Author: Lisa Fairfax

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A “Renewed Appreciation” for the Wal-Mart Brand

Much ink has been spilled over Wal-Mart, particularly ink related to the benefits and drawbacks of its impact not only on local communities and their economies, but also on the broader economy.   Nevertheless, I found interesting a recent Wall Street Journal story about how the economic downturn has turned former Wal-Mart opponents into advocates.

As the story notes, Wal-Mart has been in a long battle to expand into Chicago–extending at least as far back as 2004, when, as the Wall Street Journal put it, the city “rebuffed its efforts.”  Apparently its expansion efforts met with a wall of resistance from those concerned about Wal-Mart’s wages, benefits, and its potential impact on local businesses.  Recently, this wall has begun to crumble.   Wal-Mart itself has tried to turn the tide, producing studies reflecting its positive impact on communities, workers and families.  However, it has been the economy that appears to have made the difference in attitudes.   The recession has “softened skepticism” of those who opposed Wal-Mart’s expansion efforts as recently as last  year, or at the very least that skepticism has been outweighed by “the need for jobs and tax dollars.”  As a Wal-Mart manager notes, the economy has given both customers and community members a “renewed appreciation for the Wal-Mart brand.”  That sentiment is clearly understandable, especially given the unemployment rate in Chicago and other cities.

To be sure, while some do seem to have a renewed or better appreciation for Wal-Mart, others give their support reluctantly.

Despite this reluctance, and the opposition Wal-Mart still faces in this area, the company  has been looking to enter cities like Chicago.   This is because Wal-Mart “has begun saturating suburbs.”  Hence, Wal-Mart “sees Chicago as a potential testing ground for approaches it could use in other big cities.”  Thus, whether one has positive or negative feelings about Wal-Mart, as the Wall Street Journal points out, the push into cities like Chicago is an important one.

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Madoff and Affinity Fraud

It looks like Bernie Madoff is back in the news.  This Wall Street Journal story  not only discusses the alleged physical assault against Madoff who is serving a 150-year prison term, but also indicates that at least one inmate has gotten investment advice from Madoff–apparently Madoff advised the inmate to diversify and stay away from day trading. . . 

Earlier this month, GW hosted a conference entitled Madoff One Year Later: What Have We Learned?  The conference brought together some of the key players and commentators in the Madoff scandal, including one of Madoff’s lawyers, Ira Sorkin.    As you can imagine, there was a lot of engaging discussion about what happened, why it happened, and strategies to prevent future happenings. 

There also was a lot of discussion about trust in general and affinity fraud in particular.  The SEC describes affinity fraud as an investment scam that preys upon members of identifiable groups (such as religious or ethnic communities), and that is perpetrated by someone who is a member of the group or who claims to want to advance the groups’ interests.   Affinity fraud preys upon the trust within such groups, relying on the notion that “you can trust me because I am like you.”  I have written a couple of articles on affinity fraud and am planning to write a book on the subject, and hence the discussion about affinity fraud as it relates to the Madoff scheme was particularly intriguing to me.   Although Madoff’s case involved significantly more money than other affinity scams, it had some of the key hallmarks that have made such scams so successful. 

 Three things in particular worthy of note.  First, relying on group trust is often so powerful in overcoming people’s skepticism that both the financially unsophisticated and the seemingly sophisticated fall victim to the scam.  As one of the conference participants noted, most investors, from retail to hedge funds, are just looking for someone to trust so that they don’t have to worry or otherwise pay attention.  By relying on the trust common to many groups, affinity fraud makes people feel like they have found that someone.  Second, it is not at all unusual for affinity fraud scams to last significantly longer than other frauds.  This is because once the trust is established, not only are investors less likely to fully investigate the scam, but they also are less likely to believe they have been defrauded–and even when they do believe, less likely to report outside of the group.  To be sure, they are exceptions–including like in the Madoff case where someone sought to blow the whistle early on.  Nonetheless, as the Madoff case revealed, it usually takes quite a while for these scams to come to light.  Third, affinity fraud perpetrators often incorporate some element of charitable giving.  Thus, investors are often told that some portion of their investment will enable them to “give back” to their community.  Moreover, very often perpetrators of these scams establish their own credibility by reference to their track record of charitable giving.  That was true in the case of Madoff.  Hence, while greed certainly plays a role in these kinds of investment schemes, it is not the only motivator for investors.

In the end, affinity fraud confirms the power of trust in general, and group trust in particular, in overcoming people’s skepticism and pulling them into fraudulent and sometimes outlandish investment schemes.  Not that perpetrators of affinity fraud needed any confirmation of this fact.

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The Job Market and Public Interest

By now we are all well aware of the tough job market facing everyone, including law school students and recent law school grads.   While law school students have found it more difficult–and some cases impossible–to find jobs, some others who had been promised jobs have found their offers rescinded, or altered into deferments or other fellowship options.   Of course, these job alterations have collateral consequences, including–but certainly not limited to–the difficulties they create for students who need to repay their student loan debt.  Another collateral consequence is the impact such changes have on public interest and legal aid firms and that job market. 

To be sure, at least some of these changes have been painted as a positive development for such entities.   This is because when firms offer deferment packages, they often offer to pay a reduced salary in exchange for, or at least with the understanding that, deferred associates will seek out employment in the public interest.  According to one Time article, “One undisputed upside to the current trend is that public-interest and legal-aid firms will finally receive some much needed help.”  Like with charitable giving, public interest organizations are suffering dramatic cuts just as the need for their services are on the rise.  As one Legal Aid executive noted, this means that deferred associates will be welcomed with “open arms.”  Moreover, deferred associates get the opportunity to get some legal training while working in a field that not only desperate needs their help, but also in which they might not have otherwise had exposure.  And after such exposure, some of them may even remain in the public interest field.  It all seems like a silver lining to an admittedly difficult job market.  But alas, perhaps this is a case of everything that glitters. . .

In other words, what about those law school students and grads who came to law school with the specific intent of working in the public interest field?  They have no deferred arrangements.  Instead, these law firm arrangements turn out not to be such a silver lining for them.   The current crisis with its resulting budget cuts, has meant fewer public interest positions.  Apparently (and as everyone expected), deferred associates have been taking the jobs that may have otherwise gone to those who would have specifically sought out public interest employment.  These public interest agencies get workers without having to pay their salary, and apparently in some cases, without having to pay their benefits.  Thus, it is an easy call for such agencies.   And it could be that with budget cuts and the downturn, such agencies would not have had the resources to hire anyone–so perhaps it is not appropriate to think of this as a kind of zero sum game.  Then too, it is still the case that associates are filling an important need.  Moreover, it is still the case that whatever is happening, it is a difficult job market for everyone involved.   However, this reveals that the climate is having a variety of unintended consequences.

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American Express and Corporate Social Responsibility

As I noted over at the Conglomerate, American express just launched what it termed a new “cause-related marketing campaign.”  The campaign was launched during the Oscars through two commercials featuring socially responsible ventures.  One venture was the Harlem Children’s Zone.   According to its website: called “one of the most ambitious social-service experiments of our time,” by The New York Times, the Harlem Children’s Zone Project is a unique, holistic approach to rebuilding a community so that its children can stay on track through college and go on to the job market.”  The other was Patagonia, a company that sells outdoor clothing and gear, and whose mission statement reads: “Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.”  As I noted, both commercials highlight socially responsible companies–and how those businesses are making it work. 

The commercials also highlighted American Express’ commitment to social responsibility via Members Project–a project whereby American Express partnered with Take Part to provide people with a relatively easy way to participate in charitable giving.  Participation can come in three different ways.  People can vote once a week for their favorite charity, and the five charities that receive the most votes each get a $200,000 donation from American Express.  People can volunteer through Members Project, and in exchange American Express cardholders can receive membership reward points while non-cardholders can donate such points to their favorite charity.  Finally, people can simply donate to their favorite charity.   American express calls its participation in the Members Project and Take Part the company’s “next step in its mission to empower positive change.”

Of course, there is always the cynical charge that corporate social responsibility is little more than a public relations ploy to curry favor.  However, the two featured companies appear to have made social responsibility a core part of their business plan.   Moreover, it is important to note that charitable giving is down even as the need for charitable services is up.  This is no surprise given the economic downturn.  But it means that campaigns like the American Express one–particularly the commitment to make donations based on voting–represent a welcome effort for many struggling charities.

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More on Pizza and Puffery

Like Nate, the Domino’s puffery commercial caught my eye.  In addition to his concerns, the commercial prompted me to think about at least two other issues related to the commercial’s effectiveness.

First, given that Domino’s only has a couple of seconds to get across its message, do most viewers really appreciate the reference to puffery?  To be sure, Domino’s loves it so much that they have dedicated a whole site to the “Stop the Puffery” idea and “calling out Papa John’s”.  Moreover, it seems to be garnering a lot of buzz on legal blogs, such as these thoughts on ContractsProf Blog and Above the  Law.  But as those posts reveal, the initial puffery reference stems from an old case between Papa John’s and Pizza Hut where Papa John’s essentially admits that its “Better Ingredients. Better Pizza” slogan is puffery in order to avoid Pizza Hut’s claim that ads using the slogan were false and misleading.   Interestingly, the Fifth Circuit case notes that “Pizza Hut does not appear to contest the truthfulness” of Papa John’s factual assertions that Pizza Hut used frozen dough, made its dough using “whatever comes out of the tap,” and made its sauce from remanufactured tomato paste.  Instead, Pizza Hut suggest that the ingredients make no difference in terms of taste.   In any event, the Fifth Circuit concludes that Papa John’s slogan is non-actionable puffery and thus did not really impact people’s buying decision.  From Domino’s perspective, calling Papa John’s slogan puffery is supposed to get across the idea that the slogan is “NOT FACT”–or in Papa’s John’s words, involves claims about “common sense choice.”  But it is not clear how much, if any, of that gets across in the ad. 

Second, wasn’t it just last month that Domino’s launched an ad strategy based on a mea culpa where company executives not only quoting comments likening Domino’s crust to cardboard and the sauce to ketchup, but also comments like “worst excuse for pizza I ever had,” and “totally devoid of flavor”?  The apology strategy seemed both bold and risky.  Though one could argue that it is only a few steps removed from ads that offer “new and improved” products, except those ads don’t explicitly admit that the old product was relatively worse.  Nevertheless, Domino’s apologetic strategy seems at odds with the attack strategy in these puffery commercials.   Indeed, the apology appears to be aimed at fostering good will and a positive outlook.  Moreover, the apology seems to be at the very least an implicit acknowledgement that Domino’s pizzas (and ingredients) were worse than their competitors.  So the puffery attack seems a bit hard to swallow. 

But in the interest of being honest, I will admit that I have not yet tasted the new and improved Domino’s pizza, and hence can’t really say anything about the pizza. . .just the pizza ad.

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The Economic Dig Out of the Snow

After last week’s record snowfall, the DC region and other areas now have the difficult task of digging out of the snow.   In addition to prompting closures of local businesses and schools, the snowstorm brought the federal government to a virtual standstill.  Indeed, today is the first day federal agencies are opening on time since February 4.  Unfortunately, the combination of the heavy snowfall, blizzard-like conditions, and power outages left me not only snowbound, but also without an Internet connection.  Hence I could not even spend the week blogging from home!  But now that we are all trying to get back to normal, at least one question is, what will be the economic impact of the snowstorm?

On the one hand, the storm heaped a signficant economic toll on governments and businesses forced to close their doors.  Hence, the Office of Personnel Managment estimates that the federal government loses about $100 milliion in productivity and other costs each day it is closed.   Along these same lines, one admittedly rough estimate from a Maryland state agency predicts the storm may be responsible for some $830 million of losses in the state’s economic activity.  Similarly, an analyst at George Mason estimates that the storm could cost businesses in the area hundreds of millions of dollars in potential sales.  Of course it goes without saying that, given the recession, many businesses (and governments) could ill afford to take another economic hit.  

To be sure, that same George Mason analyst notes that, based on the economic activity associated with previous snowstorms, it is entirely possible that these economic losses may be recouped in later months.  It also should be pointed out that not all economic activity was down during the storm.  Indeed, many people continued working from home. Still others actually stayed in their place of business overnight to keep their doors open.  Moreover, what was one firm’s loss was another’s gain.  Hence, as you can imagine, local restaurants and stores, especially those downtown that relied heavily on government employees, were hit particularly hard.  As the president of the DC Chamber of Commerce noted, you simply can’t make up five or six days of lost sales.  However, grocery stores and hardware stores saw a jump in sales–evidenced by the very long lines in stores and often empty shelves!  According to the Washington Post, one Capital Hill hardware store recorded its biggest sales day on record during the storm.  Other businesses also may have fared well, or at least may have broken even.  This includes gyms, and even some hotels that found themselves with guests forced to extend their stay–and eat in.

So maybe it is too soon to tell what kind of economic impact the storm will have on the region, and whether or not any losses can be recovered.  Though I am sure most of us are happy to finally have the opportunity to get out of the house and eat, shop or otherwise contibute to the local economy.  There’s a start. . .

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The Take Away About Take Home Exams

It may be early in the semester to think about exams, but I’ve never given a take home exam, and thus I am always interested in people’s thoughts on the subject.  So I was particularly interested when a fellow panelists at an AALS program offered his thoughts on take home exams.  Unfortunately, I found at least two of those thoughts pretty disturbing.   First, he noted that students did not tend to do any better on take home exams than in class exams.  And second, he said that students had been kn0wn to fail his take home exam.  After doing some additional research on the subject, I noticed that these thoughts were echoed by others, including Concurring Opinions Dan Solove who noted his surprise in finding that the quality of take home exams were not much better than in class exams.  Needless to say, this collection of thoughts in no way inspire me to give take home exams a try.

Indeed, I suppose I was under the impression that additional time would enhance exam quality.  I also thought that students would feel less anxiety about take home exams.  To be sure, taking anxiety out of the exam process seems like a worthy goal.   But perhaps reduced anxiety translates into reduced rigor during the study process.   Moreover, if the only benefit of the take home exam is reduced anxiety, is that really worth it?   So what’s the take away?  I suppose one important take away is that altering our exam methods is not about changes in the length or format (i.e., open v. closed book), but about a real change in methodology.  So I guess back to the (in class?) drawing board.

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Hedge Funds: Friend or Foe?

First, thank you Danielle, and all the folks at Concurring Opinions for allowing me to moonlight here, away from my blogging home at The Conglomerate.   I have noted in posts at the Glom that I am teaching a Shareholder Activism class this semester.  Right now we are in the midst of talking about different types of shareholder activists.  But it seems like the students are particularly intrigued by hedge funds–and I think a lot of their interest has to do with the fact that hedge funds tend to have a “boogeyman” reputation.  That is, there is an impression that hedge funds tend to engage in actions that are not in the best interests of other shareholders, or the corporation, or perhaps anyone for that matter.  So we spend time trying to figure out whether or not this impression is accurate.  Is the hedge fund a friend or foe?

There are articles suggesting that while hedge funds pose problems, they also “hold great promise as active shareholders.”  Other articles reveal that hedge funds engage in a variety of different activities, and hence, at the very least, it is not appropriate to paint them all with the same brush.  That is, some engage in extremely aggressive actions that appear to focus only on short-term profit, while others have more long-term goals.  Then too, even when you consider the actions of one hedge fund, it sometimes may be difficult to assess how we should view their conduct.  Take for example The Children’s Investment Fund or TCI.  (One of the reasons TCI found itself in the spotlight was because it engaged in a proxy fight with CSX that led to a lawsuit with some important implications about proxy fights and how shareholders’ ownership interest should be counted.)  On the one hand, TCI takes its name from a Foundation that gives money to support children in developing nations.   A Business Week article notes that TCI gives the equivalent of .5% of its assets to the Foundation.  Which some call a marketing tool, but, according to Business Week, amounted to an $18 million donation in 2004.  In fact, although it’s only been around since 2002, the Foundation is now one of the largest charities in the UK.  One of its 2007 donations apparently was the largest ever made by a Briton in a single year.

On the other hand, in describing its actions relative to CSX, Judge Kaplan of the SDNY opened his opinion with these words:

Some people deliberately go close to the line dividing legal from illegal if they see a sufficient opportunity for profit in doing so.  A few cross that line and, if caught, seek to justify their actions on the basis of formalistic arguments even when it is apparent that they have defeated the purpose of the law.  This is such a case.

Wow.  I’m guessing Judge Kaplan believes hedge funds, or to be more precise, this particular hedge fund, doesn’t get to be put in the friend category.