Chen Chen, Xiumin Martin, Sugata Roychowdhury, and Xin Wang have posted a paper to SSRN that attempts to identify firms that suffer from poor internal information flow by comparing the relative insider trading profits of high level managers and low level managers.  They find that when lower level managers make higher profits – suggesting that they have better information than higher level officers – the firm’s external financial reporting suffers.

[More under the cut]

Continue Reading Insider Trading Profits as a Proxy for Intrafirm Information Flow

Library

A number of months ago, a friend told me about Dolly Parton’s Imagination Library. The vision of the Imagination Library is “to foster a love of reading among [the] county’s preschool children and their families by providing them with the gift of a specially selected book each month.”

The books are free of charge, and anyone with preschool children can sign up, regardless of family income. Our two-year old son loves getting the books in the mail.  

While the Imagination Library has already served over 800,000 children, I wonder if their choice architecture is limiting their reach. Also, I wonder if their choice architecture is preventing use of the program by families who need the books the most. Currently, families can sign up online to receive the books. It is a simple process, but you need to have heard about the program, need to have internet access, and need to be able to fill out the sign-up questions.

A nudge, such as an opt-out form (through the mail, or, if allowed, at the hospital) might allow the Imagination Library to reach a greater number of children. (If Gerber Life Insurance knows when we have a baby, I am sure the Imagination Library could find out). I doubt many families would opt out of the Imagination Library’s program. Who would turn down free books? Perhaps, however, the program is purposely set up with a few hurdles because of limited resources. 

The partners of Imagination Library include Penguin Group USA. I imagine that Penguin probably sees this partnership as part marketing and part corporate social responsibility. In any event, we have really enjoyed the program.

In my final post on the subject of “respectability” of lawyers (the first four can be found here, here, here and here), I’d like to tie my thoughts together, discussing what the various parties can do to make Bird and Orozco’s thesis of assimilation of lawyers into corporate business teams the “new normal”.  This should give lawyers more career opportunities in the future, slow the loss of influence of the legal profession in businesses, and make legal education a more attractive choice.  Much of the discussion in academia has ignored the in-house counsel approach as being a viable option for the woes of the legal industry.  Below the fold, this post will discuss the roles that academia, in-house counsel, and business firms each may play in increasing the potential for success of a new model for business lawyers.

Continue Reading The Future of Respectability for Lawyers (Part 5)

It’s always nice to blog and research about a hot topic. Last week I wrote about compliance challenges for those who would like to rush down to do business in Cuba- the topic of this summer’s research. Yesterday, Corporate Counsel Magazine wrote about the FCPA issues; one of my concerns. Earlier this week, I attended a meeting with the Greater Miami Chamber of Commerce and the United States International Trade Commission. Apparently, on December 17th, the very same day that President Obama made his surprise announcement that he wanted to re-open relations with Cuba, Senator Ron Wyden coincidentally sent a request to the USITC asking for an investigation and report on trade with Cuba and an analysis of restrictions. Accordingly, the nonpartisan USITC has been traveling around the country speaking to lawyers and business professionals conducting fact-finding meetings, in order to prepare a report that will be issued to the public in September 2015. Tomorrow the Miami Finance Forum is holding an event titled the New Cuba Revolution.

This will be my third and final post on business and Cuba and in this post I will discuss the focus of my second potential law review article topic. My working thesis is as follows: As relations between the United States and Cuba thaw, American businesses have begun exploring opportunities on the island. Cuba, however, remains a communist nation with a human rights record criticized by exiles, NGOs, and even members of the United States Congress. The EU has taken a “common position” on Cuba stating that the objective of the European Union in its relations with Cuba is to encourage a process of transition to a pluralist democracy, require a respect for human rights and fundamental freedoms, as well as sustainable recovery and improvement in the living standards of the Cuban people.” Individual EU member states are free to conduct business with Cuba and many European companies have joined Canadian firms in investing through joint ventures and other state-sanctioned vehicles. This Article will examine whether the US should follow the EU’s model in trying to spur reform or whether allowing American firms to do business in Cuba without human rights concessions will in fact perpetuate the status quo.

As I discussed in last week’s blog post, one reason that the U.S. is unlikely to lift the embargo is the nearly 7 billion in claims for confiscated US property. Another reason is Cuba’s human rights record. For example, the island is notorious for violations of rights to freedom of press, association, assembly, and imprisonment of political protesters. The Cuban government continues to control all media limiting the access to information on the Internet due to content-based restrictions and technical limitations. Independent journalists are systematically subjected to harassment, intimidation, and detention for reporting information that was not sanctioned by the state apparatus. My colleague Jason Poblete writes often and critically about the Obama administration’s rapprochement with Cuba. (I highly recommend him for legal advice about Cuba by the way).

Depending on whom you talk to the embargo will be lifted next year, in five year or in ten years. Personally, I don’t know that the EU Common Position has been particularly effective in pressuring the Castro brothers to make human rights reforms. I don’t think the U.S. government will be any more successful either. The embargo is Exhibit A.

Most of my academic research thus far has been on what drives corporations to act in the absence of legal obligations vis a vis human rights. With that in mind, I plan to examine a few options related to Cuba. First, I am researching the effect of bilateral investment treaties. A bilateral investment treaty is an “agreement between two countries for the reciprocal encouragement, promotion and protection of investments in each other’s territories by companies based in either country.” These typically grant significant rights to foreign investors, provide safeguards to investments against foreign governments, and allow foreign investors to have investment disputes adjudicated outside of the country, which will be critical for those investing in Cuba. The problem is that these BITS rarely have human rights conditions. Accordingly, some scholars have recommended that they require adherence to the Universal Declaration of Human Rights, the United Nations International Covenant on Civil and Political Rights, the ILO Declaration on Fundamental Principles and Rights at Work, the United Nations Convention Against Corruption, the and the Rio Declaration on Environment and Development. I would also recommend reference to the UN Guiding Principles on Business and Human Rights and the OECD Guidance.

Another option is to condition any renewal of a development bank such as the US’s Ex-Im Bank on requiring human rights impact assessments. The Ex-Im bank is the official export credit agency of the US. It’s used when private sector lenders are unable or unwilling to provide financing to companies entering politically or commercially risky countries. Its charter is set to expire on June 30th although its supporters claim that it financed billions in exports, which supported 200 thousand jobs last year. Opponents claim that it financed exports in countries with abysmal human rights records and/or that it supports corporate welfare. I propose that Ex-Im and other lenders follow the lead of many European financers that require human rights disclosures. I (naively?) believe labor may be the only human right remotely and partially in the control of US companies operating in Cuba in the future.

I have some other ideas but those will have to wait for the upcoming article. In the meantime, if you have some thoughts or critiques of these early ideas, please comment below or send me an email at mnarine@stu.edu. I’m off to Guatemala on Saturday for a week with a group of academics studying business and human rights (another research topic for this summer). We will be exploring climate change, the extractive industries, maquiladoras, corporate social responsibility, and the effects on the rights of indigenous peoples. You can be sure I will be writing about that in a future post.

 

Chief Justice John Roberts wrote for himself, Justice Anthony Kennedy and the four liberal justices that:

“Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them… If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter.”

Justice Antonin Scalia wrote the dissent, joined by Clarence Thomas and Samuel Alito, suggesting that the health care reform should be called SCOTUScare because the high court has now intervened twice to save the flawed law.

The opinion is available here: http://www.supremecourt.gov/opinions/14pdf/14-114_qol1.pdf

The AALS Annual meeting will be held in NYC in January, 2016.  The Section on Business Associations will be co-hosting a program entitled The Corporate Law and Economics Revolution 40 Years Later: The Impact of Economics and Finance Scholarship on Modern Corporate Law.

Presenters will include Judge Frank Easterbrook, Professor Roberta Romano  (Yale) and Professor Kent Greenfield (Boston College).

 The full call for papers is available here:  Download AALS Call for Papers 2016-1. The deadline for submitting an abstract (please send to Professor Usha Rodrigues at  rodrig@uga.edu) is August 27, 2015. 

I had the privilege of sitting in on a stimulating paper session on “Private Fiduciary Law” at the Law and Society Association conference in Seattle last month.  The program featured some super work by some great scholars.  My favorite piece from the session, however, is a draft book chapter written by Gordon Smith that he recently posted to SSRN.  Aptly entitled The Modern Business Judgment Rule, the chapter grapples with the current state of the business judgment rule in Delaware by tracing its development and reading the disparate doctrinal tea leaves.  Here is a summary of his “take,” as excerpted from his abstract (spoiler alert!):  “The modern business judgment rule is not a one-size-fits-all doctrine, but rather a movable boundary, marking the shifting line between judicial scrutiny and judicial deference.”

In the mere 18 pages of text he uses to engage his description, analysis, and conclusion, Gordon gives us all a great gift. His summary is useful, his language is clear, and his analysis and conclusions are incredibly useful, imho.  I am no soothsayer, but I predict that this will be a popular piece of work.

Gordon posted on his paper the other day on The Glom.  He is inviting comments, and I know him to be serious in wanting to receive and incorporate them.  So, have at it!

The Turtles continue to have salience in the music world.  Now, they also are a “happening thing” in legal circles.  Two recently published law review articles take on an interesting issue in copyright law relating to pre-1972 sound recordings that has been the subject of legal actions brought by members of The Turtles.  The articles (both of which use the song Happy Together, a Turtles favorite, in their titles) are authored by my University of Tennessee College of Law colleague, Gary Pulsinelli, and Georgetown University Law Center Professor Julie L. Ross.  

In his abstract, Gary summarizes the problem as follows:

Federal copyright law provides a digital performance right that allows owners of sound recordings to receive royalties when their works are transmitted over the Internet or via satellite radio. However, this federal protection does not extend to pre-1972 sound recordings, which are excluded from the federal copyright system and instead left to the protections of state law. No state law explicitly provides protection for any type of transmission, a situation the owners of pre-1972 sound recordings find lamentable. These owners are therefore attempting to achieve such protection by various means. . . . 

He concludes:

[S]tate law cannot provide the remedy that the owners of pre-1972 sound recordings seek. Their concerns, however, should not be dismissed. The exclusion of pre-1972 sound recordings from the federal system does deprive the owners of such recordings of royalties received by similarly situated owners whose recordings happen to have been made after that date. Because state law cannot remedy the problem, federal law must. Pre-1972 sound recordings should be brought into the federal system, on essentially the same terms as other works from the same era that are already protected by federal copyright.

Professor Ross reaches the same conclusion, as summarized in her abstract:

[G]iven the delicate balancing that has gone into Congress’ recognition of a limited digital performance right and creation of a compulsory statutory licensing system, any remedy for the inequity to owners of pre-1972 sound recordings must be left to Congress. Allowing individual courts in individual states to craft a patchwork of inconsistent remedies would disrupt the balance struck by Congress and interfere with the functioning of the compulsory license system for digital sound recording performances. This is a result that the Supremacy Clause does not permit.

Last week, I posted on federal securities law reform.  It looks like federal copyright law also is in need of some fixing . . . .  However, the copyright issue addressed in these two papers seems like an easy one to fix efficiently and effectively, unlike some of the federal securities law issues on the current reform agenda.  Regardless, I’ll raise three cheers to fixing what’s legally broken in the most efficacious way!

Imagine how the world could be
So very fine
So happy together . . . .

So, I’m on vacation, which is not something I do very often, at least unrelated to work.  It’s been great, and we’re lucky to be able to do this (and to vacation as all). It’s ungodly hot, but hey, that’s the beach. I guess. Like I said, we don’t do it like this very often.

Anyway, I recently read a piece that talked about freedom in way that really resonated for me.  It is applicable personally, and it is applicable professionally.  Law schools, collectively, could stand to pay attention, as well. We have choices, we just have to recognize it. I’m no philosopher, but here’s the gist of the post that resonated with me, from Rapitude.com:

Sartre believed that we have much more freedom than we tend to acknowledge. We habitually deny it to protect ourselves from the horror of accepting full responsibility for our lives. In every instant, we are free to behave however we like, but we often act as though circumstances have reduced our options down to one or two ways to move forward. 

This is bad faith: when we convince ourselves that we’re less free than we really are, so that we don’t have to feel responsible for what we ultimately make of ourselves. It really seems like you must get up at 7:00 every Monday, because constraints such as your job, your family’s schedule, and your body’s needs leave no other possibility. But it’s not true — you can set your alarm for any time, and are free to explore what’s different about life when you do. You don’t have to do things the way you’ve always done them, and that is true in every moment you’re alive. Yet we feel like we’re on a pretty rigid track most of the time.

We often think of freedom as something that can only make life easier, but it can actually be overwhelming and even terrifying. Think about it: we can take, at any moment, any one of infinite roads into the future, and nothing less than the rest of our lives hinges on each choice. So it can be a huge relief to tell ourselves that we actually have fewer options available to us, or even no choice at all.

In other words, even though we want the best life possible, if life is going to be disappointing, we’d at least like that to be someone else’s fault.

As law faculty, we don’t always know what to do to make major improvements, but it’s on us to work to make that happen.  I think we do a lot of things right, but there’s a lot (a lot!) we can do better. And that’s our job — to figure out how to be better. What to do is not an easy answer, but suggesting that we can’t make changes is junk.  Again, the idea that we can’t change, …. “is bad faith: when we convince ourselves that we’re less free than we really are, so that we don’t have to feel responsible for what we ultimately make of ourselves.”