We welcome Eric Orts (Wharton) to the “blawgosphere.”  Professor Orts has begun blogging at Ortsian Thoughts and Theories. I have already added his blog to my favorites, and I am sure I will become a regular reader.  His new book, Business Persons: A Legal Theory of the Firm should be in my mailbox soon, and I am looking forward to reading it as well. (H/T David Zaring at the Conglomerate).     

This post started off as a comment to co-blogger Haskell Murray‘s post Modifying the Law Review Submission and Review Process, and is perhaps overkill, but at least a few of us, thanks in part to Steve Bradford’s post, are finding the conversation fruitful, so here we go:

In response to my suspicion that widespread law review changes could impact promotion and tenure (P&T) processes, Haskell writes: “I am not sure why the expectations for P&T would have to change if law reviews instituted blind review.  It seems that all blind review would do is make the selection process more fair.”  

Maybe he is right, but here’s my thinking: I  believe expectations for P&T would change because I believe that widespread blind review would increase the (already long) turnaround time for getting pieces accepted for publication.  If I am right (an open question) that it would increase the review time, it would make it harder for some faculty to get their pieces accepted, which is often required for it to “count” in the review process. Perhaps this would be a good thing, but I would see it as a potentially significant change. 

This could also impact higher ranked schools even more.  That is, Haskell has noted, people visiting at higher-ranked schools often find that visiting submission to be their most successful submission. (I’ve never had a top-20 or even top-40 school with my name for a submission, so I can’t say for certain.) It is my sense that higher-ranked schools get a bump with law reviews, and that’s not always (ever?) fair, but if that bias went away, it could make it even harder to get through the P&T process at those schools without some modifying my understanding of some assessment measures. This is where I agree with Steve Bradford that if schools are using law review rankings as a proxy for quality, they are shirking their duties, but I still think many schools (or at least some people in schools) do.  Again, a change may lead to a good shift over all, but it would still be a shift.

I concede it’s possible that blind review could increase the quality of journals, but I think that would also need peer review to go along with it, which could, again, extend the reviewing timeframe.  For the current system, I think one of the reasons we don’t have blind review is that the system is full of proxies.  These proxies have perhaps been deemed desirable given that we have already ceded publication decisions to 2Ls and 3Ls, and open review gives those students more information.  I do think it may be more desirable and more fair to use blind review, though I think there’s also more likely we’d be swapping one problem for another if we don’t add more seasoned reviewers to the mix.   In one of my earlier posts (linked in my recent one) other disciplines indicate peer review alone won’t fix the problem, and I don’t think just blind review will either.

I maintain that a faculty- and practitioner-assisted process (including blind reviews) would benefit law reviews and legal scholarship, but it means we’d all have to pitch in even more. (I support that, but it would need widespread buy in.)  My sense is that law reviews are slowly responding to the concerns and that we will see a better process result.  I think this whole discussion is a net positive, and I hope we’ll see more of an evolution.  As I have noted in my other posts, though, because I see value in many parts of law reviews, I think the coming changes should be an evolution and not a revolution.  

 Given the attention our posts on law reviews received, I thought I would add to my comments on Josh Fershee’s post commenting on Steve Bradford’s post. 

In short, I think the law review submission and review process could be improved by at least two modifications. 

1. Blind Review. 

Currently, law review editors see, and in fact require, not only the author’s name and employer, but also the author’s entire CV.  This is quite unlike the article selection process in other disciplines where all identifying information is supposed to be stripped. 

If blind-review were adopted by law reviews, Josh Fershee claimed that it might still be possible to find the identity of the author through self-citations.  Authors, however, do not always cite themselves and even if they do, law review editors would have to read pretty carefully to figure out the idenity of the author.  Currently, it is simply not possible for law review editors to read closely all article submitted, so stripping the author’s name would, at the very least, require the editors to dig into each article.  Also, Authors could be instructed to remove, during the review process, identifying phrases like “in previous work I argued…” 

This call for blind review by a Harvard law student in 2009 cites the gender bias, nationality bias, and prestige bias that can result from a non-blind selection process.  I believe a few of the elite law reviews have adopted blind review from outside experts (Stanford Law Review is one), but it is certainly not widespread among U.S. law reviews. 

In the comments, Josh said he thought blind review could work for at least some law reviews, but that the “expectations for promotion and tenure, would have to change” if we altered the system.  I am not sure why the expectations for P&T would have to change if law reviews instituted blind review.  It seems that all blind review would do is make the selection process more fair.  

2. Exclusive Submissions (or Submission Limits).  

One of the problems with the law review submission and review process is that most decent law reviews get hundreds, if not thousands, of articles to review in each submission cycle.  Even if the law review editors were able to overcome the biases mentioned above, they simply do not have time to give each article anything close to a thorough read.  The editors have to eliminate blocks of articles on easily identified things such as the subject matter of the article, the catchy titles, and the prestige of the author’s school.

If law reviews required exclusive submissions, the editors would have time to give each article a hard read before extending an acceptance.  Florida State and Pepperdine have done exactly this in adopting exclusive submission windows for certain slots in their journals.  This seems like a sensible move and I think more law reviews should follow suit.  

If the exclusive submission requirement is too dramatic of a shift, I suggest ExpressO limit each author to 10  journals (or some other reasonable number) per article, per submission cycle.  This limit would cut down significantly on the reading load for law review editors and would allow them to do more thorough review of the article submitted. 

I welcome any thoughts on these suggestions. 

One of my younger brothers is a PHD Candidate in Literature at University of Alabama.  One of my younger sisters majored in English at the University of Georgia and is working in the media industry.  (Yes, I am a proud older brother, prone to brag about my siblings’ many accomplishments).

Both siblings recently encouraged me to expand my summer reading beyond books about law.  Due to the tall stack of legal books in my “need to read” pile, I usually don’t devote much time to “pleasure reading.”

This summer, however, I am trying to read legal books and, at least some books, which have no noticeable connection to law.  Rick Bragg’s All Over But the Shoutin’ falls into the latter category.  I will let interested readers follow the link for a description of the book, but I only mention it here to say that Bragg writes beautifully.   I finished the 329-page book in two, long, sittings. 

Writer Pat Conroy said the following of the book and its author:

Rick Bragg writes like a man on fire.  And All Over But the Shoutin’ is a work of art. I thought of Melville, I thought of Faulkner. Because I love the English language, I knew I was reading one of the best books I’ve ever read.

My English-major sister recently used that phrase – “because I love the English language” – but in a different, law-related context.  She told me that reading her employment contract made her cry, because she loves the English language.  Presumably, the attorney managed to draft a contract that was painful to read. 

Likewise, most of us in legal academia can slip into what Steve Bradford recently called “the usual turgid law-review prose.”  Reading Bragg’s book has inspired me to strive for writing that is both clear and engaging. 

Bragg

As many have celebrated or decried, Dodd-Frank turned four-years old this week. This is the law that Professor Stephen Bainbridge labeled “quack federal corporate governance round II” (round I was Sarbanes-Oxley, as labeled by Professor Roberta Romano). Some, like Professor Bainbridge, think the law has gone too far and has not only failed to meet its objectives but has actually caused more harm than good (see here, for example).  Some think that the law has not gone far enough, or that the law as drafted will not prevent the next financial crisis (see here, for example). The Council on Foreign Relations discusses the law in an accessible manner with some good links here.

SEC Chair Mary Jo White has divided Dodd-Frank’s ninety-five mandates into eight categories. She released a statement last week touting the Volcker Rule, the new regulatory framework for municipal advisors, additional controls on broker-dealers that hold customer assets, reduced reliance on credit ratings, new rules for unregulated derivatives, additional executive compensation disclosures, and mechanisms to bar bad actors from securities offerings. 

Notwithstanding all of these accomplishments, only a little over half of the law is actually in place. In fact, according to the monthly David Polk Dodd-Frank Progress Report:

As of July 18, 2014, a total of 280 Dodd-Frank rulemaking requirement deadlines have passed. Of these 280 passed deadlines, 127 (45.4%) have been missed and 153 (54.6%) have been met with finalized rules. In addition, 208 (52.3%) of the 398 total required rulemakings have been finalized, while 96 (24.1%) rulemaking requirements have not yet been proposed.

Many who were involved with the law’s passage or addressing the financial crisis bemoan the slow progress. The House Financial Services Committee wrote a 97-page report to call it a failure. So I have a few questions.

1) When Dodd-Frank turns five next year, how far behind will we still be, and will we have suffered another financial blip/setback/recession/crisis that supporters say could have been prevented by Dodd-Frank?

2) How will the results of the mid-term elections affect the funding of the agencies charged with implementing the law?

3) What will the SEC do to address the Dodd-Frank rules that have already been invalidated or rendered otherwise less effective after litigation from business groups such as §1502, Conflict Minerals Rule (see here for SEC response) or §1504, the Resource Extraction Rule (see here for court decision)?

4) Given the SEC’s failure to appeal after the proxy access litigation and the success of the lawsuits mentioned above, will other Dodd-Frank mandates be vulnerable to legal challenge?

5) Will the whistleblower provision that provides 10-30% of any recovery over $1 million to qualified persons prevent the next Bernie Madoff scandal? I met with the SEC, members of Congress and testified about some of my concerns about that provision before entering academia, and I hope to be proved wrong. 

Let’s wait and see. I look forward to seeing how much Dodd-Frank has grown up this time next year.

As I explore the future of Berkshire Hathaway in my forthcoming book Berkshire Beyond Buffett: The Enduring Value of Values, one topic I address for Berkshire post Buffett is whether the company should remain public or be taken private.

After all, once Bufffett is gone, you might expect activist shareholders to urge liberalizing its dividend policy (hasn’t paid a dividend in fifty years), divest weaker subsidiaries (it has never sold a subsidiary in forty years), and break-up the diverse conglomerate (engages in hundreds of different lines of business). 

Venture entrepreneurs and seasoned executives alike often weigh the pros and cons of a U.S. company being privately held or publicly listed. That goes for start-ups trying to decide to make an initial public offering as it does for listed companies trying to decide whether to go private.

Everyone considers the transaction costs of such a switch high because IPOs and going private transactions are complicated, requiring paying accountants, appraisers, lawyers and other professionals. They are also time-consuming.

So setting aside transaction costs, let’s highlight the usual pros and cons, to do an IPO or stay public:

Pros:

● access to capital

● liquidity for shareholders

● a currency (stock) to pay managers or make acquisitions

● cache from the sign of business maturity or stature

Cons:

● the public arena invites the threat of hostile takeovers via proxy battles or tender offers

● rigid governance requirements, especially board size, independence and oversight

● Wall Street analyst attention that drives focus on short-term results, not long-term prosperity

● required disclosure, posing direct administrative costs and potential indirect costs as to competitive matters

● exposure to securities lawsuits by disgruntled stockholders

Although disclosure may be a “con” to a company, from a social perspective, watchdogs value the transparency, especially as to matters of stewardship and corporate social responsibility of larger institutions.

Assuming such a list is roughly complete, how should you evaluate the situation for Berkshire Hathaway? Stipulate that it had good reasons for public company status in its early days, the 1970s and 1980s, even the 1990s. Is it still worth it today?

As to the usual advantages of being a U.S. public company, most are inapplicable to Berkshire or less valuable compared to other public companies:

● Berkshire is a net supplier of capital, generating oceans of it from 60+ insurance and non-insurance operations and investments in marketable securities

● if Berkshire needed or desired external capital, its decentralized structure would pinpoint the particular subsidiary of interest which could directly offer public debt to supply it, as its Mid-American Energy subsidiary does

● Berkshire shareholders, as a group and by self-selection, are long-term holders, the company boasting below-average share turnover, reducing the value of liquidity for existing holders and remitting the typical market liquidity value to aspiring shareholders

● Berkshire never uses its stock to compensate anyone

● Berkshire rarely uses its stock in acquisitions, strongly preferring cash to the associated dilutive effects, and limiting use to a component of consideration paid in very large acquisitions where it is valued such as for tax advantages (the $44 billion acquisition of BNSF rail is a good example)

● Berkshire does not need any cache from a public market listing (though it may have valued slightly being added to the S&P 500 in 2010 to replace BNSF after acquiring it)

As for cons, the threat of a hostile takeover effort at Berkshire is remote, either so long as Buffett (or The Gates Foundation succeeding him) remain controlling shareholder(s) or a concentrated group of Buffett-Berkshire traditionalists command majority voting power.  (Built-in deterrence includes Berkshire’s ownership of large regulated subsidiaries in the fields of energy, insurance and rail.)

But other cons are more acute in Berkshire’s case than at most companies:

● part of its historic success is due to a board in place for several decades, a small, close-knit group of insiders, family members and friends, a structure made illegal by the Sarbanes-Oxley Act of 2002 which imposed rigid governance requirements on public company boards

●one of Berkshire’s most valuable traits is its long-term horizon (50 years by mandate of corporate headquarters), accepting quarterly and annual earnings swings that competitors avoid at the expense of long term value

Finally, even the watchdogs don’t get the usual payoff in disclosure quality, because so much of what happens at any subsidiary (even if highly material to any given one) is simply immaterial in the Berkshire context.

Among pros of a public listing that are peculiar to Berkshire: hundreds of thousands of shareholders available to attend Berkshire’s famous annual meeting, which would be reduced to fewer than 300 after a going private transaction.

 But if such are the only reasons for a magnificent company such as Berkshire to stay public—stock for the occasional deal and a flock of holders—one moral is the need to reexamine our faith in rigid governance requirements and our allergies to earnings volatility.

As someone who teaches and researches both business law and energy law, I often focus on the overlap of the two areas, which I find to be significant.  One of my most recent projects has been to write a new casebook, Energy Law: A Context and Practice Casebook, which will be available for courses taught this fall. I wrote a detailed description of the book in a guest post at the Energy Law Professor blog, but here I wanted to highlight the business aspects of the book. 

The second chapter of my book is titled The Business of Energy Law.  That chapter begins with some key vocabulary, and I then provide students with a client issue to frame the reading for the chapter. The issue: 

Your firm has just taken on a new client who is a large shareholder in many companies. She is particularly concerned about her holdings in Energex, Inc., a publicly traded energy company. Energex was founded in 1977 by a oil and gas man from Louisiana who is still the CEO and a member of the board of directors. The client is concerned that the CEO is taking opportunities for himself that she thinks belong to Energex. As you read the following sections, consider: (1) What are the potential conflicts of interest the CEO might have? (2) Is it a conflict of interest if the activity is permitted under the CEO’s employment contract? (3) What kind of documents might be publicly available for review and where would you find them? (4) If it goes to litigation, what other information might you seek? From whom?

The first part of the chapter covers Business Organizations and Employment Law as Energy Law, including derivative suit and executive compensation contracts.  The chapter also has the following sections: Antitrust as Energy Law, Mergers and Acquisitions, and Entity Structure and Fiduciary Duties.  

Over the years, as I have taught my Energy Law Survey course and Business Organizations (as I do again this fall), I found that I can help make sense of things for students in each class when I borrow examples from the other class. My book helps make the connection concrete, and I hope it will help students understand more of the “why “to go along with the “what.” As I often tell (preach to?) students, understanding business organizations is critical to all aspects of practice, regadless of where you intend to focus, whether it’s energy law, environmental law, criminal law, or even family law.  

This fall should be fun. For me, at least.  

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Steven Davidoff Solomon, a professor of law at the University of California, Berkeley, has an interesting article on antitrust in the DealBook today:  Changing Old Antitrust Thinking for a New Gilded Age. Professor Solomon argues that a new wave of mergers in the tech and telecommunications industries mirror the consolidation wave of the Gilded Age a century ago which lead to our current antitrust laws.  These mergers leave competition in tact, albeit among a few huge companies, and therefore facially meet the competition requirements under antitrust law.  He argues that “[t]his calculus, however, excludes the political and other power that a concentrated industry can wield with government and regulators.”  Citing to industry-based nonprofits and the ability to participate in political spending in a post-Citizens United world, professor Solomon concludes that antitrust may become a question of power, not just competition. 

“[R]ight now there is simply no real government ability to review the industry consolidation that is occurring today in which industries become dominated by a handful of major players. Yet it is becoming increasingly apparent that size and industry concentration affect American society even if competition still exists.”

I think that this is an interesting lens through which to view, and teach, current market trends in mergers and acquisitions and related questions of antitrust law.

-Anne Tucker

Steve Bradford yesterday posted a thoughtful (as is usual for his posts) critique of law reviews. I had drafted a comment, but Steve suggested that I should post links to my prior posts separately, so here goes, along with (what has turned out to be a lot of) additional commentary.

I think Steve has some valid (and compelling) points. As I have written before, though, I can’t go as far as he does.  I won’t rehash all that I have written before on this subject, but one of my earlier posts, Some Thoughts for Law Review Editors and Law Review Authors covers a lot of that ground.  Please click below to read more: 

Continue Reading The Value of the Imperfect Law Review System

Wharton

The Wharton School at University of Pennsylvania has posted a legal studies and business ethics professor opening.  As you may suspect, Wharton has an extremely strong legal studies faculty.  More information from the announcement is quoted below. 

The Wharton School at the University of Pennsylvania invites applications for tenured and tenure-track positions in its Department of Legal Studies and Business Ethics.  The Department has eighteen full-time faculty who teach a wide variety of business-oriented courses in law and ethics in the undergraduate, MBA, and Ph.D. programs and whose research is regularly published in leading journals.  The Wharton School has one of the largest and best-published business school faculties in the world.  In addition, the school has a global reach and perspective, as well as an interdisciplinary approach to business issues (embracing ten academic departments and over twenty research centers). 

Applicants must have either a Ph.D., J.D., or both, from an accredited institution (an expected completion date no later than July 1, 2016 is acceptable) and a demonstrated commitment to scholarship in business ethics, business law, or a combination of the two fields.  Specific areas of potential focus for hiring include corporate governance, normative ethics related to business, social impact/sustainability, securities regulation, and health law/bioethics.  The appointment is expected to begin July 1, 2015.

Please submit electronically your letter of introduction, c.v., and one selected article or writing sample in PDF format via the following website by November 1, 2014: APPLY.  Some decisions for interviews will be made before the deadline, so candidates are encouraged to apply early.

The University of Pennsylvania is an equal opportunity employer.  Minorities, women, individuals with disabilities, protected veterans are encouraged to apply.