The Chamber and others reportedly will launch a campaign following the election in which they may seek to scale back requirements imposed under the Sarbanes-Oxley Act, limit liability of accounting firms, make it harder for prosecutors to bring cases against individuals and firms, limit [...]]]> In an earlier post, I discussed the U.S. Chamber of Commerce’s foray into the growing conflict over the corporate internal affairs doctrine and whether that doctrine rises to the level of a constitutional imperative. Of course, the Chamber’s efforts in this area are but one small piece of a much larger overall strategy in addressing the production and content of American corporate law. In an article in Sunday’s New York Times, other pieces of that strategy now have become apparent.

The Chamber and others reportedly will launch a campaign following the election in which they may seek to scale back requirements imposed under the Sarbanes-Oxley Act, limit liability of accounting firms, make it harder for prosecutors to bring cases against individuals and firms, limit what they view as overzealous state-level enforcement, eliminate the private right of action under Rule 10b-5, and require some investor claims to be arbitrated. According to the article, they intend to achieve most of these objectives though agency action rather than resorting to legislation.

Wow. The “post-post-Enron” backlash cometh. . . .

We will have to see how all of this plays out, but I will offer three tentative impressions.

1) The Multi-Dimensional Attack. Okay, this isn’t news, but it is a healthy reminder. Tort reform and deregulation efforts – or whatever you want to call them – are most effective if undertaken in multiple dimensions. That is, to reduce or eliminate unwanted regulatory interference, one may focus on altering not only the substance of the law, but also choice-of-law (federal-state and state-to-state) and choice-of-forum (e.g., federal, state, judicial with jury, judicial without jury, nonjudicial). We see the latter two dimensions in the Securities Litigation Uniform Standards Act of 1998, and the last dimension in the Class Action Fairness Act of 2005 and the largely successful efforts to make the Federal Arbitration Act a super-statute, sweeping away lesser statutes before it. Of course, when the three work in conjunction, the perfect deregulatory storm can result. Take, for example, the regulation of welfare benefit plans under ERISA – a vacuous federal regulatory regime combined with broad preemption that stymies state regulatory efforts combined with very limited avenues for individual relief due to ERISA’s remedial scheme and deference to plan administrators. All three of these dimensions are present in the proposals in the Times’ story and the Chamber’s internal affairs doctrine initiative. My point here is not that these initiatives, if successful, will mean that corporate law will end up just like ERISA; rather, it is to remember that all of this stuff which might appear to be so disparate is very much interrelated.

2) Federalism/Schmederalism. At first blush, it’s ironic that some of those who will be supporting these reform efforts were waving the federalism flag when Sarbanes-Oxley and its underlying regs were under consideration. Indeed, these new proposals to preempt state regulatory and enforcement efforts (in fact, authorizing the SEC to do it!) and related efforts to federalize corporate choice of law don’t sound particularly consistent with the norms of federalism – e.g., so much for local experimentation. But, of course, that is until you consider that this was never really about federalism. It’s about getting the preferred regulatory content and the preferred regulators.

3) The Corporate-Law Way. While the prior two impressions may be applicable to other areas, aspects of this are unique to corporate law. The most direct way to achieve uniformity, non-interference, and desired regulatory content would be federal preemption of the field (whether this is viable as a political matter is another question). But the Chamber’s proposals call only for preempting certain state-level regulation – the kinds we have seen recently in, say, New York and California. And while submitting securities claims to arbitration is proposed, there appears to be no similar push to commit all corporate-law disputes in publicly traded firms to arbitral fora. Well, this is because of the unique way in which corporate law is produced at the state level, the law that Delaware produces as a result, and these groups’ preferences for Delaware’s law and courts. An unstated goal here is to maintain and entrench this law-production system.

Just to be clear, while I think some of these proposals raise grave concerns, I am not saying that all aspects are unworthy of consideration. I am suggesting that policy makers take care to consider the whole multi-dimensional picture (including the visible and not-so-visible) in evaluating the merits of each of them.

According to these stories, MassMutual’s allegations of O’Connell’s wrongdoing included, among other things, having affairs with several female employees, making $23 million on questionable “shadow” stock trades, intervening to prevent disciplinary actions against family members who held senior positions, and buying a fancy company-owned condo at a below-market price. The arbitration panel found that MassMutual [...]]]> With the Disney case and now Grasso grabbing headlines, disputes over large payouts to former corporate executives have garnered great attention of late. Last week, another such dispute boiled to the surface, this time in the form of an appeal from an arbitration award in favor of Robert J. O’Connell, the terminated former CEO of MassMutual Financial Group. Sample media accounts can be found here, here, and here.

According to these stories, MassMutual’s allegations of O’Connell’s wrongdoing included, among other things, having affairs with several female employees, making $23 million on questionable “shadow” stock trades, intervening to prevent disciplinary actions against family members who held senior positions, and buying a fancy company-owned condo at a below-market price. The arbitration panel found that MassMutual failed to prove some of these allegations, failed to adhere to procedures for termination set forth in O’Connell’s contract, and otherwise failed to demonstrate just cause as defined in that contract. The panel did find that the firm was entitled to a return of the $23 million. Nevertheless, it awarded O’Connell compensation under the agreement worth between $40 and $50 million. MassMutual is now seeking to overturn the award in a Massachusetts court.

Without more information, we can’t tell whether the arbitrators got it right or wrong, but let’s focus instead on the contract itself. Here is how one report described the substantive portion of the just cause provision:

According to O’Connell’s contract he signed in 1998 when he joined MassMutual, he could be fired for a criminal conviction, theft or embezzlement, as well as for “conduct that constitutes willful gross neglect or willful gross misconduct … resulting in material harm to the company.”

Assuming this description is accurate, the term smacks of board of director abandonment of core principles of corporate governance. While there are many just cause provisions in employment contracts that are not the least bit problematic, this is the CEO we are talking about, this is quite a just cause provision, and the compensation at stake is, well, large.

The CEO is the person the board of directors must rely on to run the business, and this kind of provision hamstrings the board’s ability to ensure the CEO does in fact do so faithfully and effectively. Under the terms of the contract, “mere” incompetence, uncooperativeness, or awful judgment are not enough to justify termination. A “mere” breach of fiduciary duty isn’t either. Same with sexual harassment. Indeed, “willful gross misconduct” isn’t enough unless the firm can prove resulting “material harm” to the company. Sure, the firm could still fire such an incompetent, uncooperative, duty-breaching, harassing, or wrongdoing CEO, but, in a context such as this one, only with a $40-50 million payout. This would put a chill in the air in almost every boardroom, and reinforce the reluctance of boards to admit publicly their mistakes in hiring a CEO by firing him. The outcome in this case may make things even chillier.

Call me old-fashioned, but a board’s agreeing to such a deal – imposing ex ante further constraints on its ability to engage in effective oversight – strikes me as, at minimum, a breach of the duty of care. I am fully aware the law may not be there, but it should be.

6. Don’t Forget to Ask Good Questions. If you are given the chance to ask questions about the school with which you are interviewing and you have no questions, you have failed to heed the advice in #1 and #2 in my prior post, and your candidacy is in trouble. Let’s turn then to what types of questions you should ask. You have plenty of options, so try to craft questions that are somewhat original, appear somewhat particularized, and [...]]]> Last Friday, I posted the first half of my list of “dos” and “don’ts” for initial interviews and callbacks in the entry-level law teaching market. Here is the second half (the “don’ts”). Of course, the same disclaimers apply. . . .

6. Don’t Forget to Ask Good Questions. If you are given the chance to ask questions about the school with which you are interviewing and you have no questions, you have failed to heed the advice in #1 and #2 in my prior post, and your candidacy is in trouble. Let’s turn then to what types of questions you should ask. You have plenty of options, so try to craft questions that are somewhat original, appear somewhat particularized, and send the right message. For example, I suspect the most common question for hiring committees is something along these lines: “What kinds of scholarship support do you provide for new faculty members?” This was a fine question the first time it was asked, in 1983. It is not a particularly good question now, at least unless it’s packaged a bit differently or expanded. Admittedly, some variations on the same basic theme would be far worse (e.g., “How many days a week do I need to be on campus my first year?”). Still, it is not original and says nothing about you. Perhaps mix it up somewhat and add a little content: “As I mentioned earlier, my next project in area X will be an empirical study. I noticed that a number of your faculty members are doing interesting empirical work. What kinds of resources and support does your school provide for this kind of scholarship?”

7. Don’t Overlook Teaching. If you have heard that most schools/hiring committees/professors do not care about teaching, you have heard wrong. Apparent teaching ability alone is unlikely to get you the job, but an apparent inability to teach or disinterest in it may very well lose you the job. This is a competitive market; those who demonstrate excitement for teaching and teaching potential will, on balance, fare better. By the way, how you interact in your interviews and how you present your ideas and engage in give and take during your job talk will provide many clues about your potential as a teacher. But you also should be prepared to answer questions about teaching and pedagogy. For example, you may encounter a question like this: “How would you approach teaching a large first-year course such as Contracts?”

8. Don’t Forget the Law in Law and ___. If you are a Law and ___ candidate, terrific — interdisciplinary work is in demand in the legal academy, and it should be. But both in your scholarship and during the interview process, you have the burden of demonstrating how your work bears upon the law or legal inquiry, directly or indirectly. And because most of your interviewers do not share your expertise, consider carefully in advance how you are going to address this. It is true that those who are not trained in your other discipline may not understand or appreciate fully your methodologies or their limitations. But since you know your discipline and your likely audience, you can find a way to articulate these parameters while illuminating the important ways in which your work informs legal inquiry. At the same time, don’t go to the other extreme and assume your audience consists entirely of those who don’t know what a standard deviation or a quark is.

9. Don’t Be Intimidated or Arrogant. We know you are smart, probably really smart. So you need not focus on that at all. Focus instead on convincing your interviewers of your scholarly potential, your intellectual creativity and flexibility, your collegiality, your teaching ability, and your interest in joining their faculty. Try to view an initial interview or a callback as an opportunity rather than a gauntlet (and I know this is sometimes easier said than done).

10. Don’t Always Take the Advice You Are Given. Candidates sometimes get bad or conflicting advice from friends, colleagues, mentors, and the rumor mill. Determining which advice is sound and which isn’t is not always easy. I can’t help much here. The best I can offer is that, when considering the advice you receive (including mine), fall back on #1, your common sense.

Again, this list is designed simply to help you prepare and focus. I hope it has done that. I wish you the best of luck and, of course, I am interested in what others think.

Since the hiring conference is just around the corner, my contribution consists of some basic “dos” and “don’ts” for initial interviews and callbacks. I will start with five “dos” today and add five “don’ts” on Monday. I am, of course, not the first person to post such advice, so be sure to check out the views of others, including [...]]]> The entry-level hiring season for law faculty has now begun in earnest. The blogosphere has become a useful source of information on a host of relevant topics. Now that I have stepped down from an appointments committee and will not be an active participant in the process for the first time in a number of years, I thought I would add my two cents.

Since the hiring conference is just around the corner, my contribution consists of some basic “dos” and “don’ts” for initial interviews and callbacks. I will start with five “dos” today and add five “don’ts” on Monday. I am, of course, not the first person to post such advice, so be sure to check out the views of others, including Gordon Smith, Dan Solove, Brad Wendel, and various posters at Prawfsblawg (and these link to other helpful comments).

My suggestions reflect what I have seen and heard during the interview process over the years and are consistent with what I have heard from others. Oh, yeah, here are the disclaimers: the interview process is important, but only one small piece of the overall puzzle; my general comments do not account for individual variations in institutions and areas of substantive expertise; because the market is competitive, idiosyncratic, and otherwise imperfect, it is unpredictable; and my evidence is purely anecdotal. But this advice is free. . . .

My aim is to help you take full advantage of the process and sidestep a few avoidable pitfalls. If everything I am about to say seems obvious, that’s a good sign.

1. Do Rely on Your Common Sense. Okay, this is the meta-advice. When thinking about, inter alia, how to prepare, how to answer questions, what questions to ask, whose advice to take, and whether to stay out late with law school friends the night before your callback, use your common sense. Despite the stress, try to default back to what makes sense to you. Here’s an easy example: if, during a callback, the school has set time aside for you to meet with students, don’t see this as an opportunity to disengage for thirty minutes because you are tired. If students have been included in the process, you need to take the cue. Certainly, the market is idiosyncratic enough that your instincts might steer you wrong in certain circumstances, but I doubt there are better alternatives. So go with your common sense – it has gotten you this far.

2. Do Show Genuine Interest. Faculties want to feel appreciated, and, frankly, they are entitled to expect you to show interest once you have taken an interview slot. The faculty at some schools – Yale comes to mind – might reasonably assume you are really interested in joining them. For most other schools, you need to show it, which is done in two ways. First, be genuinely interested. You can feign interest for thirty minutes, but you can’t for a full day. And, for a host of reasons I cannot explore here, you shouldn’t try. Second, demonstrate genuine interest. For example, do as much homework on the school as possible (while, you don’t need to read everyone’s scholarship, you should at least have a sense of the areas the interviewers teach in). Also, know something about the institution and show excitement about it in your answers, in your questions, etc.

3. Do One or More Mock Job Talks Before Your First Real Job Talk. This is not because you don’t know what you are talking about – if you don’t, practice won’t help. It is because, despite your knowledge, you need to be able to 1) communicate your ideas effectively in a short period of time and 2) answer questions from, and engage in give and take with others who may see your subject through entirely different lenses. The only way to ensure that you are doing these things is to practice. Your best option is to arrange a mock with a group of professors (your mentors or others). If you can’t, put together a panel of colleagues, and make sure they know to interrupt you with difficult, wide-ranging questions within about fifteen minutes and to critique you at the end. BTW, now is the time to set this up if you have not done so already.

4. Do Get to the Point Quickly. When discussing your scholarship in an interview or while giving your job talk, remember that you will have less time than you want. While background is important, getting out your main point – your new conceptual framework, finding, approach, normative takeaway, etc. – is essential. How you do this will depend on the circumstances, but consider moving right to your conclusion after describing the problem or inquiry, and then developing the details thereafter.

5. Do Answer Questions (and Answer the Questions Asked). Answering questions will consume most of your interview time and probably most of your job talk. You will get questions you have a hard time answering because you don’t understand them, you have never considered them before, they are completely out of left field, or there is no answer. There are some questions you ought to understand and be able to answer. For all others, if you don’t have the answer, that is okay. First, it is perfectly acceptable to ask for a clarification (in different ways at different times). It is also acceptable to respond that you don’t know the answer. But don’t be defensive about it – and complimenting the asker about the acuity of her insight isn’t a bad idea (okay, this is sucking up, but . . . .). And where appropriate, take this opportunity to talk about the question and what you do know, e.g., why you chose not to explore that particular aspect of the problem, how you might approach finding the answer, your plans to explore related matters in later scholarship, or why an answer might be difficult to find. What is unacceptable is not answering the question by, for example, obfuscating or answering instead the question you wish had been asked.

I hope what I have said so far is reassuring rather than stress inducing. More to come on Monday.

Now let’s add a twist: What if members of HP’s Board of Directors had agreed in advance to be spied on? Say they had agreed when they were named to the board that HP could conduct unannounced investigations and surveillance of their personal contacts and communications – including access to personal phone and other records – if necessary to protect firm interests. And suppose this consent was “narrowly [...]]]> The recent scandal at Hewlett-Packard has had remarkable staying power. Like most others, I was taken aback by the investigatory methods HP officials used to find the source of boardroom leaks. They crossed the line, certainly as a normative matter, and, if the California indictments are any indication, as a legal one too.

Now let’s add a twist: What if members of HP’s Board of Directors had agreed in advance to be spied on? Say they had agreed when they were named to the board that HP could conduct unannounced investigations and surveillance of their personal contacts and communications – including access to personal phone and other records – if necessary to protect firm interests. And suppose this consent was “narrowly tailored” in the sense that such an investigation would occur only after HP officials determined that there had been a leak, it most likely had originated with a board member, and further leaks would potentially harm the legitimate interests of the corporation. I wonder whether such prior consent would change many individuals’ views of at least some of HP’s actions.

Demanding such a waiver is not far removed from reality because of growing concern among firms about leaks of confidential or embarrassing information and the growing ease of publishing such things through blogging, media leaks, etc. And, as discussed in a prior post by Dan Solove, this is not the first time we have seen firms go to great lengths to identify the source of comments on the inner workings of the business.

In addition, in terms of existing doctrine, consent is a seemingly intractable problem for those seeking greater privacy protections for employees. Employee consent to monitoring eats away at privacy on the front end by eviscerating the “reasonableness” of their expectation of privacy; to the extent some privacy interest nevertheless remains, consent privileges the intrusion on the back end. Since the vast majority of employers now have some combination of surveillance/monitoring policies and waivers, consent has become a nearly all-consuming black hole, at least with regard to employee communications while at work or on employer-owned communications devices.

By the way, according the New York Times, HP also spied on its employees electronically, including monitoring one employee’s instant messaging with the media. The employee, who turned out not to be the source of the leak, acknowledged that he knew HP monitored such communications and noted a later apology from company officials.

Is the director hypo more troubling than consent to monitoring in the employee context? At first blush, it seems less problematic. Directors are certainly in a better position than many employees when it comes to bargaining, and the spying policy I described is far more narrowly drawn than most employer monitoring polices.

It is true that most monitoring of employees occurs at the workplace or on employer-provided communications devices, while the monitoring in the hypo I posed is more sweeping. Yet maybe this “turf” distinction is too old-fashioned. The “workplace” may be just shorthand for describing various legitimate employer interests in monitoring. In the hypo, such an interest is definitional, and in the real world HP seemed to have legitimate business reasons for seeking to stop the leaks and find the leaker – distinguishing this from, say, a situation in which a firm seeks to find and punish a whistleblower. And one can foresee even more compelling reasons (preventing further leaks of highly sensitive information or the passing of valuable secrets to a competitor).

Perhaps, instead, surveillance of personal communications made from workplace or on employer equipment seems inherently less intrusive or offensive to our notions of the private than efforts to monitor personal calls and communications made elsewhere or on one’s own telephone or computer. But maybe that is just part of the expectations feedback loop to which consent contributes, and, if so, as directors or others start giving consent to be “spied on” elsewhere, it may one day seem no more problematic.

In the end, this is one area where my thinking tentatively confirms my original instincts: consent should not be dispositive in a society where it can be purchased or extracted, particularly given the potential externalities of cumulative consent. I am very interested in what others think.

Along with most everyone else, I have been waiting for months to see which cases the Supreme Court would review. One I have been watching is Moores v. Friese, No. 05-1590, a matter that has intrigued others, including Christine Hurt and Larry Ribstein.

Well, today the new term begins and . . . petition denied. Fair enough, but there is still a story here.

The case is a suit by a litigation trustee of Peregrine Systems, a Delaware corporation based in California, against various insiders under a California insider trading statute that allows the issuer to sue insiders and potentially recover treble damages. A central [...]]]> Many thanks to Dan and the others at Co-Op for inviting me to visit for a few weeks.

Along with most everyone else, I have been waiting for months to see which cases the Supreme Court would review. One I have been watching is Moores v. Friese, No. 05-1590, a matter that has intrigued others, including Christine Hurt and Larry Ribstein.

Well, today the new term begins and . . . petition denied. Fair enough, but there is still a story here.

The case is a suit by a litigation trustee of Peregrine Systems, a Delaware corporation based in California, against various insiders under a California insider trading statute that allows the issuer to sue insiders and potentially recover treble damages. A central issue is whether the California provision applies because, under the “internal affairs doctrine,” the law of the state of incorporation normally governs internal conflicts among a corporation’s shareholders, directors, and officers. The California Court of Appeals, 36 Cal. Rptr. 3d 558 (Ct. App. 2005), reinstated these claims after concluding that this provision does not address internal affairs because it is more akin to blue sky (securities market) regulation. The California Supreme Court denied review.

The contours of the internal affairs doctrine under California law is fascinating stuff, but this is no reason for the U.S. Supreme Court to get involved. That is, of course, unless (1) this insider trading provision necessarily falls within the doctrine, and (2) California’s adherence to it is constitutionally mandated under the dormant commerce clause or due process clause. The cert petition presented this theory, and it was endorsed in an amici curiae brief filed by the U.S. Chamber of Commerce and others.

Much of the support for the proposition that the internal affairs doctrine is not merely a choice-of-law rule but rather a constitutional mandate comes from Delaware Supreme Court decisions, most notably VantagePoint Venture Partners 1996 v. Examen, Inc., 871 A.2d 1108 (Del. 2005). In VantagePoint, the court declared unconstitutional a California statute, CAL. CORP. CODE § 2115 (2005), which carves out a limited exception to the internal affairs doctrine for closely held foreign firms with a substantial presence in California.

Whatever one thinks of the efficiency of the internal affairs doctrine as a choice-of-law rule, Delaware’s sweeping claims about the doctrine’s constitutional status are dubious. I will spare you the details, but VantagePoint offers little commerce clause or due process analysis, the U.S. Supreme Court decisions it selectively quotes do not support its broad assertions, and all of this might be dicta anyway. Moreover, a primary beneficiary of such a constitutional regime would, in fact, be Delaware, which profits enormously from its domination in the market for entity charters and would welcome a rule that bars other states from acting in ways that might reduce the value of chartering there.

Although the Supreme Court’s denial of review in Friese is a victory for the plaintiffs in that case, it will leave VantagePoint untouched, and the involvement of groups like the Chamber of Commerce may signal that we are entering a period of heightened conflict over regulation of Delaware firms by California and other states. And despite the federalism-related virtue of local experimentation, federal courts do not like prolonged interjurisdictional tussles (e.g., a long series of races to the courthouse, dueling suits proceeding in California and Delaware). Thus, I wonder whether the messier this appears downstream, the more likely it will be that the Supreme Court or lower federal courts will be persuaded to alter or extend some constitutional doctrine to put an end to it.

So, here is my question. Are there recent examples in other areas where actual or potential interjurisdictional conflict akin to what I have described may have contributed to federal courts’ expanding or fashioning “new” constitutional limits on state regulation under the commerce clause or otherwise?

By the way, what is perhaps the next big internal affairs showdown is moving through the pipeline. That case, Grosset v. Wenaas, 35 Cal.Rptr.3d 58 (Ct. App. 2005), review granted and opinion superseded, 127 P.3d 27 (Cal. 2006), is now before the California Supreme Court, and, sure enough, the Chamber of Commerce just filed an amicus brief. More to come.