Author: Lawrence Cunningham

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Trashing, Defending, and Deferring to Yeshiva University

University bashing is in fashion, from the broad-gauged film Ivory Tower to particular attacks on given schools. Some critiques usefully expose problems that need correcting with constructive solutions on offer.  But others seem to trash the academy for other reasons, as with a recent diatribe against Yeshiva University, which seems more calculated to exacerbate the school’s problems than help it find solutions.

In an  expose-style that seems to blow the school’s financial challenges out of proportion, Steven Weiss, who acknowledges having been expelled from Yeshiva in 2002, portrays Yeshiva’s leadership since that year variously as gullible, myopic, conflicted, or greedy.  This piece stung because I am a graduate and former faculty member of Yeshiva’s law school (Cardozo) and I know and have worked with some of the people vilified in the story.  While I am not familiar with all of the factual background of the University’s recent experience, Weiss’s story seems awfully one-sided and therefore the story, as much as the facts about Yeshiva, causes concern.

I share Weiss’s praise for Yeshiva’s former president, Rabbi Norman Lamm, whom I knew, worked with, and admired.  Lamm, and later his VP for business affairs, Sheldon Socol, led Yeshiva from the brink of bankruptcy in 1975 to fiscal soundness and renewed its status for academic excellence and cultural distinction.  (Rabbi Lamm told me how, when he was about to declare bankruptcy, his hand shook so intensely that he could not sign the papers.)

But Weiss then makes a foil out of Lamm,  painting a golden era that ended after 2002 when he passed the baton to Richard Joel, the current president, who has faced a different set of challenges that entices Weiss’s wrath.  In Weiss’s telling, after Lamm’s retirement and Joel’s succession, it’s been all downhill for Yeshiva and its students.  Joel, whom I knew as an able administrator and gentleman when he served as Dean of Business Affairs at Cardozo, certainly has a different style than the rabbi-scholars such as Lamm who preceded him.  But Weiss exaggerates in inexplicably inflammatory tones how this style difference has played out, in a story misleadingly headlined “How to Lose $1 Billion: Yeshiva University Blows Its Future on Loser Hedge Funds.” Read More

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Maya Angelou’s Multi-Million Dollar Bout with Butch Lewis

Maya cardThe number one best-selling book on in this week’s New York Times best seller list is one first published in 1969: “I Know Why the Caged Bird Sings,” by Maya Angelou, the renowned poet and professor at Wake Forest University who passed away three weeks ago. Since she published that autobiography, Angelou’s acclaimed poetry has been published widely by Random House and initially reached a distinguished, though small, audience.

How that audience grew to a multi-million dollar phenomenon, and how her book is again number one, includes a fascinating story of entrepreneurship and law of general interest and especially for those interested in contract law. As a tribute to the distinguished author for literary, commercial and spiritual success, herewith an account of that saga, from my book, Contracts in the Real World: Stories of Popular Contracts and Why They Matter.

In 1994, Butch Lewis, the former prize fighter and promoter of famous boxers such as Muhammad Ali and Joe Frazier, conceived the idea of popularizing Angelou’s poetry by including it in Hallmark greeting cards and similar media. Lewis first met Angelou in early 1994 when the scrappy fighter asked the elegant poet to take a trip to Indiana with him to visit his boxing client, Mike Tyson, in prison. During the trip, Angelou and Lewis discussed how she might expand her readership by publishing her works in greeting cards. After negotiations, the two signed an informal letter agreement on November 22, 1994.

Angelou promised to contribute poetry exclusively to Lewis and he promised to promote its publication in greeting cards. The exclusivity feature was important, since it meant Angelou could not market her poetry without Lewis and Lewis need not fear that his efforts would be undercut by a last-minute switch to a competing promoter.  Aside from exclusivity, the letter recited only basic terms, such as how they would later agree on what poetry to include, that Lewis would fund promotion, and how revenues would be shared—first to reimburse Lewis’ investment and expenses, then to split the rest equally. The letter said it would be binding until the two drew up a formal contract. Though Lewis prepared one in March 1997, it was never signed.

Lewis began marketing efforts immediately, though it took until March 1997 for Lewis and Hallmark to finalize terms—a three-year deal, covering any new poem Angelou produced during that time. In exchange, Hallmark would pay Angelou and Lewis a $50,000 advance against royalties, which would be paid at a flat 9% rate of total sales, with a guaranteed minimum of $100,000. Angelou’s greeting cards would be administered through Hallmark’s Ethnic Business Center, targeted to an African-American audience.

Lewis sent Angelou the proposed Hallmark agreement. By then, however, Angelou’s views of Lewis had curdled. For the Hallmark pitch, Lewis prepared sample cards and brought these for Angelou’s approval. Angelou found the display of caricatures of African-Americans distasteful and unreflective of her poetry’s meaning. Her impression of Lewis worsened when the two crossed paths in Las Vegas in 1997, where Angelou was appalled by Lewis’s behavior, which included punctuating his conversations by “grabbing his crotch.” Read More

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Happy Father’s Day (Kids)!

My wife and daughters brought me the paper and breakfast in bed this morning! What a treat. And today we are doing something I love: windsurfing with the whole family!

For me, though, the idea of Father’s Day is to celebrate my daughters, and my wife, not me, as they are sources of endless joy.

Every best wish to all Dads out there, and their families, for a special day of celebration.

 

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The Impossible Donald Trump Puts Big Name on Chicago Tower

Chicago’s skyline is now polluted by the letters T R U M P adorning a showy luxury building the egomaniacal scion put up during the financial crisis.   While locals led by Mayor Rahm Emanuel recoil at the Donald’s bad taste in design, lawyers and citizens alike should recall some of the poor judgment, tone deafness, and ignorance of the law he displayed during the long construction process.  As told in my book aimed at new or aspiring law students, Contracts in the Real World: Stories of Popular Contracts and Why They Matter, Donald Trump thought the so-called “Great Recession” of 2008-09 so calamitous to count as an “Act of God.” He was in the midst of building what would be one of Chicago’s tallest skyscrapers, rivaling the old Sears (now Willis) Tower, a combination luxury hotel and condominiums.

To finance the project, Trump borrowed $640 million from lenders led by Deutsche Bank in February 2005. By the end of 2008, Trump had only sold condos netting him $204 million along with others under contract that would yield another $353 million. That left him facing a shortfall of nearly $100 million when he was obligated to repay his lenders $40 million per month. Trump cited the Great Recession as an excuse to delay making monthly payments. The banks refused to accept the excuse from timely payment, so Trump, a prolific litigant, went to court.

Circumstances had changed, he observed, and law has long recognized excuse from contract for some kinds of surprising supervening events loosely called forces majeure, from the French meaning “superior forces,” or Acts of God.   If you rent a banquet hall for your wedding, and it burns down with no one at fault, you and the hall are both excused from the agreement; when Hurricane Katrina destroyed New Orleans in September 2005, contracts to buy or sell homes and businesses there were excused.   Recognized forces majeure include fire, flood, lightening, famine, and deep freezes that destroy the subject matter of a contract. Death excuses promises made to render personal service to others. People are not held to deals when it becomes objectively impossible to perform them, at least so long as they did not have reason to foresee the risk and did not address it in their contract.

Trump would stress that man-made calamities can also excuse bargains when, though something is possible to perform, it would be idle to perform it given a deal’s purpose. A rental agreement for a hotel room to watch a parade can be excused if the parade is cancelled, though the room could be occupied, under the aptly-named doctrine “frustration of purpose”—unless, of course, the contract states otherwise.  [See Comments this post below.] Read More

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Lawsuit: Resentful Daughter versus Dad for Law School Tuition

If a father tells his daughter he will pay her law school tuition, and she accordingly matriculates and completes her studies, and the father then repudiates, saying he lied, does the daughter have legal recourse against the father? That is the supposed real-life situation reported over at Above the Law, commenting on the anonymous daughter’s query to Slate’s Dear Prudence. The latter, in turn, says she consulted Prof. Randy Barnett of Georgetown, who reportedly opined that the daughter would have no claim.  I am not so sure.

The case reminded me of Zimmerman v. Zimmerman,* where a daughter sued her father to recover college tuition incurred (to attend Adelphi University) and future law school tuition to be incurred.  A New York state appellate court suggested four alternative routes for a daughter to recover tuition bills already incurred (though rejecting all claims for future tuition): contract, promissory estoppel, maintenance & support, or fraudulent representation.

The contract claim failed in Zimmerman, however, as the promised performance would extend beyond one year, putting it within the statute of frauds. In New York, as in most states, that requires such a promise to be in writing. Prudence reports that this was the same conclusion Prof. Barnett reached, as this father’s promise was not memorialized in writing either.

But the Zimmerman court upheld the daughter’s claim under promissory estoppel, which took the case out of the statute of frauds.  A writing was required if the daughter had also contractually committed to complete college.  But the jury found that the father made his promise without any return promise from the daughter.  So the father had the right to terminate his obligations upon reasonable notice. Under that view of the case, which is by no means inevitable in promissory estoppel cases, his promise was capable of performance within one year and therefore no writing was required.

A concurring judge in Zimmerman, not eager to embrace those two rationales, supposed that the father’s promise to cover his daughter’s college tuition might have reflected his acceptance of his duty to provide her maintenance and support (citing Matter of Roe v. Doe, 29 N.Y.2d 188). If so, the daughter’s obligation to Adelphi was his obligation to Adelphi.  Even if college tuition is part of such parental obligations, however, the Dear Prudence case concerns law school, almost certainly outside that ambit.

But perhaps the most compelling theory of recovery is one the dissent in Zimmerman picked up on as an alternative to contract, which is the tort of fraudulent misrepresentation.  If the Dear Prudence father is to be believed today that his promise was a lie, then this theory is a strong one, though the dissent in Zimmerman rejected both this tort route to recovery as well as the other grounds.

Prof. Barnett reportedly told Dear Prudence that the daughter might threaten suit to induce a settlement. I would not give that advice if I also concluded that the suit would be frivolous. But based on Zimmerman, I think there is a credible basis for suit.  Were I a litigator rather than a deal lawyer, I might even take the case on a contingency basis.

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* 86 A.D. 525, 447 N.Y.S.2d 675 (1st Dept. 1982).

 

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A Toast to 50 Cent’s New Series: Power

The rap artist 50 Cent, whose real name is Curtis Jackson, is producing a new series on STARZ called Power. Famed for his entrepreneurial skills in hip-hop and business, not to be overlooked is his important contribution to contract law and knowledge.  Thanks to an intense dispute with his girlfriend a decade ago, students and lawyers have been treated to a saga 50 Cent endured that illuminates the nature of contracts—of legally enforceable bargains. In a tribute to his latest venture, herewith an account of this case from my book, Contracts in the Real World: Stories of Popular Contracts and Why They Matter (Cambridge University Press 2012).

Jackson secured his first recording contract in October 2003. It came with a $300,000 advance.  To boost his professional image as a rapper, he bought a Hummer and a Connecticut mansion once owned by boxer Mike Tyson. The mansion boasted a state-of-the-art recording studio and the rapper hired a full-time caretaker and professional cleaning crew to maintain it.    In 2004 Jackson bought another house in Valley Stream, the small village in New York’s Nassau County where his grandmother lived; in December 2006, he added to his real estate holdings a $2 million house at 2 Sandra Lane, Dix Hills, on Long Island, New York. By then, he had sold tens of millions of recordings, toured the world, and amassed hundreds of millions of dollars in net worth, as chronicled in his 2005 autobiographical film, “Get Rich, or Die Tryin.”  

This success came after hard knocks. Jackson had dealt crack cocaine as a teenager. In 1995, at age 20, he was released from jail and became involved with Shaniqua Tompkins in his hometown of Jamaica in Queens, New York. The two had a son, Marquise, out of wedlock in 1996. Jackson and Tompkins had no money and no real home—living with his grandmother or hers.     In May 2000, Jackson nearly died when he was shot nine times during a gangland ambush. He was in the hospital for weeks, followed by months of rehab spent at his mother’s house, near the Pocono Mountains in Pennsylvania. Though before the shooting Jackson had been negotiating with Columbia Records, the record company stopped returning his calls.

Jackson, however, persevered. In November 2001, he launched a recording company, Rotten Apple Records. The rising rap star Eminem brought Jackson’s 2002 self-produced record to the industry’s attention.  As a result, Interscope Records offered Jackson the 2003 deal that propelled him to fame and fortune. With money flowing in and Jackson leading the high life, Tompkins asserted her right to a share. But Jackson’s relationship with Tompkins was tumultuous. They did not always live together and fought often, sometimes physically.

When Jackson bought the Dix Hills house in 2006, both agreed it was the best place to raise Marquise, then almost 10-years-old, and Tompkins pled with Jackson to put it in her name. Though Jackson promised to do so, he never did. After the relationship soured, Jackson tried to evict Tompkins from the Dix Hills house.  During that battle, the house burned to the ground under circumstances that authorities considered suspicious. The house had been insured against fire, but the policy lapsed for non-payment of the premium a few weeks before. In response to Jackson’s eviction lawsuit, Tompkins asserted a claim of her own: that the two had a contract entitling her to $50 million. Read More

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New Book: Berkshire Beyond Buffett

As people speculate about what will happen to Berkshire Hathaway after Warren Buffett is no longer around, I’ve written what I hope to be the definitive book explaining how Berkshire will continue to prosper, thanks to the culture that Buffett has forged at Berkshire.

The book, Berkshire Beyond Buffett: The Enduring Value of Values, will be released in October, as we put the finishing touches on it this summer.

Available for pre-ordering now at amazon (and B&N, BAM and elsewhere), the book has been endorsed by Adam Grant of Penn’s Wharton School, and author of Give and Take, in the following terms:

How did Warren Buffett build such a great firm as Berkshire Hathaway? To unravel this mystery, Lawrence Cunningham takes a deep dive inside the cultures of Berkshire’s subsidiaries, highlighting the value of integrity, kinship, and autonomy — and revealing how building moats around the castles may help the firm outlast its visionary founder.

Bob Hagstrom, best-selling author of the 1995 book, The Warren Buffett Way, has endorsed Berkshire Beyond Buffett in this way:

Lawrence Cunningham is well known to the Berkshire community, as Buffett’s pick for cataloging and organizing his famous annual reports in The Essays of Warren Buffett: Lessons for Corporate America. Now Cunningham takes us in a new direction, inside the companies that make up Berkshire.  Berkshire Beyond Buffett is an insightful and important book.

Tom Murphy, the legendary businessman who built ABC before selling it to Walt Disney, has generously contributed the foreword to the book–itself worth the price!   As Tom explains:

Berkshire’s trajectory has been so seamless that Warren’s professional transition has gone almost unnoticed. The man who began business life as a precocious “stock picker” has morphed into chief executive of one of the largest collections of businesses in the world. Larry’s book astutely chronicles this development.

Berkshire’s scale and Buffett’s stature make the book timely and relevant, as suggested by news coverage this morning by Bloomberg Business Week of the company’s $30 billion commitment to renewable energy.  The book is based in part on interviews and surveys I conducted with dozens of Berkshire executives, including many chief executives of the fifty subsidiary companies whose cultures and histories I recount in the book.  The following is from the book jacket, courtesy of Columbia University Press:

Berkshire Hathaway, the $300 billion conglomerate that Warren Buffett built, is among the world’s largest and most famous corporations. Yet, for all its power and celebrity, few people understand Berkshire, and many assume it cannot survive without Buffett. This book proves that assumption wrong.

In a comprehensive portrait of the distinct corporate culture that unites and sustains Berkshire’s fifty direct subsidiaries, Lawrence A. Cunningham unearths the traits that assure the conglomerate’s perpetual prosperity.  Riveting stories recount each subsidiary’s origins, triumphs, and journey to Berkshire and reveal the strategies managers use to generate economic value from intangible values, such as thrift, integrity, entrepreneurship, autonomy, and a sense of permanence.

Rich with lessons for those wishing to profit from the Berkshire model, this engaging book is a valuable read for entrepreneurs, business owners, managers, and investors, and it makes an important resource for scholars of corporate stewardship. General readers will enjoy learning how an iconoclastic businessman transformed a struggling textile company into a corporate fortress destined to be his lasting legacy.

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JP Morgan Summer Reading List

The 15th Bi-Annual JP Morgan Reading List is out, with a characteristically rich selection of ten recommended titles in several categories (business, sports, art, adventure, science, cooking, philanthropy, and personal growth). Among the fine books, I’d heartily endorse as number one Col. Chris Hadfield’s An Astronaut’s Guide to Life on Earth, a gripping and engaging account of space travels with lessons for life.

A notable new feature this year is a retrospective on the 15th anniversary.  The editors explain:

The Reading List began as a way for us to share timely, thoughtful and relevant titles that piqued our interest. . . . [T]his year we have reached the 15-year mark.  To celebrate this anniversary, we asked some of our favorite authors from previous lists to share with us their thoughts on writing, imagination, inspiration and the creative process.  Here are their fascinating responses . . . .

Among those 15 authors are Malcolm Gladwell (Tipping Point), Jim Collins (Good to Great), Tom Friedman (The World is Flat), George Taber (Judgment of Paris), and yours truly (How To Think Like Benjamin Graham and Invest Like Warren Buffett).

I speak to how my work on a given topic often needs to reach different audiences using different media.  In addition to (1) books such as the one they featured for a general audience, I gave the examples, concerning investors and financial oversight, of (2) a white paper for a professional group, (3) an article for academic researchers, (4) a textbook for my students, and (5) blog posts here at Concurring Opinions for the widest audience of all.

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Hitting Back When Hit By Google

Tuesday’s European Court of Justice decision requires internet search engines to omit listing irrelevant or inadequate items in response to searches for individuals by name. The ruling is simultaneously hailed and condemned, depending on whether one stresses individual control over reputation or anti-censorship (e.g.. Henry Farrell in WaPo; Jonathan Zittrain in NYT; the ubiquitous Brian Leiter).  Two aspects of the incentive effects of the recurring problem seem overlooked, as illustrated by a true story (with minor fact changes in the name of privacy).

A few years ago, a colleague got a blistering review of his teaching from a student blog.  There may have been some underlying basis for the criticism, but the post blew it all out of proportion and offered no context for the specific objection and no counterbalancing assessment of the teacher’s considerable strengths. It was both authoritative and damning as well as inadequate and of dubious relevance.

My friend’s distress intensified when this url appeared first in all searches for his name using Ask, Bing, Google, Yahoo! and other search tools.  It came up ahead of the professor’s SSRN page, school biography, library bibliography, and laudatory references in numerous other urls on the web. The result magnified the post’s significance and caused my colleague anguish.

The blog publisher refused his request to take down the post, citing forum policies on open-access, autonomy, and self-regulation.  At that time, at least, the search engines could not be bothered. Day after day, we’d do a search of his name and the inflammatory post kept coming up number one, threatening the professor’s reputation.

Finally overcoming his frustration, the professor chose to fight fire with fire.  He created a new blog and began posting entries at a regular clip.  Gradually, these posts and responses or references to them rose up the lists of hits for his name.  Eventually, the objectionable link sank down the list into a more proportionate presence, there as part of a more complete portrait, not the salient bruise it started out as.

The episode also emboldened my friend to redouble his investment in teaching.  Accepting the old adage that “where there’s smoke, there’s fire”, he vowed to minimize the chances that such postings, however acontextual or lopsided, would reappear.  His teaching evaluations, in fact, rose from just above average to well above average.

There are obviously many more significant complex issues associated with the hierarchy or presence of misleading or irrelevant information on the internet.  For example, norms in Europe may differ from those in the U.S., and a ruling like that of the ECJ seems unlikely in America.  And there are probably better forums to solve the problem than courthouses, including legislators, markets, and think tanks.

But in struggling with associated trade-offs and conflicting values, the incentive effects should be noted.   I don’t want negative urls polluting my public persona.  But that produces two positive results: I try to avoid doing anything that would feed them and to engage enough to neutralize their effects on my profile.  It worked for my old friend.

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What Everyone Should Remember about Buffett’s Views on Executive Compensation

Intelligent and well-meaning as they are, critics of Warren Buffett’s decision to have Berkshire Hathaway abstain from voting as a shareholder of Coca-Cola on the latter’s executive pay proposal suffer from two problems.  Some, like Joe Nocera of the New York Timesseem to believe that, since Buffett is powerful and historically a strong vocal critic of executive compensation, he is obliged to cast Berkshire’s vote against it.  When he explained last weekend that directors may not always vote against proposals with which they disagreed others, including Vitaliy Katsenelson at the Institutional Investor, lamented that directors may not always stand up for what they believe.

These positions are a combination of misreading history and naïve. Buffett has always stressed that, as costly to shareholders as executive compensation may be, in raw amounts and in terms of conflicts of interest, they pale in comparison to the vastly larger costs to shareholders of other conflicts between executives and shareholders, especially on acquisitions.  No rational investor should believe that directors are unabashed devotees of the shareholder interest at every turn.  Here is an excerpt from remarks Buffett made as discussant at a Cardozo Law School conference I hosted in 1997, the themes of which he has repeated for two decades:

As a stockholder, I’m really only interested in the board accomplishing two ends. One is to get a first class manager and the second is to intervene in some way when even that first class manager will have interests that are contrary to the interests of the owners.

I think there are great difficulties in achieving both of those ends. I’ve been a director of, counting them up, seventeen publicly owned companies, not counting ones which we control (which probably shows a very dominant, masochistic gene) (laughter). But over that time I’ve wrestled with just these couple of problems and there may be processes that would improve them.

The first one: getting the first class manager. I have never seen in those seventeen cases – and I’m not aware of it in other cases – where a question of mediocrity or worse and the evaluation of change has been made in the presence of a chief executive. It just doesn’t happen. So, I think absolutely to have any chance of having that one solved, you have to have regular meetings of evaluation of chief executives, absent that chief executive. If they are rump meetings or something of the sort – if they’re not regularly scheduled – there is just too much tension created. Because a board may be a legal creation, but it’s a social animal. It is very difficult for a group of people without a very strong leader to all of a sudden, spontaneously decide that they’re going to hold some meetings elsewhere and discuss whether this person who may be a perfectly decent individual, really should be batting clean-up.

So, I think there should be a lot of emphasis on process in terms of evaluation of a CEO. I don’t know how you create a greater willingness on the part of directors to really bounce somebody that they would bounce if they owned 100% of the company or if their family was dependent on the income from the business and so on. I just have not seen it in corporate America.

If you get that first class chief executive – which is a top priority – he doesn’t have to be the best in the world, just a first class one. And I may agree with Jill to some extent – you may be able to turn a five into a five-and-a-half or something by having him consult with lots of other CEOs and get a lot of advice from the board. But my experience is that you don’t turn a five into an eight. I think you’re better off getting rid of the five and having him find something else to do in life and going out and acquiring an eight.

The second problem is: even a first class chief executive has some interests that are in conflict with the shareholders. One is his or her own compensation. The second one gets into the acquisition category. There are psychic benefits to an executive of running a bigger show or just having more action or whatever that can be in conflict with the shareholders, even though that executive may be first class in other respects. The nature of acquisitions is that they get to the board at a point where if you turn them down you are rejecting the chief executive, you are embarrassing him in front of his troops, you’re doing all kinds of things. So, it just doesn’t happen.

I have seen board after board approve deals that afterwards the board members say, “you know, I really didn’t think it was a very good idea but what could we do about it?” And there should be a better mechanism. But I’m not sure what it is. There should be a better mechanism, though, for a board to make those important decisions where a first class chief executive can have an absolutely different equation than the shareholders, weighing all of the personal economic and non-economic considerations. There should be a mechanism that enables the board to bring independent judgment on those in a way that doesn’t put the CEO in a position virtually where he or she has to resign or is embarrassed in front of the troops. And I would welcome any discussion on those matters.

The compensation question where the first class executive could be in conflict with the owners, I think it gets abused some but I don’t think that it amounts to that much when compared with the other two questions – getting the right one and also the question of acquisitions. I think it costs shareholders some money that’s unnecessary, and I think that a lot of the compensation schemes have been quite illogical, but I don’t think that they are overwhelming in terms of evaluation.

On compensation, I can turn purple in meetings. But in the end, the big, dumb acquisitions are going to cost shareholders far, far more money than all of the other stuff.