A podcast of that program is now available.

This past week, we had a successful program at Suffolk, jointly sponsored by the law and business school, entitled “From Enron to Refco” dealing with the criminal liability of service providers to corporations involved in nefarious activities. (Several of the people in the audience reflected an unfortunate aspect of the politics of all of this, which was a confusion [...]]]> I suppose that I should start with a disclaimer that this isn’t really about Bear, but continues a theme (some called it unduly pointillistic) I started a week or so ago while thinking about Bear. (By the way, for a surprisingly counter-intuitive take on responsibility and victimhood in the sub-prime crisis from a liberal commentator, see Michael Kinsley’s endpaper essay in Time last week.)

This past week, we had a successful program at Suffolk, jointly sponsored by the law and business school, entitled “From Enron to Refco” dealing with the criminal liability of service providers to corporations involved in nefarious activities. (Several of the people in the audience reflected an unfortunate aspect of the politics of all of this, which was a confusion between criminal fraud, say like WorldCom, and business judgments that go badly wrong, like Bear, but that’s a subject for another discussion.) The keynote speaker was Joshua Hochberg, now a partner at McKenna Long & Aldridge, and formerly the head of the US Department of Justice’s Fraud Division, where he supervised some of the major bubble-bursting cases of the last ten years – Enron, Arthur Andersen, etc. Also on the panel were Jim Rehnquist, a partner specializing in white-collar criminal defense at Goodwin Procter here in Boston, as well as John O’Connor, a retired vice-chairman of PriceWaterhouseCoopers (and a Suffolk alum to boot). My role was to be the “audience moderator” which means that I flitted around in the audience with a wireless microphone, doing my Jay Leno thing. I asked a question myself, which failed completely in its purpose of raising the concern expressed below.

The morning after, I had the following reflections on the program (after congratulating all the organizers for its success and somewhat edited for this purpose).

If you listened to a combination of Josh Hochberg, the corporate fraud prosecutor, and Jim Rehnquist, the white-collar defender, it sounded like being co-opted into corruption and fraud was something that happened inexorably in the business world, and there was almost nothing you could do about it – sort of like being a passenger on an airplane and hoping this isn’t your unlucky day. I think that’s a view steeped in a pessimistic ultra-realism, shaped by careers in which what you do is either prosecute or defend people after the problem has already occurred. It wouldn’t surprise me if prison guards also had a generally downcast view of human nature. I’m agnostic on the question – I think there’s equally as much evidence that we are innately good as innately bad, and the issue is not capable of resolution.

Yes, it is a reality of the world that all of us can be co-opted by our commitment to ends that begin to blur the edges of our reservations about inappropriate means. That can affect CEOs, prosecutors, police, Secretaries of Defense, university presidents, and law school deans. There’s really no cure to that other than trying to reach an honest reflective equilibrium of idealism (what ought to be) and realism (what has to get done) through whatever means are available. But it was troubling to me that the only discussion of values came right at the end, and not from the lawyers, but from John O’Connor, the accountant.

Especially troubling was JIm Rehnquist’s not untypical litigator’s view of the lawyer’s role as advocate. Trust me, when you are sitting in the corporate board room, and there’s a difficult decision to make, and it has moral or ethical overtones, the last thing you want to be is an advocate. Your job at that point is to be a counselor, and, if you are effective, to be a counselor that understands the limits of the law and its relationship to other normative rules, whether they be social norms, moral duties, or utilitarian calculations.

Of course, none of the lawyers sitting on the panel had ever been in a corporate management suite or a boardroom except after the crap has hit the fan.

As I said, I was troubled by the message to the students in the audience. It was that the corporate world is corrupting and essentially random and beyond your control, and there’s not a whole lot you can do about it, except hope that your figurative airplane doesn’t crash. I acknowledge my views on individual freedom and autonomy may not be everybody’s, and this is a statement reflecting my strange position of Kantian corporate governance, but there’s not much hope if we don’t even discuss it.

These latter investments are, in some respects, beyond the [...]]]> Over at Conglomerate, Gordon Smith has a quick and dirty analysis of the just-filed lawsuit in which pension fund shareholders (Wayne County, Michigan and the Detroit Police and Fire Retirement Funds) seek to enjoin the proposed (and amended) Bear Stearns – J.P. Morgan Chase deal. As does Larry Ribstein at Ideoblog. One of Larry’s points is that companies can avoid this kind of mess by selecting an organization form that simply excises the kinds of the duties that are the basis for the litigation. The prime example of this is Blackstone’s publicly-traded partnership, in which the disclosures are belt-and-suspenders clear that the unit holders have waived just about anything it’s possible to waive.

These latter investments are, in some respects, beyond the law. You buy them because you believe the managers’ interests are completely aligned with the equity owners, or because you believe, in a consequentialist way, that managers will do the right thing because they can’t afford not to. Indeed, the WSJ has an article this morning about the unchecked ability of Blackstone’s managers to set their own compensation, something with which this unit holder has no problem, according to the WSJ:

“I don’t have any problem with their compensation system,” says Robert Olstein, head of Olstein Capital Management, which owns 1.4 million Blackstone units. “These guys are the crème de la crème. If they make money, I make money.”

This is all moot now, because there has been a revised deal, and I was too busy trying to get ready for class yesterday to [...]]]> Corporate law pundits were abuzz yesterday with the possibility that – oh my god – Wachtell might have had what we used to call a “bust” – just a good old-fashioned mistake in contract drafting. This had to do with what would trigger the end or cancellation of J.P. Morgan’s guarantee of Bear Stearns’ liabilities. The gist of the buzz was the fact that the guarantee would go on for a year if the BS shareholders voted the deal down, as long as the Bear board did not back down from its recommendation of the deal to the shareholders.

This is all moot now, because there has been a revised deal, and I was too busy trying to get ready for class yesterday to follow it in real time. But without undue contortion to slap myself on the back, I did send this e-mail (just slightly edited to get a term correct) to a number of the pundits last night:

The effect of this is to get a guarantee on one year’s worth of covered liabilities. It’s not forever.

I don’t know much about the securities being guaranteed. Is this a “floating” guarantee under which liabilities are created and discharged on a rolling basis? If so, for how much would JPM be on the hook at any one time?

I could see an argument the Bear board could have made in support of the lockup for one year: in exchange we got a one-year guarantee as long as we didn’t change our recommendation, and we could control that. So while we may have blocked other bidders, we may have also insured the survival of the business.

It’s possible this was a Wachtell mistake. But I thought I’d take a shot at Larry Solum’s principle of charitable interpretation.

This morning other views have surfaced – see Gordon Smith over at Conglomerate and the quotes from Larry Cunningham in the Wall Street Journal this morning that seem to accord with my more “charitable” interpretation of last night. Here’s a quote from the article with Larry’s comment:

The measure “seems rational,” given the circumstances at the time, when J.P. Morgan was trying to signal to the market that it would stand by Bear’s obligations, says Lawrence Cunningham, a law professor at George Washington University. “Bear was fighting for its life and a handful of forces were at play and it makes sense that J.P. Morgan would want to add credibility to the deal by giving a big guarantee.” Observers add that J.P. Morgan might not have anticipated the shareholder resistance that surfaced to the original deal.

In any event, it does demonstrate, as the ex-football coaches who do color commentary observe from time to time, it’s a lot easier to be up in the booth providing analysis than down on the field making the decisions!

1. One of my favorite lines in all of academic writing is Richard Posner’s allusion to the rational actor in neo-classical economic theory. In this variant of consequentialism, reason does not determine ends; the end for any actor is always happiness, [...]]]> Yesterday, James Dimon, the CEO of JPMorgan Chase, visited the Bear Stearns headquarters, and met with 400 Bear executives, described in the New York Times this morning as “seething, fearful and to their dismay, far poorer than they were a week ago.” What struck me was the emotional and personal language of the dialogue, something I’m not surprised to hear, but which may take some reconciling for theoretical observers. As this is a blog post, I’ll again offer some not-quite-random thoughts.

1. One of my favorite lines in all of academic writing is Richard Posner’s allusion to the rational actor in neo-classical economic theory. In this variant of consequentialism, reason does not determine ends; the end for any actor is always happiness, measured in units of utility. Reason is instrument and practical – it is a slave to this particular passion. Hence, we assume all actors choose rationally those actions calculated to be most likely to maximize utility. Judge Posner says, therefore, it would not be solecism to speak of a rational frog. We don’t need to dissect it [the frog, get it?] because we can assume it to be a black box whose actions demonstrate, overall, an internal utility calculation consistent with the theory. The model, of course, is simple and useful as a tool, but it has significant limitations as a theory of everything; hence, the rise of behavioral economics to try to explain all choices, even when the frog seems to be acting irrationally. For more on this, see the debate between Judge Posner and Cass Sunstein, et al., in the Stanford Law Review a few years back.

2. So here we have Jamie Dimon (he can’t be James in this context) telling the Bear executives “I don’t think Bear did anything to deserve this. Our hearts go out to you.” Does he really mean that? Do their hearts really go out? Do they have hearts?

3. In response, according to the Times, a Bear executive “with anger in his voice” asks, “In this room are people who have built this firm and lost a lot, our fortunes. What will you do to make us whole?” To which Dimon “gingerly” replies, “You’re acting like it’s our fault, and it’s not. If you stay we will make you happy.”

4. In the Boston Globe this morning, Barney Frank, one of our locals, talks about greater regulation of investment banks. Steven Syre, the Globe business columnist observes there is a gap between conservative banking regulation administered by the Fed and the “heightened risk and reward” environment of Wall Street bankers who underwrite and trade securities. Says Syre, “They made huge fortunes in good times and had every incentive to take big risks, usually by betting with lots of borrowed money.” What he is describing is leverage (or “gearing” for our British readers), and leverage is not strictly a Wall Street phenomenon. Anybody who buys a house with 20% down (i.e. equity) and an 80% mortgage is engaged in financial leverage (and if you buy the house with a subprime mortgage, putting 5% down, you just leverage up more). All companies seek an optimum level of leverage in their capital structure – they are always balancing financial risk with financial reward.

5. Now let’s talk about foresight and hindsight, and particularly what the behavioralists call “hindsight bias.” When you engage in business and take significant risk, and it doesn’t pan out, and you look at the whole mess in retrospect, it may be that you are affected by hindsight bias, which means that the bad result, which may have been a 40-60 shot ex ante, is now 100% certain, and doesn’t feel like a 40-60 shot any more.

6. I spent five years of my career, from 1992 to 1997, at a company called AlliedSignal. It merged with, and took the name, Honeywell. Those were the boom years in the stock market. The level of the ocean was rising, and if you kept your boat from leaking, much less turbocharging it, you tended to rise with the rest of the boats. We did okay (well, maybe more than okay) in stock compensation, but most of us were significantly (by virtue of the stock plan limitations or by unwise lack of diversification) tied to the fortune of the company’s stock as a measure of our personal net worth. We were just like the Bear executives, except we were luckier. We didn’t have to deal with hindsight bias except in this regard, which was just the opposite: if you exercised your options or sold your stock, and then watched the company outperform the market, you had exactly the OPPOSITE hindsight bias.

Larry Bossidy, long-time second in command to Jack Welch at GE, was the CEO of AlliedSignal in those years. I can’t recall how many times, at employee meetings, the rank-and-file white and blue collars would ask why they couldn’t get stock options (they could get stock in their 401(k) plans, and the company’s match was in stock). Bossidy’s response was always the same: you’ll like the stock if it keeps going up, but it’s a risk-reward proposition, and my experience is that rank-and-file like the reward, but don’t like the risk.

6. Finally, there is the quote from Alan Schwartz, Bear’s CEO: “We are a collective victim of violence. It’s natural to be angry, and you’re not sure who to be angry at. But we have to put it behind us.” This is a very interesting statement, because it gets to the heart of a philosophical dilemma that in some areas was resolved 250 years ago, but pops up whenever we again encounter any kind of disaster. Since Rousseau, we have separated the concepts of natural evil and moral evil. We may attribute blame to people for their response, or preparation, or negligence about the safeguards against hurricane damage, but we don’t connect (I suppose except in the global warming sense) natural disaster to human agency anymore. People aren’t to blame for Hurricane Katrina, or the Tsunami, or the Lisbon Earthquake of 1755.

But we have, and this is part of what Kant brought to the table, a natural inclination, by virtue of our reason, to want to link what is with what ought to be. My simplest illustration of the process by which most of us immediately separate ourselves from random bad consequence by virtue of our agency is how I always wonder, when I hear about a traffic death, whether the people had their seat belts fastened. My friend Susan Neiman uses the example of criminals in the Nazi concentration camps. There is some evidence that they fared better than most because at least they understood why they were there.

Schwartz’s comment suggests that what occurred at Bear was a kind of evil – a violence in the form of a bank run – that might be moral (did somebody trigger it purposely?) or natural (panics are a part, for better or worse, of economic cycles).

7. So the dialogue, Dimon’s comments, the executives’ anger, Schwartz’s shaken explanation of what happened, are indeed typical human reactions to great disaster, and they are attempts, as always, to reconcile what did happen with our ideals of what should have happened. This, it seems to me, is the great challenge of mature and reasoned discussion about economic life, and the balancing of our desire to be happy (materially) with our desire to be fair. When I was just getting started at being an academic, and still flush with the perspective of a corporate executive, I wrote this in a footnote at the end of an article about how lawyers used contracts as one very limited way of dealing with contingency:

I am willing to concede the simultaneous operation of economic laws and moral laws. They are, respectively, the embodiments of the critical distinction in Kant between the nature of instrumentality and the nature of free will or autonomy. Our needs in everyday life are fulfilled by instrumental relationships all the time. Physical and economic laws are discernible that govern the satisfaction of what Kant calls our inclinations (our tangible and intangible needs). The principle of microeconomics that a rational firm shuts down the plant when the marginal cost exceeds the marginal revenue is morally neutral (at least it is to me, but I recognize others, socialist or critical legal theorists, for example, may disagree). The moral question, on the other hand, is: are they people or things to you morally at the time the real world makes you do that? How do you handle the layoffs? Do you provide outplacement? Is the severance sufficient? Have you developed your employees so they have transferable marketable skills?

I’m no “progressive” (in part because I don’t know what it means), but sight unseen, I’ll recommend a piece just recently up on SSRN by Kent Greenfield that seems to want to encourage this kind of discussion. The abstract follows the fold.

Here’s the abstract of Reclaiming Corporate Law in a New Gilded Age:

Corporate law matters. Traditionally seen as the narrow study of the relationship between managers and shareholders, corporate law has frequently been relegated to the margins of legal discussion and political debate. The marginalization of corporate law has been especially prevalent among those who count themselves as progressives. While this has not always been true, in the last generation or so progressives have focused on constitutional law and other areas of so-called public law, and have left corporate law to adherents of neoclassical law and economics. To the extent that the behavior of businesses has been a matter of concern, that concern has been aimed at adjusting the rules of environmental law, administrative law, employment law, and the like.

The time has come to reclaim corporate law as a topic of wide debate and progressive concern. Instead of being a narrow discipline with limited implications, corporate law determines the rules governing the organization, purposes, and limitations of some of the largest and most powerful institutions in the world. By establishing the obligations and priorities of companies and their management, corporate law affects everything from employees’ wage rates, to whether companies will try to skirt environmental laws, to whether they will tend to look the other way when doing business with governments that violate human rights. Corporate law also determines whether corporations will look at the long term or the short term, whether they will see themselves as owing any responsibilities to stakeholders other than shareholders, and indeed whether they consider themselves to be constrained by law at all.

The main thesis of this article is that corporate law is much more important than most progressives realize. Corporate law can be part of the wider task of regulating corporations in particular and business in general. The rules that govern corporations should more expressly take into account the fact that corporations are collective enterprises that demand investment from a number of different sources. These investments come in various forms: inflows of capital from shareholders and creditors; cash inflows from customers; infrastructural support from governments and communities; and effort, intelligence, and direction from employees. Whereas corporate law presently focuses on the financial investments of shareholders only, it could, and should, be adjusted to take into account the contributions of non-equity investors. Adjusted in this way, corporate law will make it more possible for corporations to serve their purpose of facilitating the creation of wealth, broadly defined and distributed.

The usual pundits are commenting – Steve Davidoff of M&A Prof Blog and the New York Times Dealbook did us all a service by posting the Bear Stearns [...]]]> David Hoffman graciously invited me back to comment on the Bear Stearns meltdown. As I mentioned to him, I’m no expert in financial institutions, but I was a deal lawyer, and I spent a lot of time with boards of directors, so the dynamics of the deal process are very, very interesting to me. (I’m also an investor in the market generally, thankfully diversified, but probably reflect the mood of the country generally – even though it makes no difference in the short or long run, yesterday I deferred the purchase of a new Apple MacBook.)

The usual pundits are commenting – Steve Davidoff of M&A Prof Blog and the New York Times Dealbook did us all a service by posting the Bear Stearns – J.P. Morgan merger agreement, and got into a nice little debate with Larry Ribstein. I have posted a few observations in various spots around the blogosphere, and I thought I’d consolidate and update them here.

1. When the deal was first announced, I didn’t realize from the newspaper accounts that it was not a cash deal at $2.00 a share. It’s a stock-for-stock deal that pegged $2.00 to the J.P. Morgan stock on an exchange ratio of just over .054 shares of JPM for each share of Bear. The market, at least on Tuesday, was not persuaded that this was a done deal – indeed, the stock price for Bear tripled or quadrupled during the day on arbitrage activity. Once the deal is viewed as done, the Bear shareholders will continue to ride up or down depending on the markets’ reactions generally, but tied to what JPM does.

2. The fairness opinion on the price will come from Lazard Freres. That should be an interesting read.

3. The hot issue among experts in Delaware law on takeover matters is the fact that the agreement locks out an alternative proposal for a year. Let me put this in context for non-corporate types. What the buyer in a friendly deal tries to do is lock up the deal to the limits permitted by Delaware case law with respect to the directors’ obligation to obtain the highest price for the company once it is “in play.” So the merger agreement, as here, always has a “fiduciary out” (although that may not be necessary if the agreement follows a full auction for the company). Indeed, the fiduciary out is a way of ameliorating the effect of a non-auction deal. The trick is in putting in as many roadblocks to an alternative proposal without crossing the line after which the Delaware Chancery Courts think that the board of the target company has breached its duty to get the best price. One such tactic is for the buyer to demand the ability to force a shareholder vote even over a “Change in Recommendation” if there is an “Alternative Proposal.” Not surprisingly, a “force the vote” is a win for the acquiring company, as you’d expect here. This agreement takes one step further, giving JPM another bite at the apple, and gives JPM one year to complete a deal to the exclusion of other suitors who pop up. Gordon Smith at Conglomerate has commentary on this.

Obviously, the “asset option” to buy the headquarters, which would survive even an alternative deal is another way to lock down the deal.

4. The deal was reported as being “locked down” in terms of J.P. Morgan’s ability to get out. That appears to be true. There is no MAC (“material adverse change”) provision as a condition of closing. The representations and warranties are made only as of the date of signing and not as of the closing. The “bring down” certificate as to the continued accuracy of the representations and warranties in the closing conditions applies only to the bare minimum: that JPM is getting pretty much all of the stock, that the deal is authorized, that nobody other than Lazard Freres is a broker, and that Lazard Freres will issue a fairness opinion. It just goes to show how little you need to make a deal when you gotta make a deal!

5. One commentator mentioned to me in an e-mail that the purpose of doing this as a stock deal was to be able to eliminate dissenters’ rights under Delaware corporation law (i.e. if you vote against the merger, you get to invoke an appraisal of the value of your shares). This is because there is an exception to the appraisal right provision if the consideration in the merger is the stock of a company traded on a national exchange. The comment ended sarcastically “nice guys!” I’m less cynical, I guess. The only significant closing condition here is getting all the Bear shares. If you do a deal for cash with appraisal rights, a buyer can reasonably ask for a condition of closing that it be able to get out of the deal if more than X% of the shares exercise their appraisal rights. I can’t believe either the Fed or Bear wanted that to occur.

6. There has been some discussion of the impact on employees. The WSJ reports this morning that Bear senior management will get very little out of this deal because so much of their compensation was in stock, and they don’t have much in the way of golden parachutes. My level of sympathy is inversely related to the employee’s rank in the company, and Paul Secunda has already commented here about the problem of employee non-diversification.

There’s two different issues, one evoking more sympathy than the other. I’m speculating on the facts here, so take this with a grain of salt. I don’t know how it broke down at Bear, but there’s usually a dividing line in most big companies between those employees who are incentive compensation eligible and those who are not. If you are granted stock options or restricted stock, moreover, it has a vesting schedule. Holding the stock once you have vested is an employee diversification issue.

One feels for the executives who may have lost the value in their restricted stock, although chances are the plan has a change in control provision so they’ll end up with JPM stock at the exchange ration. I realize that’s cold comfort, but they are executives and have, I think, less claim on our sympathy than the employees in the other category, which is those (assuming Bear did it) either got their 401(k) match in Bear stock, or worse, actually selected Bear stock as a place to put their own money, again a diversification error, and one I think employees make a lot.

7. The Bear directors have the standard continuation of D&O insurance. Again, I have to admit some sympathy for them. I’m convinced that great success is generally serendipitous, as is great disaster. You can always dissect it looking backwards, but predicting it is radically uncertain. I can only imagine what it was like for an outside director of Bear, operating in good faith and appropriate diligence over the last week (assuming they have been so operating up to this point, which I do). There is, in that light, something to be said for thinking this case lies somewhere between the deference given to boards by the business judgment rule and the more exacting standards of Revlon and progeny, in which the directors’ action are held to a higher level of scrutiny.

Finally, as long as I’m here on a limited brief I’m going to use the opportunity to link up my observations on the art of the elevator speech and the oral arguments in District of Columbia v. Heller!

Joy is not the kind of thing that lends itself to either critical or even interesting analysis, but that has been my experience of this particular stint on Concurring Opinions. I remember discussing Milton’s Paradise Lost in high school, and we all agreed that Satan was by far the most interesting character. Unhappiness or [...]]]> This will be my last post in this guest-blogging stint, and I want to express effusive thanks to Dan Solove, Frank Pasquale, Dave Hoffman, and the other proprietors of this space for their hospitality and encouragement. I also appreciate the fact that they, and not I, created a forum with several thousand discrete hits a day. It’s quite an incentive to a blogger (or any other writer).

Joy is not the kind of thing that lends itself to either critical or even interesting analysis, but that has been my experience of this particular stint on Concurring Opinions. I remember discussing Milton’s Paradise Lost in high school, and we all agreed that Satan was by far the most interesting character. Unhappiness or dissatisfaction is (ironically) so much more satisfying, and we indulge in it, whether it’s why law professors are so unhappy, or why the law review system doesn’t work, or why legal scholarship isn’t really scholarship, or why lawyers think law professors are irrelevant, and so on. There’s even a mystical explanation for this. In the Lurianic myths of the Kabbalah, the physical universe, as we know it, came about as the result of God’s withdrawal (tzimtzum), which resulted in the shattering of the perfect glass “vessel” of the heavens. The shards of that shattered vessel are what we experience as the physical world. The repairing of the world, or Tikkun Olam, is the endless process of returning those shards to their perfect state. And how are we to do that without first identifying the miseries of the world?

You can really get into the repair of the world if you are out in the trenches on the front lines of life, whether you are fixing gutters (I just got an estimate for ours), litigating public or private disputes, or figuring out whether the universe is expanding or contracting (I figure we are going to have to understand the cosmological constant if we are going to reconstruct the shards at some point). The other day I referred to one of the tomes identifying some of what is wrong with the [academic] world, Julius Getman’s In the Company of Scholars. In turn, Mike Madison pointed me to his Lewis & Clark Law Review piece quoting Getman to the effect that “research serves as a ‘dress suit for academic elitism.’” Mike applies the concept of the “economy of prestige” to the question why law reviews don’t seem to go away in the face of so-called “open access.” If I may interpret, Mike’s point is that scholarship, and particularly legal scholarship, is a self-contained, self-validating, self-referential economy, in which the payoff is in utils measured by prestige. And open access simply does not generate sufficient wealth as so measured. According to Mike, “The theory of the economy of prestige holds that we see a grumpily mutually-reinforcing symbolic economy of law professors, lawyers, law students, law schools and their universities processing professional prestige through the unusual institution known as the law review.”

It’s a dreary prospect, and not one that inspires joy. But there’s some joy after the fold.

Consider the conundrum. Mike points out one criticism of law reviews is that they are edited by law students, and because the law students really don’t know what they are doing, much of what appears is garbage (by the way, I should note that the garbage Mike skewers sounds a lot like what I do!). But the garbage is submitted by law professors, who presumably would be the peer reviewers if the system were replaced by peer review. All of which means that there must be some elite within the discipline that is the ultimate judge of quality. But how did they get to be the judges? Is there an immanent Truth to which they have access? This is all very tough stuff. (I may have this slightly wrong, but I am recalling the description of the process by which the early American Puritan Congregationalists were admitted to whatever it was that they were admitted to – as deacons, members, saints, whatever. Once the church leadership was in place, those individuals could decide who else got in. But how did the first ones establish their credentials? Apparently two elders would get in a room and battle it out mano-a-mano and then certify each other. In Mike’s piece, the analogous process has to do with the founding of the Harvard Law Review.) Anyway, that’s scholarship.

Going to back to Tikkun Olam, I can see how there are many aspects of repairing the world that would cause one to get really mad. There are so many injustices and, not to be flip about it, so little time. (Even I, the most congenial and laid-back of people, got my heart pumping when I listened to a couple colleagues tell me the other day they liked what John Edwards had to say about “corporate greed.”)

But one of the curiosities to me of the academic life is how it is possible to get so angry about almost anything. I have in mind the feud between two philosophers highlighted today in the New York Times, and about which Brian Leiter has provided some insight. I think I can actually explain the substantive dispute. One of the knottiest issues in philosophy of mind is the question of consciousness itself. What does it mean to experience the world, not in terms of explaining the physical aspects of the experience, but actually, from a first person standpoint, having the experience? (This is the subject of David Chalmers’ book, The Conscious Mind, highlighted by Larry Solum in his Legal Theory Bookworm on the same day Larry expounded on his own application of the “zombie” hypothetical to the issue of legal personhood at the AALS meeting.) There are two poles to the debate, one at the physicalist, or naturalist, end, contending (or believing) that consciousness cannot ultimately be something separate from physical cause-and-effect, and the other at the “spiritualist” end, contending that consciousness will never be explainable from a purely physical or natural standpoint. (“Dualism” tends to move to the latter pole because it views consciousness as something apart from the physical, even if consciousness is not spiritual. This is where Chalmers comes out.)

The feud is about a book written by the philosopher, Ted Honderich, in which he proposes something along the lines of a physicalist thesis (called Radical Externalism). Colin McGinn, another philosopher, wrote a scathing review of the book in Philosophical Review. Brian Leiter highlighted the issue not as much for the merits of the philosophical argument, but for what constituted the bounds of appropriate vitriol in a book review. If you are interested, I recommend Brian’s links to the various original pieces, as well as the extensive commentary on the issue over at Leiter Reports.

I can only think this dispute hit the Guardian and the New York Times because nobody outside of The Academy could fathom that much anger over the issue I just characterized, and so there must be something more to the plot. Indeed, the principals argue about that as well. That, it seems, is the unfortunate aspect of the whole dispute, reinforcing as it does what must be a schadenfreude-filled view from the outside of the joylessness inside The Academy. I personally, being new to The Academy, and despite hearing rumors to the effect that this goes on, and despite now having been to several faculty meetings, have never actually had the conscious experience of what follows, so, again, I rely on Jack Getman’s description: “Powerful feelings were evoked by the most technical or trivial of issues. When we considered a minor change in the exam schedule, the debate was barely civil. . . . Debate at faculty meetings often resembles one-on-one schoolyard basketball more than it does serious academic discussion.”

I confess to as much fear of failure as the next person (I still tend to the math exam stress dream, but see Liz Glazer and Bruce Boyden for more on this), and it’s not helping that what I really want to write and think about next is the relationship between consciousness and our sense of justice (working title: “Justice is Like Greenness: Reflections on the Rule of Law”). I come to the conclusion that one has to work at provoking one’s sense of joy as much as one spends cataloging the miseries. I have these moments of what Abraham Joshua Heschel called “radical amazement” that push me to the non-reductive side of the consciousness debate, and I want to talk about them, but I can’t imagine getting mad about it (unless, I suppose, somebody writes a review of what I say and calls me a worthless idiot). The moments happen in teaching, as when a student’s light goes on, or in collegiality, as when I had wonderful conversations with people on my faculty I didn’t know before (like Steve Eisenstat and Marie Ashe), or in “scholarship” when all the sudden a piece falls into place, or in simple effect on the world, as when somebody at AALS told me that he used one of my short essays as the basis for a take-home exam in advanced contract theory.

Mike Madison observes that physicists seem to have come to terms with both open-access and traditional publication, theorizing that they have less vested in the utils of the self-contained economy of prestige, because they are in pursuit of the Grand Theory of Everything. If it’s even possible that the rest of us are collectively chasing our tails, rehashing the same debates endlessly, then as I’ve said, paraphrasing Robert Louis Stevenson, it really is better to travel hopefully than to arrive.

The Center for International Legal Studies in cooperation with McGill University and the Suffolk School of Law invites abstracts for papers on the role of civil society in the formulation, adoption and implementation of policies, regulations and laws affecting multimodal communication by governments and international organizations. At the conclusion of the Geneva phase of the World Summit on the Information Society (WSIS), civil society was called upon to play an active role in the development and implementation of national strategies affecting multimodal [...]]]> My colleague, Michael Rustad, asked me to announce a conference on The Internet: Governance and the Law, “Civil Society and the Governance of Multimodal Communication,” to be held at McGill University, MONTRÉAL, Canada, October 26-29, 2008. Here is the call for paper abstracts:

The Center for International Legal Studies in cooperation with McGill University and the Suffolk School of Law invites abstracts for papers on the role of civil society in the formulation, adoption and implementation of policies, regulations and laws affecting multimodal communication by governments and international organizations. At the conclusion of the Geneva phase of the World Summit on the Information Society (WSIS), civil society was called upon to play an active role in the development and implementation of national strategies affecting multimodal communication. This post-Tunis Internet governance conference invites papers broadly addressing the topic of civil society and the Internet. The name of the presenter/s and his/her/their affiliation/s as well as the thematic focus of the proposal should appear on the top right-hand corner of the abstract. Send abstracts of 500 words or less and requests for further information to:

Manuela Ines Wedam

Law Conference Coordinator

CENTER FOR INTERNATIONAL LEGAL STUDIES

PO Box 19

5033 SALZBURG

Austria

Fax: +43 662 83539922 or +1 509 3560077

manuela.wedam@cils.net

Deadline for the receipt of abstracts is 14 April 2008. Each abstract must be accompanied by the author’s curriculum vitae and a biographical sketch of 300 words or less.

Advisory program committee:

James Archibald, Department of Translation Studies, McGill University

Dennis Campbell, Center for International Legal Studies

Richard Gold, Centre for Intellectual Property Policy, McGill University

Michael L. Rustad, Intellectual Property Law Program, Suffolk University School of Law

I was trying to figure out how to connect this up to my stint here, and I realized it’s simple: I concur in Alan’s opinion. I’ll add three items in support:

(1) Pictures of the parades and other events that occur before Mardi Day itself (I have yet to use this one in the manner suggested by my comment).

(2) Pictures from Mardi Gras day itself, most of which are, as Alan points out, G-rated. We did take a walk through [...]]]> My blogging partner over at Legal Profession Blog, Alan Childress, has a post puncturing two myths about Mardi Gras. I spent a year at Tulane, and one of the highlights was Mardi Gras precisely as Alan describes it. Everyone should experience it.

I was trying to figure out how to connect this up to my stint here, and I realized it’s simple: I concur in Alan’s opinion. I’ll add three items in support:

(1) Pictures of the parades and other events that occur before Mardi Day itself (I have yet to use this one in the manner suggested by my comment).

(2) Pictures from Mardi Gras day itself, most of which are, as Alan points out, G-rated. We did take a walk through the French Quarter, and the epicenter of raunch is Bourbon Street, but my pictures are PG and not G-string rated.

(3) Alan mentions the gathering of loot in the form of “throws” from the floats. The most treasured of these are the hand-decorated coconuts in the Zulu parade. A city ordinance now bans these from being thrown like the beads or stuffed toys, and I suppose here is a legal connection: people were getting hurt. So the way you get one is to sidle up to the side of the float and beg for one. This is a self-satisfied reveler clutching his prized possession (now sitting in a prominent spot in his Suffolk University Law School office.)

I recommend the book heartily. Indeed, I read the following passage on the T home last night, and it expressed exactly how I had been feeling in the midst of a peroration on agency and partnership only an hour or so before: [...]]]> Our intrepid library director, Professor Betsy McKenzie, set a note to our faculty a few days ago, and it included a reference to the above-titled book, a personal reflection by Professor Julius Getman of the University of Texas Law School on the status of higher education. I had heard about the book before, and meant to get to it, because my first encounter with a law school class was Jack Getman teaching our small section of Contracts at Stanford in September, 1976.

I recommend the book heartily. Indeed, I read the following passage on the T home last night, and it expressed exactly how I had been feeling in the midst of a peroration on agency and partnership only an hour or so before: “Bruce Mann, who now teaches at the University of Pennsylvania, told me that in his first year, ‘I was constantly afraid that someone would come into the classroom and arrest me for impersonating a law professor.’”

This also struck close to home (and I mean me, not anybody else, even if I’m not young):

… I realized that many students and young faculty members behave in self-defeating ways. . . . They do not believe that they have anything of value to contribute to a high-level academic debate. Often this feeling prevents people from publishing or teaching effectively and sometimes it makes them pedantic, overly abstract, or unnecessarily elegant in the presentation of their ideas. Sometimes I think that the great majority of young academics fall into two categories: the unnecessarily diffident and the infuriatingly arrogant. In more reflective moments, I realize that the two categories are essentially one. Underneath the arrogance so common among young academics, there is generally fear of being exposed as an intellectual charlatan. The feeling is almost universal. The fear reflects, among other things, that deep down almost all of us are aware of how little we know about the subjects we teach. One of the ablest law professors I have ever known, Charles Black of the Yale Law School, told me that whenever he finishes a well-received class, he usually feels one thing: “Well, I fooled them again.”

Disclosure: I just came back from the Obama office in Somerville, MA where I was making phone calls to undecided voters in New Hampshire. I have not done this in many years (I think the last time was when Morris Udall was running in a Michigan presidential primary, so that should date it) and I realized I hated making phone calls (i.e. being phone SPAM) now as much as I hated it then. Bleccch!

Here’s my take. I’ve never been in government, but I’ve been at or near [...]]]> On New Hampshire voting day, Brian Leiter has asked what law professors make of the Democratic nomination process. I started to comment over there and realized it was turning into an entire blog post.

Disclosure: I just came back from the Obama office in Somerville, MA where I was making phone calls to undecided voters in New Hampshire. I have not done this in many years (I think the last time was when Morris Udall was running in a Michigan presidential primary, so that should date it) and I realized I hated making phone calls (i.e. being phone SPAM) now as much as I hated it then. Bleccch!

Here’s my take. I’ve never been in government, but I’ve been at or near the top in large organizations in times of stress when huge decisions (although not of life) have to be made, usually under pressure of time, with unclear impact of the alternative choices, with multiple inputs and viewpoints, and highly imperfect information. Indeed, to use a metaphor, pulling the trigger and not quite knowing where the bullet will ricochet is one of the hardest things for a leader to do. Ultimately, I think, apart from the issues, our decision has a lot to do with how much we trust the leader at that moment of decision. Some people can’t decide, some people don’t want to decide, some people just consistently make bad decisions, and some people make bad judgments (to cite a lawyer’s example, I’ve written about Bernard Nussbaum’s flawed advice to the Clintons – to stonewall the discovery of documents in Travelgate as though it were hardball litigation and not a political and PR issue).

The problem with arms’-length assessment is that great leadership walks a fine line between the ability to learn and the ability to decide. President Bush (“I am the decider”) may well exhibit the latter trait; nobody will ever confuse him with a learner. Brian Leiter suggests that some of the Obama surge may be relief that there is a viable candidate other than Hillary Clinton, and there may be something to that. Frankly, my worry about her is that she may be a better learner than Bush, and probably would be a good decider, but she’s not that good a learner. I have now read two-thirds of Obama’s The Audacity of Hope and, while his mettle as a decider is wholly untested, it’s not a close question whether he’s the best learner of the bunch. By that I mean he demonstrates a willingness to understand, even if he does not ultimately buy, the positions of his opponents. And, I think, that is what is coming across now as the wave of change. It’s a pipe dream to think anybody is going to “unify” the country – that’s a slogan. But I think he does offer a hope of respectful discourse by doing what a leader ought to do, which is to engage in respectful discourse. And that only comes naturally if you are a learner to start.

The ad is for J.G. Wentworth, which buys structured settlements. There’s a pitchman who ought to be every law firm’s managing partner (gray hair, jut jaw, gravelly voice) and the tag line “It’s Your Money; Use It When You Want It.” Structured settlements are appealing to insurance companies and tort defendants because of the gap between the absolute value of the settlement to the recipient and the present value [...]]]> I saw a television ad while working out a bit ago in the fitness room at the New York Hilton, and it must be the influence of all the legal scholars around me, but even though I’ve seen it a zillion times, it now struck me as something that ought to be somebody’s research topic.

The ad is for J.G. Wentworth, which buys structured settlements. There’s a pitchman who ought to be every law firm’s managing partner (gray hair, jut jaw, gravelly voice) and the tag line “It’s Your Money; Use It When You Want It.” Structured settlements are appealing to insurance companies and tort defendants because of the gap between the absolute value of the settlement to the recipient and the present value to the payor. It’s effective to close out a negotiation where, say, the plaintiff is at $800,000 and the defendant is at $500,000 by structuring a settlement that is closer to $800,000 in total dollars paid over the life of the settlement but closer to $500,000 in present value.

Let’s take my hypothetical numbers as an example. The plaintiff gives up $300,000 in present value to get a settlement. I suspect there is risk averseness at play there in two respects – the certainty of settlement versus trial, and the greater value of the current money to the later money. I don’t know how much of the discount is due to litigation risk and how much is time value of money, but there’s no doubt some of each.

So the plaintiff gets the structured settlement, decides she needs the money now, and goes to J.G. Wentworth, which factors it for her. That means J.G. Wentworth is going to take an additional [?] discount [?] to give the plaintiff a lump sum now and collect in the plaintiff’s name over the balance of the structured settlement. This is speculation, but I suspect plaintiff now collects less than the $500,000 the defendant/insurer was willing to pay in present value originally. Would Wentworth’s discount rate, if you applied it to the original $800,000, tell us how much of the $300,000 haircut was due to litigation risk and how much due to time value? I don’t know and I’m quickly getting in over my head here.

I’d be the last person in the world (perhaps) to suggest that there ought to be a governmentally imposed restriction on the right of anybody to sell a financial instrument. I’d also be skeptical of attempts to regulate the practice by cognitive means like disclosures and warnings. But this strikes me a weird market, and if an SSRN key word search and a Westlaw search of the form [(structured /2 settlement) /p (secondary /2 market)] are any indication, nobody has written on it.

First, a disclaimer. I’m still sorting my way through the concept of narrative (see Cover’s seminal Nomos and Narrative), and I have been bugging my office next door neighbor, Jessica Silbey, about it as well. Narrative, as I understand it, at least in the context of legal studies, works from the [...]]]> Dave Hoffman’s very interesting post below on the future of corporate law scholarship – as to which I posted a comment about “narrative” – got me to thinking about the reality of what goes on in a very complex corporate life, and academic attempts to distill that reality into meaningful scholarship. What follows incorporates some thoughts and text from a blog post I put up on Legal Profession Blog several months ago.

First, a disclaimer. I’m still sorting my way through the concept of narrative (see Cover’s seminal Nomos and Narrative), and I have been bugging my office next door neighbor, Jessica Silbey, about it as well. Narrative, as I understand it, at least in the context of legal studies, works from the viewpoint of the participants in (of victims of) the legal process. It stands as a contrast to third-party theorization, and has been a central feature of critical studies, because it gives voice to those historically under-represented – minorities, the poor, the uneducated, etc. But narrative is not exclusively the province of critical legal studies. Jessica’s most recent piece, The Mythical Beginnings of Intellectual Property Law (George Mason Law Review) uses narrative as an alternative approach to intellectual property law. Jessica’s ambitious thesis is that utilitarian (read: economic) theories of intellectual property law do not fully account for its importance. She posits a narrative significance to creativity, supported by intellectual property rights, as a form of the “origin myths” or “origin stories” (I think of Horatio Alger, or George Washington and the cherry tree, or Abraham smashing the idols) that serve as models for human behavior and give meaning to our lives.

Second, a context. Yesterday, the New York Times picked up again on the Cerberus-URI decision, linking it to speculation that targets in acquisitions will seek stronger contractual protection against deals falling through because of diminished force of reputational impact on an acquiror who backs out. What struck me again, as it did when I commented originally, was how hard it is for a participant in a deal negotiation that stretches over several weeks or months to reconstruct all of the ebbs, flows, ups, downs, inserts, deletions, morphs, retrenchments, amendments, flare-ups, deal-breakers, and compromises that invariably occur. It was no surprise to me that the lawyer for URI, on cross-examination, threw up his arms and testified that “anything is possible.”

So the question to me is the relationship between the kind of scholarly theorization Dave catalogued and the relevance (or impact) of that theorization to (or on) the corporate actors. I still recall the graduate student instructor (my long time friend and current University of Houston history and social work professor Andy Achenbaum) in the first session of the small section of my first U.S. history course describing the paper requirements, and telling us that we should think of them as “legal briefs.” As I had no idea what a good history paper nor a good legal brief looked like, it was not, at the time, particularly helpful advice. But I know now that all scholarship, implicitly or explicitly, makes an argument linking data through some structure or process of theorization.

The hot topic back then (mid-1970s) was the call to import social science methodology into historical analysis, as a (or the) way of making that argument. Another of my professors, Robert F. Berkhofer, Jr., had then recently written a book entitled A Behavioral Approach to Historical Analysis, a call to employ historiographical methods that pierced through the possibility of myth-making by understanding the roles of actors and interpreters in the writing of history. It was a reaction to the interpretive or narrative nature of the study of history, which had no doubt as much to do with the time and place of the narrator as it did of the actors. (The example I recall most vividly was that Arthur Schlesinger’s The Age of Jackson seemed to import a fair amount of the The Age of Roosevelt, reflecting as much the author as the subject.) That is, to what extent were historians writing history, versus writing the Great Stories?

I was separately, and for my own purposes, trying to construct what had happened to Berkhofer’s thesis about social science methods in history. I came upon a review, authored by Thomas Haskell at Rice, of Berkhofer’s 1995 book, Beyond the Great Story: History as Text and Discourse. (The review is “Farewell to Fallibilism: Robert Berkhofer’s Beyond the Great Story and the Allure of Post-Modernism,” 3 History and Theory 347 (1998)). Now, I have not read the book, only the review, but it serves my point here just as well. The review was devastating, but, despite my fond memories of my time with Professor Berkhofer, I have to admit I was sympathetic to its point, which was essentially this: there’s nothing like the reaction of the disappointed absolutist (read: Berkhofer the behavioral theorist) who despairs of his theory, and proceeds from rigorous causal explanation to a rejection of all theory with no stop in between for the possibility that life (read: history) is too complex either for algorithmic solution or complete deconstruction.

It seems to me that the same unresolved (and if Haskell is to be believed – and I think he is – unresolvable) issues of historiography, the perseverance of the old antinomies like explanation and understanding, of empiricism and intuition, prevail in the legal briefs we want to write as legal academics. This paragraph of Haskell’s review of Berkhofer stopped me in my tracks:

The lamentable inadequacy of the so-called “modernist paradigm” turns out to be that it will not reduce to an algorithm. On [Berkhofer's] account, the normal paradigm makes of historical inquiry a fallible project, the crucial features of which cannot be embodied in any set of explicit instructions, or be carried out in any fixed mental mode. It requires of its practitioners that they be nimble enough to shift mental gears as the intellectual terrain varies and to juggle alternative modes of thought, which may pull in different directions. They must even dare to make judgment calls, with no guarantee of being right and every prospect of being criticized. Rather than declaring history to be purely an art or purely a science, the conventional paradigm assumes that historical inquiry, like life itself, displays elements of both. Indeed, it assumes that the mental repertoire of the historian differs in no deep, fundamental way from that of common sense, which is eclectic through and through. This strikes Berkhofer as intolerably messy and methodologically promiscuous, a project bound to fail because it naively encourages crossbreeding between different species of thought.

At least a substantial part of the way lawyers become experts is from hearing and applying lessons from the war stories of their mentors, from their own trial and error, and from the cycles of experience by which they incorporate market norms (that’s how URI’s lawyer knew that the specific performance clause he was requesting was “off-market”). That learning may well be “intolerably messy” and “methodologically promiscuous,” but it strikes me as a fruitful area for inquiry.

Here’s the deal. Over the summer, I posted a 9,000 word essay on SSRN entitled “Memo to Lawyers: How Not to Retire and Teach,” providing observations and advice to the long-time (or not so long-time) practitioner who might be contemplating a [...]]]> I had a delightful hour yesterday afternoon here at the AALS with one of the proprietors of this blog who suggested I use the space to pitch a piece for publication, and, well, why not? So if you are not a law review editor, feel free to skip the rest of this post. Indeed, PLEASE skip the rest of this post because the combination of shameless and humiliating huckstering, self-aggrandizement, and groveling is likely to make you lose your lunch.

Here’s the deal. Over the summer, I posted a 9,000 word essay on SSRN entitled “Memo to Lawyers: How Not to Retire and Teach,” providing observations and advice to the long-time (or not so long-time) practitioner who might be contemplating a move to the academy (the first piece of advice being never to utter the disqualifying words: “I’d like to retire and teach.”) Based on feedback from colleagues, I feel confident in saying it is one of the resources, for better or worse, along with Brad Wendel’s classic “The Big Rock Candy Mountain: How to Get a Job in Law Teaching,” to which aspiring legal academics turn.

As of yesterday, it had been downloaded well over 1,300 times, making it the number 8 all-time paper in the Legal Education journal. At one point over the summer, it was number 4 in all of SSRN. I regularly get e-mail notes from academics (including several law school deans, one of whom told me how much he/she enjoyed it but hoped I was also doing serious work) and practitioners about the essay.

I’ll pass on trying to explain (because I don’t understand the rationale) why it was deemed not eligible for submission to the one really natural specialty journal. I will note that I submitted it broadly to general law reviews via ExpressO in the August submission season, and completely struck out. (This was not up there with the – deservedly – pitiless trashing of a book manuscript I foolishly and prematurely submitted to a major university press – see blog posts to come on learning to fail well – but it was not a highlight of my life either.) I’ve now had several questions here at the AALS meeting (including from my virtual host) about where I placed it, and my sheepish reply is that I did not. I will also pass on the rest of the rationalizing about why, and simply say that the article is still on the market for a law review that would like a gift that keeps on giving (in reprints perhaps if not in citations).

Any law review editor looking to fill out a volume with something that people actually read and spare me any more sheepish responses ought to drop me a note at jlipshaw-at-suffolk.edu.

The focus was on global warming alarms, and in that arena, according to the article, the brokers of the cascade will be the “what social scientists call availability entrepreneurs: the activists, journalists and publicity-savvy scientists who selectively monitor [...]]]> Happy New Year! The New York Times is off to a good start, featuring Timur Kuran and Cass Sunstein explaining on New Year’s Day how most of what we will react to in the coming year will be the effect of an availability cascade, sort of the availability heuristic on steroids. The availability heuristic, identified by Tversky and Kahnemann, is the cognitive phenomenon by which people base their estimate of the frequency or likelihood of an event occurring by how easily it is brought to mind.

The focus was on global warming alarms, and in that arena, according to the article, the brokers of the cascade will be the “what social scientists call availability entrepreneurs: the activists, journalists and publicity-savvy scientists who selectively monitor the globe looking for newsworthy evidence of a new form of sinfulness, burning fossil fuels.” The point is that even if greenhouse gases are warming the earth, and even if it that warming is dangerous (concede both for the sake of what follows), most of what gets cited as an effect of global warming is not evidence of global warming. For example, while some ice in the poles is melting, at other spots, it is at record thickness. Again, this is not to minimize global warming; it is to take stock of what is and what is not evidence of a trend.

My particular peeve in the availability cascade is the corporate governance “crisis.” I will be doing my best to assess whether I’m matching the correct evidence to the correct conclusion, and I wish the same to everybody else for the New Year. In the meantime, I’m stocking the cellar with canned food and bottled water in honor of the 100th anniversary (on June 30) of the Tunguska event.

See you at AALS.

You may want to pull out your air violin on this, but first, there are private jets and there are private jets. If you are flying in a Gulfstream V or a Falcon 900, you are pretty comfortable. [...]]]> I’m sitting at home, recovering from minor surgery this morning (Q: What is minor surgery? A: Surgery on somebody else) and reflecting on Dave Hoffman’s eminently sensible post about the executive jet. Like most things, the use of corporate aircraft is far more nuanced than people with agendas make it out to be; nevertheless, access to the company plane, even for company business, probably got its status as Target Number One for populist demagoguery the old fashioned way: it earned it.

You may want to pull out your air violin on this, but first, there are private jets and there are private jets. If you are flying in a Gulfstream V or a Falcon 900, you are pretty comfortable. If you are flying in a Citation V with all the seats occupied, you are not, particularly if you need to use a bathroom. Add to that the far greater effect of weather and turbulence on a small airplane plus the fact that in crowded airspace big airliners are given first priority for the smooth air, and you can have a pretty wild time. My worst flying memory was all of that packed into a landing in Teterboro, New Jersey where we circled and circled through head-jarring turbulence, all the time listening to the TCAS up front squawking “traffic, traffic, traffic.” A three Xanax flight.

Second, many companies use private aircraft because it is far more efficient than commercial. Our headquarters was in Indianapolis and our largest facility was in El Dorado, Arkansas. With the Citation V, anybody (not just the CEO) could get there and back in two hours; flying commercial meant you committed three days (change planes in Memphis or St. Louis to Little Rock, then drive 2-3 hours).

What makes the company plane an attractive populist target, even if you can compensate the executive in lieu of the jet and the compensation is fully disclosed, is that ordinary people simply cannot get this kind of compensation. Flying privately is a perk that almost defines the executive class – it is largely unavailable to most people and it IS easier, less time consuming, and spares one almost all of the indignities of modern air travel. Even when the company plane is generally available for all legitimate business purposes in the company (and most are), the CEO usually has first call on it. (I can’t remember where I saw it, but I didn’t make this up – you also have the GE style Thomas a Becket problem. The joke was that if Jack Welch asked for a cup of coffee, somebody at GE ended up buying Brazil. That is to say, even if the CEO wanted to give up the plane for a more efficient use, it wouldn’t be uncommon for his or her minions – personal assistant, traffic coordinator, whatever – to insulate the CEO from the competing request because that’s what the minion thought the CEO wanted the minion to do.) I spent eleven years at a senior level in two big companies, both of which had dedicated Citations, and I don’t remember the CEOs of either (one divisional and one of the corporation) ever flying commercial within the lower 48 states. So while we “C levels” got to use the company plane a lot, we still had the occasional commercial flight to experience how the other half lived.

And that’s apart from the provision in the CEO’s employment contract – never anybody else’s – that says you get X hours of personal use of the aircraft, with the hourly cost added to your taxable income, and that compensation grossed up.

In short, the political bang is not in the cost, but the exclusivity.

In his introductory essay to Paradoxes, Oren Perez (Bar-Ilan) makes a point about rational calculation, in the context of the Learned Hand formula for negligence, that had never occurred to me, and which seems to make sense. (I invite anyone to explain why it is wrong!) This has broad application because it [...]]]> I neglected to mention, in my original commentary on the Cerberus opinion, that I am indebted to Frank Pasquale (the real one!) for directing me to Paradoxes and Inconsistencies in the Law, edited by Oren Perez and Gunther Teubner. I’m now doubly indebted to Frank because he pointed out another blog post that makes for an interesting counterpoint about practical reason – how we decide (particularly as lawyers) what to do.

In his introductory essay to Paradoxes, Oren Perez (Bar-Ilan) makes a point about rational calculation, in the context of the Learned Hand formula for negligence, that had never occurred to me, and which seems to make sense. (I invite anyone to explain why it is wrong!) This has broad application because it gets at the heart of the core relationship between the ex post outcome of cases (like Cerberus’ “lessons” on eliminating ambiguities in drafting) and the ex ante calculation in respect of that outcome that lawyers (those most rational of actors) are supposed to make.

Perez’s argument goes like this. The potential tortfeasor, informed by the case holdings, knows that she will be liable for the injury she causes if the cost of precaution is less than the probability of an accident times the magnitude of the accident. For the model to work, it has to assume that potential tortfeasors and judges are perfect welfare maximizers with perfect information. But information and deliberation are not costless. So maximizing actors need to make a decision about whether to invest costs in obtaining the necessary information and spending the time deliberating about the choice. That decision is itself not costless; one needs to gather information about whether gathering information and deliberating is a fruitful way to spend one’s maximizing time. And so on to the infinite regress.

This appeals to my intuition in the same way as, and seems to be related to, at least analogically, the idea that rules cannot determine their own correct application. (If there were a rule for the application of a rule, then what would the rule be for the application of the rule for the application of a rule, and so on to the infinite regress.)

Perez’s conclusion is that this is why we have rules of thumb for deciding what to do – they sit somewhere between unsatisfying calculation and pure intuition.

But wait. Maybe we don’t calculate or intuit. Maybe we just frame, conform, and comply. That’s a thesis proposed by Sung Hui Kim (Southwestern) over at The Situationist, a law and psychology blog affiliated with the Project on Law and Mind Sciences at Harvard Law School. In Part II of a series speculating on why lawyers acquiesce in the frauds of their clients, Professor Kim says:

Inside counsel, as employees of the firm, are inclined to take orders and accept the “definition of the situation” (a phrase coined by Milgram) from their superiors. These superiors happen to be a cohort of non-lawyer senior managers vested with the authority to speak on behalf of the organization and entrusted to give direction to inside counsel. They create the reality for inside counsel: they define objectives, identify specific responsibilities for inside lawyers and, ultimately, determine whether an inside lawyer’s performance is acceptable.

And accepting management’s “definition of the situation” means accepting management’s framing of the inside lawyer’s role and responsibilities. This framing provides that compliance responsibilities be segmented. Although inside counsel’s duties include a prominent role in corporate compliance, it is business management that jealously guards the right to decide whether to comply with the law, which is seen as the ultimate risk management decision. For inside counsel to challenge management’s decisions or management’s authority to make decisions would then amount to clear insubordination.

Obedience in the corporate context will be substantial, so we should not be surprised by the banal tendency to listen to superiors.

Full disclosure. I spent eleven years of my career as an in-house lawyer, so it’s entirely possible that I resemble that remark. (Professor Kim can also call on real-world experience as outside and inside lawyer, and in fairness, her very thoughtful and interesting Fordham Law Review article on the subject, which I recommend heartily, is more nuanced than the blog post.) But I’d be a lot more comfortable accepting this sweeping conclusion were it made on broad empirical evidence of actual in-house lawyer conduct rather than on what appears to be a combination of inference from the Milgram conformity lab tests and well-known examples of lawyers behaving badly. I knew a lot of in-house lawyers, and while I can’t say how they would have performed in the electric shock tests, and can’t deny the impact of framing on decision-making, I sure saw a lot of thoughtful and courageous pushback to management on lots of legal and moral issues. Indeed, my casual observations were that individual moral choice and leadership in context, while certainly more elusive in its measurement, showed up more than just from time to time. I can’t determine whether that was the exception or the rule. Indeed, I applaud the coda to Professor Kim’s bio: “I tell my students that there are two questions that every lawyer should ask when counseling a client about a proposed course of action. The first is: ‘Is it legal?’ The second is: ‘Is it right?’”

But how do you make that call? I struggle with the line between psychological “truths” and moral free agency. I am willing to accept the conclusion that we are hardwired to seek and justify physical and material well-being, and hence, a natural inclination for people, not just lawyers, is to comply and avoid conflict. I don’t like, however, blanket statements about in-house lawyers doing this and that, and having this and that tendency. If I may engage in another exercise of shameless self-promotion, the point of my piece, Law as Rationalization: Getting Beyond Reason to Business Ethics, was to explore the difference between lawyers using reason to justify a desired material world outcome, and lawyers using reason as autonomous moral agents trying to discern ethical obligation.

The implication is that I don’t think you can change things by incentives (more cheese for the rats). My answer is there has to be personal engagement in a continuing struggle to ask questions with the hope of getting answers along the way. To borrow from Robert Louis Stephenson, sometimes it is better to travel hopefully than to arrive.

(Cross-posted at Legal Profession Blog.)