new type of Small Business Investment Company (SBIC) — a Local Impact Small Investment Company (LISBIC) might offer a way to address many of the barriers faced by minority-owned businesses.  A LISBIC would do much of what a SBIC does, but with a more localized focus.  This local focus would allow the LISBIC to better evaluate soft-information about investment opportunities while its structure and design would generate credibility with investors.

The article also explores many practical and technical challenges to implementing such a program.  It left me with the sense that this sort of program would be achievable and might even pass through a divided Congress.  Hopefully, policymakers and legislators will consider this approach to increase access to capital.

Over at the Harvard Business Law Review, Sanjai Bhagat has posted Economic Growth, Income Inequality, and the Rule of Law (here). Here’s what caught my eye:

Besides the size of the national pie, which is measured by GDP, senior policy makers and the media across the globe are increasingly concerned about how this pie is sliced, that is, about income inequality. We find that countries with greater adherence to Rule of Law are characterized by less income inequality. Additionally, we find that countries with greater GDP per capita are characterized by less income inequality; however, once we control for Rule of Law in the country, we do not observe this negative correlation between GDP per capita and income inequality. This further highlights that adherence to the Rule of Law relates to reducing income inequality.

Yesterday, the Financial Stability Board (FSB) released a report: Holistic Review of the March Market Turmoil (Report).  It contains lots of really interesting information and is well worth a read (for a quick overview, there’s an Executive Summary and a two minute YouTube video of Randal K. Quarles, FSB Chair and a Governor of the Federal Reserve System, discussing the Report). 

I thought its emphasis on the increasingly central role of market liquidity to financial market resilience particularly important.  Today, both the traditional, highly regulated banking system and the market-based credit system provide credit to the economy.  These systems are interconnected and roughly equivalent in size.  Although the market-based credit system – non-bank financial intermediation (NBFI) – looks, smells, and acts like banking, it is not similarly regulated nor does it have access to deposit insurance or the Federal Reserve’s lender of last resort liquidity facility.  Nevertheless, in the financial crisis of 2007-09 and this past March, the Federal Reserve provided extraordinary liquidity and other support to the NBFI to promote financial stability and address bank-like runs.

On p.2, the Report notes that “The need to intervene in such a substantial way has meant that central banks had to take on material financial risk.  This could lead to moral hazard issues in the future, to the extent that markets do not fully internalise their own liquidity risk in anticipation of future central bank interventions in times of stress.”  The Report explains on p.33 just how extensive this recent central bank support was: “Overall, these measures lead to a US$7 trillion increase in G7 central bank assets in just eight months (Graph 5.1).  In contrast, G7 central bank assets only rose by about US$3 trillion in the year following the collapse of Lehman Brothers in 2008.”   

The market-based credit system underprices liquidity risk.  Measures must be taken to address this significant issue.  As I wrote in The Federal Reserve As Last Resort (footnotes removed from quote):

Liquidity is not free. Liquidity risk is one of the fundamental risks in financial markets. All else being equal, liquid financial assets are less risky than illiquid ones and, therefore, worth more.  Financial investors generally expect to receive a “liquidity premium” for illiquid financial assets. In the past, however, both economic and financial theories have sometimes treated liquidity as costless. And international financial institutions have long mismanaged and mispriced liquidity risk.  Not surprisingly, liquidity assistance emerged as one of the most sought-after remedies provided by the Federal Reserve and central banks around the world during the financial crisis.

On p.50, the Report states that “Taken together, the measures introduced [by central banks] essentially removed risk from investors and transferred it to the balance sheet of central banks and hence of the public sector as a whole.”  I’m excited for the FSB’s upcoming “work programme” on NBFI (see p.3 of the Report for details), and hope that in the future, investors will be required to retain more of their contracted for risk and that the resilience of this sector greatly improves.   

A number of years ago, I became acquainted with Kate Vitasek, a colleague in The University of Tennessee’s Haslam College of Business.  She introduced me to a way of supply contracting called “vested.”  Vested relationships are characterized by the following attributes that may differentiate them from traditional contractual relationships (as identified in the FAQs on the vested website):

  • “Uses flexible Statements of Objectives, enabling the service provider to determine ‘how’”
  • “Measures success through a limited number of Desired Outcomes”
  • “Uses a jointly designed pricing model with incentives that optimize the overall business and fairly allocates risk/reward”
  • “Focuses on insight, using governance mechanisms to manage the business with the supplier”

When I first talked to Kate and her colleagues about vested, I remember noting for her that the vested approach sounded like a specific type of relational contract . . . .

Recently, Kate and I reconnected.  She informed me about her recent coauthored Harvard Business Review article.  It merits  promotion here.

The main point of the article is to highlight the possible advantages of relational contracting in the current environment. Here’s the crux:

For procurement professionals at large multinational companies, the temptation is to use their company’s clout to pressure suppliers to reduce prices. And when the supplier has the upper hand, it is hard to resist the opportunity to impose price increases on customers. Witness how the shortage of personal protective equipment (PPE) and ventilators led to skyrocketing prices. . . .

A better alternative is formal relational contracts that are designed to keep the parties’ expectations continuously aligned. This kind of agreement is a legally enforceable written contract (hence “formal”) that puts the parties’ relationship above the specific points of the deal. The parties embrace the fact that all contracts are incomplete and can never cover all the contingencies that may occur. This time it is a pandemic. Next time it will be something else.

The coauthors conclude:

Given the uncertainty that lies ahead, it is especially important now that companies try to avoid antagonizing the members of their ecosystems. Formal relational contracts, which can turn adversarial relationships into mutually beneficial partnerships, is a proven means to such an end.

This all makes great sense to me, especially for contracting parties who have long-term relationships or are repeat players in the same market.  The article both explains the concept and offers several examples of how relational contracting can foster more collaborative relationships that enable contracting parties to “ride the bumps” in their relationship.  Specifically the parties are incentivized to work together to devise solutions to transactional problems as they arise.

The article reminded me about the relational aspects of M&A contracting and, more specifically, Cathy Hwang’s Faux Contracts as well as her work with Matthew Jennejohn–including their Deal Structure article.  In Deal Structure, Cathy and Matthew write that “[r]elational contracts blend formal contract terms, which are enforceable in court, with informal constraints, such as reputational sanctions, to create strong relationships between parties.” [p. 311]

Law folks and business folks should talk more often.  As the pandemic continues, parallel avenues of work like this in business and law can have important practical implications for business.  This collective body of business and legal scholarship may have significant value to both business managers and the legal advisers who represent them.  Collaboration between business and law experts can only enhance that value.

Despite a pretty busy and different semester, I managed to read a decent bit. Some of this is because of our neighborhood book club and some is from an emerging habit of reading a bit before bed.

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Kwame Anthony Appiah – Cosmopolitanism: Ethics in a World of Strangers (2006) (Philosophy). Author in philosophy professor at NYU. Mother is English; father from Ghana. Tolerance and plurality. “Citizens of the World.” 

Compassion (&) Conviction – Chris Butler, Justin Giboney, and Michael Wear (2020) (Religion, Politics). Advocates for Christian engagement with politics that transcends party. 

Gooseberries – Anton Chekhov (1898) (Fiction, Short Story).  “Think of the people who go to the market for food: during the day they eat; at night they sleep, talk nonsense, marry, grow old, piously follow their dead to the cemetery; one never sees or hears those who suffer, and all the horror of life goes on somewhere behind the scenes. Everything is quiet, peaceful, and against it all there is only the silent protest of statistics; so many go mad, so many gallons are drunk, so many children die of starvation. . . . And such a state of things is obviously what we want; apparently a happy man only feels so because the unhappy bear their burden in silence, but for which happiness would be impossible. It is a general hypnosis. Every happy man should have some one with a little hammer at his door to knock and remind him that there are unhappy people, and that, however happy he may be, life will sooner or later show its claws, and some misfortune will befall him ­­illness, poverty, loss, and then no one will see or hear him, just as he now neither sees nor hears others. But there is no man with a hammer, and the happy go on living, just a little fluttered with the petty cares of every day, like an aspen ­tree in the wind ­­and everything is all right.” Some thoughts on this story and conceptions of happiness by George Saunders. (Both recommended to me by my youngest sister.)

Your Money Made Simple – Russ Crosson (Finance) (2019). Financial planning from a Christian perspective. “Spend less than you make and do it for a long time” — reminds me of the classic Steve Martin skit “Don’t Buy Stuff”. Liked the formula to work backwards to minimum income needs. ((Living Expenses+Debt)/(1-(Giving %+Effective Tax Rate)). Budgeting non-monthly expenses has always been tough for us, but there are some nice rules of thumb here, like 1.5-2% of home value per year for home repair and maintenance. The suggestion to make gifts is one I want to take up (though I need to develop talent first!). Challenges the retirement savings first mentality and emphasis on giving. 

Siddhartha – Hermann Hesse (Novel) (1992). Journey to find true self. Metaphor of the river. Learn from vastly different circumstances. Poverty and wealth. Another of our book club books.

Living an Examined Life – James Hollis (Psychology/Self-Help) (2018). Weak book. Read for our book club; we alternate choosing books. My objections include: (1) his condescending tone throughout (“all thoughtful people think….”), (2) the odd genre of the book (it was a flawed mix of self-help and academic psychology. Hollis somehow managed to get the weaknesses of both forms without the strengths); (3) his stereotypes of religion (Christians as either fundamentalists or prosperity gospel peddlers. In reality, there are huge groups that are neither); (4) his incomplete suggestions (confronting your interior self is a fine thing to do, but to what end?); (5) his lack of discussion of community as important (the focus was on the individual and discovering who you are; seemed narcissistic).

All the Pretty Horses – Cormac McCarthy (Novel) (1992). Coming of age story. Beautifully rendered. 

1984 – George Orwell (Novel) (1949). Dystopia. Big Brother is watching. Re-read for book club.

Let Your Life Speak: Listening for the Voice of Vocation – Parker Palmer (2000) (Psychology/Self-Help). Hits similar notes to Dr. Hollis above, but Palmer displays endearing humility. Also for book club. 

What Money Can’t Buy: The Moral Limits of Markets – Michael Sandel (Moral Philosophy) (2012). Can’t buy friendship, love, virtue, rights. Markets actually degrade these things. 

One World: The Ethics of Globalization – Peter Singer (Moral Philosophy) (2002). Moral considerations and obligations in a shrinking world. Spends significant time of climate change, foreign aid, trade, and human rights. 

The Life You Can Save – Peter Singer (Moral Philosophy) (2009). Available for free at the link. “Most of us are absolutely certain that we wouldn’t hesitate to save a drowning child, and that we would do it at considerable cost to ourselves. Yet while thousands of children die each day, we spend money on things we take for granted and would hardly notice if they were not there.” (12)  Reflection here. Survive v. thrive. 

The Death of Ivan Ilyich – Leo Tolstoy (Short Story) (1886). A reflection on dying, and its implications for life. Materialism and self-centeredness. Emptiness in de-prioritizing selfless relationships.

The Foundation for Individual Rights in Education (FIRE) was founded in 1999 in response to “hundreds of communications and pleas for help from victims of illiberal policies and double standards that violated their rights and intruded upon their private consciences.”  Now, FIRE reports that from “partisan lessons, to schoolwide ‘belief’ statements, to demands for performative activism, we have never seen such intense ideological orthodoxy and compelled speech at the K-12 level.” Thus, FIRE is hosting a virtual event: “How parents and educators can push back against chilled speech and thought conformity in K-12 education.” The event is scheduled for Nov 19, 2020, at 01:00 PM, and you can register here.

The following is excerpted from Richard A. Epstein, The Civil Rights Juggernaut, 2020 U. Ill. L. Rev. 1541, 1542–44 (2020).

[T]he expansions in the 1970s and early 1980s of the various provisions of the Civil Rights Act of 1964 were done to advance the purpose of ending segregation and promoting integration. I continue to feel much uneasiness about these decisions, in part because they move away from the initial “colorblind” standard by creating preferences for protected classes and allowing affirmative action in their favor. But none of these cases, whatever their merits, had the effect of targeting small and isolated businesses and individuals for powerful government sanctions. Instead, the earlier string of successes were targeted to make sure that powerful groups did not themselves engage in various forms of invidious discrimination–here the word “invidious” is used to allow for affirmative action programs but only in favor of protected groups. Today, all too many civil rights commissions especially at the state level function only to pressure small businesses and individuals to conform to a powerful and overriding vision of the “right” view of the evils of discrimination across the board. The situation marks a powerful change from the landscape that existed at the start of the civil rights movement in 1938, when Justice Harlan Fiske Stone warned that lax standards of review would not be sufficient to protect what he termed in Carolene Products the “discrete and insular minorities” of today. Today those minority groups are in fact the dominant power-brokers on matters of civil rights, and their influence is all-pervasive, dealing not only with matters of race and sex discrimination, but also with freedom of speech and religion for groups that are not members of the dominant coalition.

It is important to understand that the pervasive modern references to “diversity and inclusion” are not renewed calls to heed the lesson of Dr. Martin Luther King Jr., who proclaimed that what matters is the content of one’s character and not the color of one’s skin. Nor do such references refer to reaching out to make sure that individuals from all groups and all walks of life are included in modern social discourse. Rather, it is evident from the constant insistence that diversity and inclusion are compelling state interests that any other concern, including freedom of speech and conscience, must take a subordinate place when pitted against them, if only so that people whose views do not fit this modern conception can be shouted down with the justification that their views are so odious that they do not require refutation. One general theme in this discourse is a strong distaste for capitalism and an embrace of controversial causes as though they embody eternal truths….

This creeping orthodoxy is not confined to any single subject matter. As is evident from the pronouncements of once great institutions like Harvard University and the University of California, that same authoritarian impulse now guarantees that the phrase “diversity and inclusion” is transformed into a commitment to establish, in both hiring and admissions, systematic preferences in favor of women and some minority groups, with the deliberate intention of reducing and marginalizing the position of those who do not share that common vision.

Thus, forty-seven years after Professor Baum’s early death, both the agenda and the players in the civil rights movement are far different from what they were in those distant times. I often say to myself, virtually every day, that the news will contain some disturbing story about how it is that the civil rights movement has deviated from its original mission. In this lecture I shall talk about some of the cases that I think should give pause to the way in which we think about civil rights.