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Author: Lawrence Cunningham

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Correction on Faculty Hiring and Buyouts

This post, partly apology, is prompted by a request from a law school dean to retract an assertion I made in a post earlier this week, which requires a little explanation at the outset. In Pikettian Law Schools, I noted how different law schools respond to the problems in legal education that arise from decreased demand and persistent high costs.  A large number of schools are downsizing via faculty buyouts, I said, while some buck the trend by hiring in surprisingly large numbers.

Readers offered various responses to my suggestion that this mimics the idea that the rich get rich and the poor get poorer, including by suggesting it might be about relative sensitivity to market demand or other natural competitive forces.  Some perceived that being listed  among those doing buyouts rather than hiring would hurt a school’s reputation while others thought it would help; some seemed to think that hiring is a sign of strength while others thought it a sign of being irresponsible.

Two readers–a professor at one law school and a dean at another–commented directly on the post that I had incorrectly listed their schools as having taken the buyout approach, noting instead that they had actually been doing serious hiring.   I promptly responded to both comments and made related corrections in the post.

Thereafter, I received a follow-up request from the Dean of Chapman University’s law school to make a new post retracting my erroneous inclusion of Chapman from the list.  I said I would oblige and noted that I would also include his email to me, which is posted below.  I apologize for the error(s) in my previous post.

 

Dear Professor Cunningham,

I am writing to point out an inaccuracy in your April 28 blog entry, Pikettian Law Schools, in which you identify Chapman as a school that has encouraged early faculty retirement without replacing vacancies. With respect to Chapman, this is simply not the case. In fact, this past year, we added four new faculty members, including a significant lateral hire, Lan Cao, who was a Boyd Fellow and Professor of Law at William and Mary Law School before joining our faculty last fall. She is now the Betty Hutton Williams Professor of International Law at the Chapman University Dale E. Fowler School of Law.

We realize that errors like this may sometimes occur; however, this type of information can be harmful to a school’s reputation and to its perception by those in the broader academic community. Because of the impact of such an error, I ask that you do more than simply correct your blog. Instead, would you kindly publish a follow-up retraction, identifying this mistake? I fear that simply posting my response will not do enough to undo initial impressions by the vast majority of your readers who will have already read the blog entry.

Thank you.

Tom Campbell

Dean, Chapman University Dale E. Fowler School of Law

 

 

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Pikettian Law Schools

Amid a general trend toward far less lateral recruiting by US law schools (see here and here), there are some contrarian schools on the move this year. They are expanding their faculties, while others cut budgets by reducing faculty size.  For example, each of the following schools recruited three lateral tenured law professors this year:  Columbia, Cornell, Harvard, Stanford, and Virginia.  (Source: Brian Leiter, here).

In the academic year just ended, only 28 U.S. law schools (of more than 200) recruited any laterals, the vast majority abandoning a long tradition in legal education.  They moved a total of only 46 professors of many thousands in the profession, down considerably from levels seen in decades past.

Other schools in this minority bucking the trend, with two recruits apiece this year: Alabama, Berkeley, Boston College (where I once was a professor and academic dean), BYU, and Penn.  Among those hiring one tenured  lateral are my own George Washington as well as our archi-rival Georgetown and Northwestern and Texas.

At the other end of the resource spectrum, dozens of schools cut salary expense, the largest line item on academic income statements. They are encouraging early retirement and not replacing the vacancies.  For example, each of the following schools reportedly engaged in significant buyouts in the past couple of years: Albany, Appalachian, Barry, Buffalo, Charleston, Charlotte, Elon, Faulkner, Florida Coastal, Hamline, Liberty, New England,  Phoenix, Seton Hall, Vermont, and Widener.

Others are more curious and harder to classify. Take U. Cal. Irvine, a newcomer climbing the ladder in part through aggressive lateral recruiting, setting the year’s record among schools, reeling in four.  Or Florida International, which hired two laterally this year.

Curiosities aside, in a capitalist society, the rich do get richer and the poor get poorer, as Thomas Piketty has reminded everyone while soaring to academic stardom. Is it surprising that, in such a civilization, the fancier established schools get bigger and stronger faculties while weaker rivals cut faculty deeply through aggressive buyouts?

 

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Contracts in the Real World Gets CHOICE Award for Outstanding Title

Pop K CoverThe American Library Association last year named my book, Contracts in the Real World: Stories of Popular Contracts and Why They Matter (Cambridge University Press 2012), an “outstanding title” in its annual CHOICE awards.  The following kind entry accompanied the announcement, supplied by A. R. S. Lorenz of Ramapo College.  I’m grateful to the Association–and to the many 1Ls who have bought and used the book profitably in their courses!

 

 

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Facebook Playing Spoiler in Apple – Comcast Tie Up

 a comcastWithin hours after Apple Inc. and Comcast Corporation announced their long-anticipated merger agreement late last night, Facebook, Inc. said it would make a hostile bid for Comcast.  The Apple-Comcast deal, a stock-for-stock transaction valuing Comcast at $150 billion, is nominally billed as a “merger of equals” but few doubt that Apple, with a market cap nearing $500 billion, is the true acquirer.

Comcast has two classes of stock, all of the Class A being publicly held while all of the Class B, which has super-voting rights, held by the Roberts family, giving them thirty percent of the company’s total voting power.  A Comcast executive, who said the deal had been in the works for years as part of its strategic plan, called the transaction “a marriage made in heaven that could not be torn asunder.”

a facebookFacebook believes otherwise. The upstart social media business, with a market cap of $170 billion, says the late-night announcement merely put Comcast “up for sale.” Facebook officials said that Comcast’s board must entertain its bid.  Offering a combination of cash and stock that it says values Comcast at $190 billion, Facebook portrays its bid as “clearly superior.”

Comcast officials immediately dismissed Facebook’s overture.  “We are a staid Philadelphia-based, family-oriented company with prime assets such as NBC network television and the Golf Channel,” one Comcast executive explained.  “Facebook is a motley crew of youthful Menlo Park hoodies. We cannot see the two companies coming together under any circumstances. Apple, in contrast, gets our ‘TV culture’.”

For its part, Apple says its valuation of Comcast is generous and that it is not prepared to engage in competitive bidding.  “Facebook cannot be serious in thinking it can win a takeover battle for Comcast against Apple.  We are a far superior company and can assure Comcast and its stockholders of closing the transaction unconditionally.”

a appleAnalysts also noted that the Apple-Comcast merger agreement includes a termination fee requiring Comcast to pay Apple $1 billion if the transaction fails to close for any reason.  In addition, should the transaction note close because the Comcast board determines that its fiduciary duties prevent it from closing, Apple has the option to acquire 19.9 percent of Comcast’s Class A stock at yesterday’s closing market price. The option purchase price may be paid with an Apple promissory note and settled, at Apple’s option, for cash in lieu of shares. There is no cap on its value.

Facebook’s bid is conditional on those two contract terms being withdrawn or declared invalid.  Apple and Comcast have scheduled all-day emergency board meetings for April  1.   

 

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Job Opportunity: Associate Dean, GW Law’s Econ/Finance Program

The George Washington University Law School seeks an Associate Dean and Program Director for its Center for Law, Economics & Finance (C-LEAF). C-LEAF is a think tank within the Law School, designed as a focal point in Washington, DC, for the study and debate of major issues in economic and financial law confronting the United States and the global community.

Minimum Qualifications: Master’s degree in an appropriate area of specialization and a minimum of 5-7 years of professional or administrative experience. An advanced degree  and experience in legal education is highly preferred.  Extensive knowledge and understanding of business and finance law policy. Previous experience in program administration and fund raising is essential.

To apply, please visit The George Washington University employment site, posting number 003171.

Deadline for applications is March 30, 2014.

The George Washington University is an Equal Employment Opportunity/Affirmative Action Employer.

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Liquidity and Control at Buffett’s Berkshire Hathaway

Warren Buffett’s ownership of Berkshire Hathaway is skewed heavily towards commanding greater voting power rather than a larger slice of the economic interest. He values control more than liquidity and is delighted to have shareholders who prefer liquidity to control to stake their money accordingly.   It is interesting to see the corporate governance tools used to create this structure and precisely how the voting power and economic interests are determined. 

Berkshire Hathaway, like many other corporations, has multiple classes of stock with different economic and voting rights. Berkshire’s Class A has 10,000 times the voting power as its Class B and 1,500 times the economic interest.  All shares are eligible to vote on most shareholder voting matters and there are no further distinctions as to economic rights, such as dividends or liquidation payments. Market prices generally reflect the economic rather than the voting ratio: the Class A shares recently traded at $170,000 per share while the Class B trade at $113 (very close to 1500-to-1).

Many stockholders, including Buffett, own some Class A and some Class B, in part because they exercised the right to convert A to B to give gifts and otherwise manage estate planning.   It is easy to see what portion Buffett or another shareholder has of each Class, simply his number of shares of a Class divided by all shares of that Class. Buffett, for example, owns about forty percent of Berkshire’s Class A shares and a small number of the Class B.

It is more important to know what percentage of the aggregate voting power and economic interest any given shareholder’s stake represents.  So: what percentage of the aggregate voting power and economic interest does Buffett command?  For Berkshire, the answer can be computed using the following formula that reflects the relative weight of the A compared to the B in votes and payouts:

 

Voting Power    =

Number of A Shares Owned + Number of B Shares Owned / 10,000

Total A Shares Outstanding + Total B Shares Outstanding / 10,000

Economic Interest =

Number of A Shares Owned + Number of B Shares Owned / 1,500

Total A Shares Outstanding + Total B Shares Outstanding / 1,500

 

Applied to Buffett (using the most recent proxy statement figures for share information):

 

          Buffett’s Voting Power =

    350,000 + 3,525,623 / 10,000      

892,657 + 1,126,012,136 / 10,000

= 34.9%

 

Buffett’s Economic Interest =

      350,000 + 3,525,623 / 1,500

892,657 + 1,126,012,136 / 1,500

= 21.4%

 

Conversion charts can be created to show the voting power and economic interest of given levels of A and B share ownership.  The following assume the same figures stated above, which can change from time to time as Class A shares are converted into Class B shares or other capital shuffles occur.

 

Class A Power

Shares % ofClass VotingPower EconomicInterest
  250  – 0.04 0.02
  500 .056 0.05 0.03
1000 .112 0.1 0.06
2000 .224 0.2 0.12
3000 .336 0.3 0.18
4000 .448 0.4 0.24
5000 .550 0.5 0.30
6000 .662 0.6 0.36
7000 .784 0.7 0.42
8000 .892 0.8 0.48
9000 1.00 0.9 0.54
10,000 1.12 1.0 0.60
15,000 1.68 1.5 0.91
30,000 3.36 3.0 1.82

                                                                                                 Class B Power

(shares in millions)

Shares % ofClass VotingPower EconomicInterest
  1 0.1 0.04 0.01
  5 0.4 0.20 0.05
10 0.9 0.42 0.1
20 1.8 0.82 0.2
30 2.7 1.22 0.3
40 3.6 1.62 0.4
50 4.4 2.02 0.5
60 5.3 2.42 0.6
70 6.2 2.84 0.7
80 7.1 3.24 0.8

 

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The 80/20 Principle

ParetoPareto originated the so-called 80/20 principle in the early 1900s after observing that 80% of the wealth in Italy was owned by 20% of the population.  For a century, innumerable observers have found that the 80/20 pattern, also dubbed the “vital few/trivial many rule,” recurs across many distributions.

Businesses tend to generate 80% of sales from 20% of their products and 80% of their profits from 20% of their customers.  Managers can use the tool to think about operations and allocating resources.  In book publishing, eighty percent of promotional resources are dedicated to twenty percent of the list.

The principle applies among law firms, where twenty percent of clients contribute eighty percent of billings. Firms can use the insight to improve in many ways. For example, it can help partners decide which clients to nurture or fire  or how paralegals should allocate their time.

The concept can be refined for any number of time management tasks, as popularized by Richard Koch’s 1998 book, and in The Four Hour Work Week by Tim Ferris (some notable tips from which Jeff Yates collected a few years ago at The Faculty Lounge).

The concept is not a precise measure nor a universal constant. For example, in America today, 20 percent of the population owns something more like 95% of the wealth. And the insight does not yield to prescriptive policy manuals. It is instead a way of thinking about resource allocation that can improve one’s effectiveness.

I wonder, among law professors, in what ways does the 80/20 rule manifest?  Here are some alluring candidates:

Eighty percent of law professors were trained at twenty percent of the nation’s law schools.

Do eighty percent of a prawf’s citations come from twenty percent of their articles?

Are eighty percent of your downloads on SSRN from twenty percent of your posted pieces?

Are twenty percent of law professors responsible for eighty percent of legal academic blogging, as Eric Goldman once forecast?

Do eighty percent of valuable classroom contributions come from only twenty percent of your students?

What other questions might this apply to for law professors? And what are the implications?

For one, being aware of the phenomenon can help define the activities that matter the most and allocate scarce productive resources on those.  Reflect upon what is special about the twenty percent of your scholarship yielding the vast majority of its influence.   Is it subject matter, methodology, orientation, clarity?  If twenty students in your 100-person classroom pull most of the weight, what should you do about that? Is it necessary to draw the rest in or capitalize on the phenomenon in some other way?

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Contracts Casebook Survey Results

The frightful stress gripping legal education is one reason why all law professors may be interested in the newly-released results of the Washington Law Review survey of law teachers of Contracts conducted in mid-2013.

Available here, the results from 138 respondents consist of numerical summaries of multiple choice questions and synthesis of their written comments that I culled.  A sampling from the latter appears below.

The results are of inherent interest to those teaching Contracts and speak to broader questions of legal pedagogy of value to others, including the allocation of time in the first year, the utility of the case method of instruction, and desire for change versus the tug of tradition.

(The survey was done in connection with a symposium inspired by my recent book, Contracts in the Real World, which has also just been published, here, featuring contributions from Aditi Bagchi, Brian Bix, Larry DiMatteo, Erik Gerding, Charles Knapp, Jake Linford, and Jennifer Taub.)

Read More

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Call for Papers: National Business Law Scholars Conference

The Fifth Annual National Business Law Scholars Conference (NBLSC) will be held on Thursday-Friday, June 19-20, 2014, Loyola Law School, Los Angeles.  I had the honor of giving the keynote address at last year’s event (held at Ohio State) and can attest to an impressive group of scholars, papers, and ideas, in both quantity and quality. They come from across the U.S. and around the world.

The organizers (named below), welcome all scholarly submissions relating to business law. Presentations should focus on research appropriate for publication in academic journals, especially law reviews, and should make a contribution to the existing scholarly literature.  They try to provide the opportunity for everyone to actively participate. Junior scholars and those considering entering the legal academy are especially encouraged to participate.

To submit a presentation, email Professor Eric C. Chaffee at eric.chaffee@utoledo.edu with an abstract or paper by April 4, 2014. Please title the email “NBLSC Submission – {Name}”. If you would like to attend, but not present, email Professor Chaffee with an email entitled “NBLSC Attendance.” Please specify in your email whether you are willing to serve as a commentator or moderator. A conference schedule will be circulated in late May. More information is available here.

Conference Organizers
Barbara Black (The University of Cincinnati College of Law)
Eric C. Chaffee (The University of Toledo College of Law)
Steven M. Davidoff (The Ohio State University Moritz College of Law)
Kristin N. Johnson (Seton Hall University School of Law)
Elizabeth Pollman (Loyola Law School, Los Angeles)
Margaret V. Sachs (University of Georgia Law)

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The Responsibility of Autonomy: More on Berkshire and Benjamin Moore

Autonomy does not mean carte blanche; its operational companion, hands-off management, does not mean abdication.  The concepts entail complex relations between power and responsibility. Autonomy is an act of trust whose disappointment  prompts its revocation.  The saga of Benjamin Moore, about which my recent blog drew two thoughtful comments,  illustrates.

Beginning in 1883, the company’s paint was sold solely through a network of small distributors operating with extraordinary autonomy, as owners of their own businesses.  In 2000, when Berkshire Hathaway acquired the company, its famously hands-off chairman, Warren Buffett, assured distributors of continuation of that tradition.

As the grip of the Great Recession in 2008 stunted sales growth, however, a new CEO at Benjamin Moore (Denis Abrams) began displacing the distributorship tradition through new arrangements with chain stores (including big-box retailers).  Abrams altered the distributor relationship to respond to competitive changes, including dictating tougher terms on financing inventory and charging for advertising. Distributors complained about this to Buffett, but Berkshire’s practice of vesting autonomy in its CEOs prevented direct or immediate intervention.

Ultimately, however, Abrams’s repudiation of distributor autonomy prompted Buffett to make an exception to the autonomy Berkshire usually gives Berkshire CEOs, and fired Abrams.  To replace him, Buffett delegated much of the task to a new Berkshire employee, Tracy Britt Cool, a recent business school graduate he had just named chairman of Benjamin Moore.  Her choice, Bob Merritt, began correcting the errors that Buffett believed Abrams had made, especially restoring distributorship autonomy.

Last month, however, Merritt was fired too.  Who fired him (Buffett or Britt) is unclear and the exact reasons have not been disclosed. It may be a replay, a business disagreement about distribution or involve (per press gossip) issues of gender bias and locker room humor among company management.  Merrit’s replacement, meanwhile, was chosen jointly by Britt and Buffett. 

So there are several marks on the long winding story of autonomy in the Benjamin Moore saga.  The distributors had autonomy, which Berkshire promised they would keep, yet Abrams impaired; distributor complaints to Berkshire first met resistance in the name of CEO autonomy until Berkshire lifted its usual deference to that practice; Buffett gave Britt considerable autonomy to choose Merritt, who ran with it until he didn’t have it anymore; and, most recently, she enjoyed far less autonomy in the case of selecting his successor.  

People claiming that Buffett is a hands-off manager or gives his CEOs extraordinary autonomy are right, so long as they appreciate how that entails a strangely awesome burden.  People who are trusted, and who are trustworthy, often excel and avoid problems precisely because autonomy is a huge responsibility.