Archive for the ‘Current Events’ Category

Privacy and the Bloomberg Terminal

posted by William McGeveran

The privacy scandal of the week involves Bloomberg terminals, reporters, and Wall Street traders. It started making the rounds of the financial press in the last couple of days and today reached the New York Times, which led its story by declaring that a “shudder went through Wall Street” in response to the revelations. But as with many of the periodic Facebook privacy scandals, this one is only surprising if you haven’t been paying attention. And it distracts the press and the public from more serious matters.

The story, in a nutshell: a Bloomberg terminal like the one in the picture sits on every trading desk. It is the central platform for managing a constant stream of information about market activity, financial news, economic data, and much more. By making this very expensive equipment a necessity, Michael Bloomberg (now New York’s mayor, of course) built a multibillion-dollar empire and made himself fabulously wealthy.

From the beginning, company employees have been able to look up individual Bloomberg subscribers and scrutinize their most recent activity in the system. That may make some sense for sales and technical personnel (although even then it probably ought to have been more anonymized than it seems to have been). Unfortunately, that access also extended to journalists at the many news outlets that have been added to the Bloomberg corporate family over the years. And these reporters appear to have mined that data routinely for tidbits that might have helped with their stories.

Don’t get me wrong, this is not an example of good privacy practices. But it ain’t exactly the allegations of pervasive bribery, eavesdropping, and hacking by journalists in the employ of Rupert Murdoch. Quartz has a pretty good explanation of the data that was available. Primarily, it boils down to the last time a person logged in, the “functions” used (essentially, what general categories of information services were accessed, such as reports of corporate bond trades), and the transcript of any online customer service chats. Crucially, Quartz notes, “Employees can see how many times each function was used but not further details, like which company’s bonds were being researched.” In other words, a lot of it resembles information that many web sites, including news sites, can already glean about most of their customers, particularly those who are logged in. At most, Bloomberg journalists might have obtained some slight lead that would send them on the hunt for more solid information, much as a tip from a source might. In the incident that brought the practice to light, for example, a reporter surmised that a Goldman Sachs partner might have left the firm because he stopped using his Bloomberg terminal.

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  May 11, 2013 at 2:42 pm   Posted in: Current Events, Privacy, Technology   Print This Post   No Comments

Wachtell Lipton’s Errors on Shareholder-Paid Director Bonuses

posted by Lawrence Cunningham

Amid debate over shareholders offering contingent payments to directors, Wachtell Lipton recommends an option that may be tempting for incumbent boards: unilaterally adopting a bylaw banning the arrangements.  Boards should be wary of this advice.

True, Wachtell’s position concurs with my view that such payments are lawful, contrary to the position urged by my esteemed fellow corporate law Prof., Stephen Bainbridge.  But that’s where Wachtell and I part company, first because Wachtell’s proposal is myopically universal and second because it errs on a basic legal point about board and shareholder power.

In my view, not only are the arrangements lawful, but shareholder bodies ought to have the choice to embrace or reject them.  My guess is that they are desirable for some corporations in some settings and not so for others.  Therefore, the use or rejection of these ought to be determined, as with much else in corporate life and law, in context by business people participating in particular governance situations. Read the rest of this post »

  May 11, 2013 at 1:10 pm   Posted in: Corporate Law, Current Events   Print This Post   5 Comments

Notes on Berkshire’s 2013 Annual Meeting

posted by Lawrence Cunningham

Spent the weekend in Omaha with my wife at the Berkshire Hathaway shareholders’ meeting, one of many I’ve attended since my first in 1998 after publishing The Essays of Warren Buffett: Lessons for Corporate America.  The pace is always busy and has gotten hectic as I’ve gotten to know more people and the scale and size of the meeting expands.

For us, this meant, besides the meeting, which takes place from about 9 to 4 on Saturday, various interviews (Yahoo! Finance Friday, USA Today Saturday afternoon and Motley Fool Saturday evening); book signings (conference at U. Nebraska Friday evening, the Bookworm Sunday early afternoon and Hudson Books later Sunday); and social gatherings (a party given by hedge fund manager Whitney Tilson Friday evening and Warren Buffett’s brunch for out of town friends on Sunday).

The result was catching up with scores of people I know through this world, including both luminaries and students, those I’ve known for decades and those I’ve gotten to know more recently.  One comes away with reflections, during such occasions, and herewith a few of mine. Read the rest of this post »

  May 6, 2013 at 2:13 pm   Posted in: Current Events   Print This Post   2 Comments

The Reality of Short Termism Per Mark Roe

posted by Lawrence Cunningham

Short-termism in stock markets preoccupies many policy makers and analysts of late but Mark Roe wonders about the validity of some of the conventional talk.   He has posted a series of three short articles on the topic excerpted from a larger project, all worth a look: (1) about whether the cause of any new corporate short-termism may not be stock markets but the speed of change in business pressures;  (2) Are Stock Markets Really Becoming More Short-Term?, and (3) Apple’s Cash Flow Problem, using that case to question the assumption of short-termism.   Business Lawyer will publish the longer version of the inquiry this summer in Mark’s piece, Corporate Short-termism — In the Boardroom and in the Courtroom.  All worth reading.

  May 6, 2013 at 9:44 am   Posted in: Corporate Law, Current Events   Print This Post   No Comments

Prof. Bainbridge on Hess: Critics Still Not There Yet

posted by Lawrence Cunningham

Prof. Steve Bainbridge replied to my post about shareholders paying bonuses to director nominees elected in contested elections, highlighted by the pending proxy battle at Hess.  Steve clarifies his objection to Elliott Associates, the activist shareholder hedge fund, promising to pay its director nominees bonuses if Hess’s stock price outperforms a group of industry peers over the next 3 years:

When I described these transactions as involving a conflict of interest, what I had in mind was the general conflict of interest ban contained in Restatement (Second) of Agency sec 388:  ”Unless otherwise agreed, an agent who makes a profit in connection with transactions conducted by him on behalf of the principal is under a duty to give such profit to the principal.”  Surely the hedge fund payments here qualify as, for example, the sort of gratuties picked up by comment b to sec 388:

“An agent can properly retain gratuities received on account of the principal’s business if, because of custom or otherwise, an agreement to this effect is found. Except in such a case, the receipt and retention of a gratuity by an agent from a party with interests adverse to those of the principal is evidence that the agent is committing a breach of duty to the principal by not acting in his interests.  Illustration 4.   A, the purchasing agent for the P railroad, purchases honestly and for a fair price fifty trucks from T, who is going out of business. In gratitude for A’s favorable action and without ulterior motive or agreement, T makes A a gift of a car. A holds the automobile as a constructive trustee for P, although A is not otherwise liable to P.”

How is the hedge fund’s gratitude for good service by the Hess director any different than T gift to A?  To be sure, directors are not agent of the corporation, but “The relationship between a corporation and its directors is similar to that of agency, and directors possess the same rights and are subject to the same duties as other agents.” . . . Thus, I believe, even if the hedge fund nominee/tippees are scrupulously honest in not sharing confidential information with the funds, put the interests of all shareholders ahead of those of just the hedge funds, and so on, there would still be a serious conflict of interest here.

I can offer 4 replies to Steve’s fine legal points, which I’ll first summarize and then elaborate:

1.  While Steve acknowledges that agency law doesn’t apply, he stresses similarities between agency and corporate law when justifying reference to the American Law Institute’s Restatement (Second) of Agency, but then omits the differences that warrant treating directors differently than agents.

2. Even accepting arguendo Steve’s proposal to rely on the Restatement (Second) of Agency,  he chose to present Illustration 4 as governing the Elliott-Hess arrangement, but the next one, Illustration 5 (excerpted below), is more on point and comes out the other way because the agent and principal are free to agree otherwise.

3.  Even if agency law applied, the Restatement (Second) of Agency, initially adopted in 1958, was superseded in 2006 by the Restatement (Third) of Agency, whose provisions support the Elliott-Hess arrangements.

4.  But agency law doesn’t apply.  The ALI’s applicable standard from corporate law is stated in its Principles of Corporate Governance, expressly referenced in the Restatement (Third) of Agency.  This standard puts the burden on those challenging such arrangements to prove defects such as unfairness or secretiveness, which opponents have not done.  Read the rest of this post »

  May 4, 2013 at 5:44 pm   Posted in: Agency Law, Corporate Law, Current Events   Print This Post   4 Comments

Buffett’s Flock and Berkshire’s Future

posted by Lawrence Cunningham

Forty-thousand investors, including me, descend on Omaha, Nebraska this weekend for the annual meeting of Berkshire Hathaway Inc., the company Warren Buffett has run for nearly forty years. Many will be asking a proverbial question: “What happens to Berkshire if Buffett gets hit by a truck?” It used to be a genuine concern that the fate of the man and the company he built and controlled were one: with Buffett’s demise went Berkshire.

But after two decades of intensive definition, by words, deeds and training, Buffett has institutionalized Berkshire’s unique culture, methods and processes to a point where it most likely will endure long after Buffett departs.  Joe Nocera captured a distinctive point about this when recommending that President Obama read my book, The Essays of Warren Buffett: Lessons for Corporate America:  Buffett’s rules of investing are rules to live by, which explains why Berkshire’s shareholders’ meeting, unusual among large companies, draws a large number of shareholders.

Berkshire shareholders know that Buffett, an octogenarian, and the Berkshire board, have formalized a succession plan. It involves splitting Buffett’s job between managing and investing. They have identified and recruited particular people for the two roles. The choices have been kept confidential, but an important job has been done in finding and positioning the most capable successors prepared to accept the challenge of filling some very big shoes.

No succession plan, however, can provide for another consequence of Buffett’s departure, which is the disappearance of an unusual ownership structure. Buffett has always been Berkshire’s controlling shareholder, lately with about 1/4 of the voting power, always representing 99% of his net worth.  He has been gradually reducing his stake by regular annual transfers to the Gates Foundation, a process that will accelerate in coming years and after his death.

The company will thereafter lack a controlling shareholder, which has been an important strength, because Buffett’s word has been his bond. Nevertheless, there are philosophical, operational and strategic considerations which give Berkshire institutional autonomy, endowing it as an organizational machine larger than one human being and greater than the ownership feature of a controlling shareholder.   Read the rest of this post »

  May 2, 2013 at 1:27 pm   Posted in: Current Events   Print This Post   No Comments

Director Bonuses for Performance, Prawf Debate and the Bigger Picture for Hess

posted by Lawrence Cunningham

A hot debate rages among corporate law professors amid one of the largest proxy battles in a decade: Hess Corp., the $20 billion oil giant, is the focus of a contest between its longstanding incumbent management and the activist shareholder Elliott Associates.   Ahead of Hess’s annual meeting on May 16, where 1/3 of the seats on Hess’s staggered board are up, antagonists offer dueling business visions.  They battle bitterly over such fundamentals as sectors to pursue, degrees of integration to have and cash dividend policy.

The professorial debate, more civil, is about a novel pay plan Elliott proposes for its director nominees, which Hess’s incumbents condemn and Elliott defends as suited to shareholders. On one side, all quoted in Elliott’s investor materials circulated April 16, are me, Larry Hammermesh (Widener), Todd Henderson (Chicago), Yair Listoken (Yale) and Randall Thomas (Vanderbilt); on the other  Steve Bainbridge (UCLA), Jack Coffee (Columbia) and Usha Rodriques (Georgia), all of whom have blogged since the matter was first reported by Steven Davidoff (Ohio State) in the New York Times April 2 (for which he connected with me for comment).

As in all such cases, Elliott proposes to pay nominees a flat fee of $50,000 each for their troubles and to indemnify them for legal liability.  The novelty is that Elliott will provide incentive compensation to the group: if any Elliott nominee is elected as a result of this year’s  contest, all nominees receive a bonus at the end of three years if Hess’s stock performs better than a group of industry peers. Elliott, not Hess, pays all bonuses.

Hess incumbents portray the bonuses as objectionable (and Steve, Jack and Usha agree). Incumbents say they give nominees incentives to maximize short-term shareholder value rather than serve as long-term stewards.   They say the pay somehow makes the directors beholden only to Elliott, preventing the exercise of business judgment for the benefit of the corporation and its shareholders as a whole.

I have taken a different view, set out in Elliott’s materials last month (p. 148):  The bonuses seem surgically tailored to tie the payoff to Hess’s stock price performance compared to competitors. That is intended to align the interests of those directors with those of the company’s shareholders.  Elliott makes the promise at the outset and then has no role to play afterwards, other than to pay up if milestones are met.  No one is beholden to Elliott and the independence of those directors is not compromised.  There is no incentive to liquidate the company or concentrate on the short term but every incentive to manage to outperform peer company stock price performance over three years.

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  May 1, 2013 at 7:41 pm  Tags: Corporate Law  Posted in: Corporate Law, Current Events   Print This Post   No Comments

This is what evil looks like

posted by Kaimipono D. Wenger

A newly published Memoir from Guantanamo provides a stunning, vivid, and highly personal description of things that the United States has done — sleep deprivation, temperature extremes, beatings, humiliation — to dozens of people who have never been charged with any crime. No wonder so many Guantanamo detainees are now on hunger strike. I guess President Bush was right that the Iraq war would show us an axis of evil. I just didn’t realize that would consist of my own country’s actions.

It’s time to do the right thing, Mr. President. Let’s close Guantanamo.

  April 30, 2013 at 5:27 pm   Posted in: Current Events, Politics   Print This Post   No Comments

The Revolving Door, Covington Style

posted by Lawrence Cunningham

The revolving door through which government officials return to private practice and back and round-and-round is a much-debated issue.

It seems most vexing concerning lobbyists, where public policy formulation can be poisoned, and least problematic for certain agencies such as the SEC, as research and a fine New York Times essay by David Zaring (Penn/Wharton) attest, as enforcement intensity and oversight rigor does not seem adversely affected.

Still, there is considerable debate about the matter, with protective public responses that impose waiting periods and other limitations.  Glenn Reynolds (U. Tennessee) excoriated the practice in a USA Today column, calling for punishing income tax on practitioners.

Amid the professional and scholarly debate, the masses seem to find the revolving door inherently repulsive while stock market reactions suggest that sophisticates value the practice.

Within that framework, it is not surprising that the esteemed Washington law firm of Covington & Burling boasted today about its rich roster of former prosecutors, on the occasion of the return to the firm of the latest example, Lanny Breuer, who has just stepped down from a four year stint as assistant U.S. attorney general.

A press release and an email blast went out detailing the deep bench.  The email had three paragraphs; the boastful last follows.   All law firms boast an impressive bench of former government officials, but this would seem to brook few rivals.  Are they more effective at helping clients avoid violations or evade accountability? Is the firm really able to cash in on this experience through a bigger and more lucrative book of business?  The research is equivocal, but many think the answer is yes, including the masses, the money and, manifestly, the firm.
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  April 4, 2013 at 7:49 pm   Posted in: Current Events   Print This Post   No Comments

Warren Buffett: Not Bullish on the Newspaper Business

posted by Lawrence Cunningham

In case you missed it, journalists have been saying that Warren Buffett is bullish on newspapers, with the New York Times running a headline reading “In His Annual Letter, Buffett Plays Up Newspapers.”  They cite the fact that he devoted 1800 words of his March 2013 missive to Berkshire Hathaway shareholders to the topic of newspapers. They stressed how Berkshire invested $344 million in the industry in the past 15 months. The Oracle of Omaha was putting his mouth where his money was, newspaper insiders reported.

The trouble with this narrative is that it’s not exactly what Buffett’s letter said, suggesting a dose of wishful thinking among practitioners of the trade. True, Berkshire has made the indicated investment and Buffett expresses his belief that newspapers, especially local newspapers with local niches, have a vital role which should translate into profitability. That was followed by a huge qualification: IF they can find an appropriate business model that marries traditional print and advertising with on-line distribution and revenue. But none has done so yet, Buffett’s letter reminds everyone.

Buffett’s allocation of three pages of his letter to newspaper investments seemed more an explanation of why Berkshire would invest such small sums, for its size, in anything, whether newspapers or some other industry. The letter stressed the continuing decline in circulation, profitability and cash flows of the newspaper business, though mentioning that Berkshire’s own newspapers have done better than most.  The letter also made clear that, should the economics of the newspaper businesses Berkshire owns continue to deteriorate substantially, they will be candidates for sale.

The newspaper business, in short, remains in serious trouble. In fact, the real information content of this year’s Berkshire letter may be another point that Buffett emphasized: the only way buying a newspaper business makes sense today is if it can be bought for an extremely low price compared to earnings.  Berkshire’s acquisitions met the stringent test.

That mindset reflects the market’s sense about the value of the newspaper business as well, suggested by such examples as the lack of buyers a few years ago for the Seattle Post-Intelligencier and Rocky Mountain News (Denver) and what has become notoriously clear were wildly excessive valuations of Rubert Murdoch when be acquired the Wall Street Journal in 2007 and of the New York Times when it acquired the Boston Globe two decades ago.

Civic mindedness, noblesse oblige, or a desire to be relevant and in the mix may stoke the appetites for some potential buyers of newspapers, such as Murdoch, the group of businessmen who bought the Philadelphia Inquirer last year, Mort Zuckerman, or even the Hearsts, Sulzbergers and Zells of the world. But despite Buffett’s obvious personal fondness for newspapers, that isn’t his style. Journalists who thought Buffett was saying he’d play that role should likewise think again.  As I read the letter, the real message is that the newspaper business, like many others being throttled by rapid disruptive change, faces profound challenges.

  March 19, 2013 at 12:28 am   Posted in: Current Events   Print This Post   No Comments

Gulliver, CEOs, and University Presidents

posted by Lawrence Cunningham

University presidents are starting to feel some of the constituency pressure visited since the 1980s on their CEO counterparts in corporate America. Until then, CEOs reigned supreme over their corporate bastions, many ruling with an iron fist. Directors were supportive and shareholders deferential.  There would be occasional upheaval but this was rare.  CEO tenures were long.  Those days have been long gone for some time.

Until the past few years, university presidents ruled their roosts as well, with helpful trustees and deferential faculty.  Not anymore.

As John Sexton of NYU found out in a “no-confidence” vote of his largest faculty group last week, the constituencies are restless.  NYU’s trustees pledge their continued support, but other NYU faculties and some of the school’s unionized employees promise further pressure. Last summer, Teresa Sullivan, president of U. Va., felt such pressure from the university’s trustees, who ousted her temporarily until the faculty came to her rescue. Similar upheaval occurred at Harvard a few years ago and more recently at Oregon, Texas and Wisconsin (and at several other places if academic leaders below the rank of president are counted).

Interestingly, presidents in quite a few of these episodes have been charged with the complaint of operating the university too much like a corporation.  That’s one of the central assertions of the NYU faculty voters, who say Sexton is too focused on growth. They cite his “Global Network University” with lucrative campus footprints worldwide and his tendency to pay high salaries to selected scholars rather than offer across-the-board increases.  Many are upset at plans to expand the Greenwich Village campus in a radical way. They despise his top-down management style. 

So presidents who run their universities like corporations now face the fate of corporate chiefs for doing so. The power of shareholders and directors increased exponentially in the past 20 years, making the all-powerful CEO a relic.  With the rising power of faculties and trustees in the university, academic presidents may soon turn into short-term caretakers as well.  

There is a good case that the pendulum swung too far in corporate America in favor of shareholder democracy and outside power. It will be a shame if a similar thing happens to America’s universities.  Maybe that’s the NYU faculty’s point. Sexton should probably not run NYU as if it were a modern corporation, given its educational mission and unique fiduciary duties to attend to student needs rather than to maximize profits for shareholders.  Running NYU that way not only subverts those goals, but will ultimately and ironically weaken the president’s position.

Photo: Gulliver’s Travels, an apt analogy for what happened to corporate CEOs from 1980 to 2000 and what may be happening to university presidents.

  March 17, 2013 at 6:30 pm   Posted in: Current Events, Education   Print This Post   4 Comments

The Pope’s Red Stefanelli’s

posted by Lawrence Cunningham

The following is from the News Democrat (IL) via McClatchy-Tribune Information Services, dateline March 5, 2013; byline Roger Schlueter, headline “The devil wears Prada … but what about the pope’s red loafers?”

In 2006, Hollywood showed us that “The Devil Wears Prada.” Could it be that Pope Benedict XVI made questionable fashion choices concerning his very sole?  This was the rumor that began swirling after Cardinal Joseph Ratzinger became Pope Benedict XVI in April 2005. Retiring the brown shoes worn by his predecessor, John Paul II , Benedict brought back the red loafers favored by many previous popes.

His fashion sense, which, included Serengeti sunglasses and Geox-donated walking shoes, quickly gained the notice of designers.   In its 2007 list of the best-dressed men in the world, Esquire magazine named Benedict “accessorizer of the year” for his ornate papal habits paired with those red shoes. Perhaps because of that, you’ll still find stories that claim Benedict’s red footwear are none other than that chi-chi Italian brand Prada costing who knows how much.

Well, those shoes are worth hundreds of dollars a pair, but they aren’t Prada — and they didn’t cost Catholics a penny. They’re the work of Adriano Stefanelli , an Italian shoemaker who, out of love for his church, reportedly began making shoes as a gift for the pope a decade ago.

“When I was a child and people would ask me what I wanted to do when I grew up, I used to answer, ‘I’d like to make the pope’s shoes,’” Stefanelli told Catholic Online (www.catholic.org) in 2008. “Today, it seems to me, I’ve realized my childhood dream.” . . .  The shoes — which Stefanelli describes as “ruby red, almost bordeaux” — are hand-sewn and take nearly a month to make. [They cost about $550 a pair.]  

The return to red served several purposes for Benedict, who loves cats and relaxed at night by practicing the piano, [said] Lawrence Cunningham , a professor of theology at the University of Notre Dame . . . .  Traditionally, he said, red is worn to symbolize the blood shed by Catholic martyrs. It also signifies the burning fire of God’s love. . . .

  March 8, 2013 at 7:00 am   Posted in: Current Events, Humor   Print This Post   No Comments

A Terrible 5 Years, So What’s Up with the Dow?

posted by Lawrence Cunningham

Today chief executives worry, companies hoard cash, uncertain fragility and fragile regulation haunt our banking system, and recession continues, with gas prices up, GDP growth down, unemployment up, government debt and size up and political leadership not showing the ability to come to grips with any of it.

Yet the Dow Jones Industrial Average yesterday matched a level not seen since October 2007, a few months before the current crisis showed up.  Believers in the efficiency of stock markets will take this as a sign of good times ahead, believing that markets reveal better than anything else the truth about business fundamentals.  Skeptics will plan to cite this as the first sign of a bubble.  Some highlights, then and now:

 

Dow Jones Industrial Average: then 14164; now 14164 

Regular Gallon of Gas: then $2.75; now $3.73

GDP Growth: then +2.5%; now +1.6%

US Unemployed: then 6.7 million; now 13.2 million

Americans On Food Stamps: then 26.9 million; now 47.69 million

Size of Federal Reserve (assets): then $890 billion; now $3.01 trillion

US Debt as % GDP: then ~38%; now 74.2%

US Deficit: then $97 billion; now $975 billion

US Government Debt: then $9 trillion; now $16.43 trillion

US Household Debt: then $13.5 trillion; now 12.87 trillion (the only bit of good news listed yet)

Consumer Confidence: then 99.5; now 69.6

US Credit Rating: then AAA; now AA+

 

Hat Tip: Whitney Tilson, at Value Investor Insight Newsletter, who in turn credits Zero Hedge as the source.

  March 6, 2013 at 1:25 pm   Posted in: Current Events, Uncategorized   Print This Post   2 Comments

The New York Fed and the Rule of Law

posted by Lawrence Cunningham

In Sunday’s New York Times, business columnist Gretchen Morgenson reported a piece of investigative journalism that is transcendently important, but whose complexity may have obscured that. It concerns secret dealings of the Federal Reserve Bank of New York. Morgenson explains the importance of her topic in terms of the threatened erosion of social trust that can occur when central banking officials engage in dubious behavior.

I would add that her topic, dubious dealings of central bankers, is of vital importance because those who run the FRBNY have enormous power in the field of banking regulation. They oversee the largest banks and provide direct input into the Financial Stability Oversight Council, the interagency government organization created by the Dodd Frank Act to oversee the financial system. It is empowered to intervene when the next financial crisis occurs, which could be later this year or five years or ten or what have you.

As with the financial crisis of 2008, these government actors, dominated by the FRBNY, will call all the shots about which institutions to save, sell or seize, on the one hand, and which creditors and shareholders to pay, wipe out or shortchange, on the other. How they exercise these powers is thus a matter of the utmost national interest. How they exercised them in the 2008 crisis remains both obscure and questionable. Read the rest of this post »

  March 5, 2013 at 10:52 am   Posted in: Administrative Law, Bankruptcy, Corporate Finance, Current Events, Financial Institutions   Print This Post   No Comments

Word Clouds of Buffett’s Letters

posted by Lawrence Cunningham

Here are word clouds I created to visualize words Warren Buffett used most frequently in two of his famous letters to Berkshire Hathaway shareholders, the first based on his newest letter (2012, released Friday) and the second based on his oldest (1977).

The word “billion” has (inevitably) replaced the word “million;” Charlie (Munger) has assumed a preeminent position; acquisitions matter greatly now but not then; insurance float matters more in 2012 while insurance underwriting mattered more in 1977; BNSF and GEICO are big today, along with newspapers, not the textile company or trading stamp business as was true back then.  Quite a few other changes should be obvious as well.  Among the similarities: the centrality of earnings to discussions of corporate performance (particularly as compared to cash flow or dividends).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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  March 3, 2013 at 3:19 pm   Posted in: Corporate Finance, Corporate Law, Current Events   Print This Post   No Comments

Buffett’s Annual Letter 2013 / 2012

posted by Lawrence Cunningham

At 4:15 pm EST today [Friday March 1, 2013], thousands of journalists and a large percentage of the 600,000 shareholders of Berkshire Hathaway downloaded the company’s 2012 annual report, which includes Warren Buffett’s famous annual letter.  (Fans may also include the company’s nearly 300,000 employees.)

I was among those downloading and talking to reporters afterwards, conversations which will continue all weekend and indeed right through the annual meeting in Omaha on May 4 when about 40,000 shareholders will convene for what Buffett has for decades called “the Woodstock of capitalism.”

Among this year’s highlights:  2012 was only the 9th year in Berkshire’s 48 year history that the company’s percentage gain in book value did not beat the S&P’s gain.  But the gain was still impressive at 14.4% (versus 16% for the S&P), with Berkshire racking up $24.1 billion for its shareholders.

Berkshire benefited from powerful insurance operations that gave it the free use of $73 billion, called float, premiums received which Berkshire holds for its own use.  Float has been a huge driver of Berkshire’s success over the years.

Buffett is very bullish on America, from both an investment and management perspective. That is a contrarian outlook compared to the skittishness and cash-hoarding propensities of many fellow CEOs.  ”Opportunities abound in corporate America,” Buffett writes, adding “America’s destiny has always been clear: ever-increasing abundance.”  (See also Matt Krantz at USA Today, quoting me on this point.)

For the first time, Buffett shares investment and capital allocation responsibilities with others. As part of the succession planning underway at Berkshire for a few years, the board appointed Todd Combs and Ted Weschler as senior investment officers. In 2012, they participated in selecting one of Berkshire’s 15 common stock investments whose market value exceeds $1 billion.  The pick: DIRECTV.  Berkshire/Buffett followers will be watching that stock like a hawk this year.

Another treat is a fascinating essay on the economics of the newspaper business, in which Berkshire increasingly allocates investment capital. That’s interesting because this marries one of the most traditional businesses imaginable to today’s complex tech environment in which the news is delivered.  (That essay will go into future editions of my book, The Essays of Warren Buffett: Lessons for Corporate America, a new edition of which will be released on March 15, well ahead of this year’s annual meeting!) Read the rest of this post »

  March 1, 2013 at 5:11 pm   Posted in: Current Events   Print This Post   No Comments

The Dangerous Fragility of Men

posted by Mary Anne Franks

“I have also been a victim of violence and of burglaries before… I felt a sense of terror rushing over me … I was too scared to switch a light on.” Oscar Pistorius relating his state of mind before shooting his girlfriend Reeva Steenkamp four times through a bathroom door.

She “knew exactly how to press his buttons and make him angry.” Jovan Belcher complaining to his mistress about his girlfriend, Kassandra Perkins, before shooting Perkins nine times in front of their baby daughter.

“Like the spider and the fly. Wasn’t she saying, ‘Come into my parlor, said the spider to the fly?” Defense attorney Steve Taylor describing the 11-year old girl gang-raped by more than a dozen men in Cleveland, Texas.

“And it’s – all he sees are heavily tinted windows, which are up and the back windows which are down, and the car has at least four black men in it…” Defense attorney Robin Lemonidis explaining why her client, Michael Dunn, shot into a vehicle of unarmed teenagers eight times, killing 17-year-old Jordan Davis.

“Hurricanes. Tornadoes. Riots. Terrorists. Gangs. Lone criminals… These are perils we are sure to face — not just maybe. It’s not paranoia to buy a gun. It’s survival.” Wayne LaPierre, Executive Vice President of the National Rifle Association, objecting to the Obama Administration’s consideration of gun regulation.

“It’s a fear of the unknown… I’ve never seen a woman get killed or wounded. In my mind they may resemble my wife and I don’t know how I would react. It’s one thing to see a man injured or killed but a woman, now that’s a different story,” Staff Sergeant Alex Reyes, voicing his objection to lifting the formal ban on women in combat.

According to traditional gender stereotypes, men are supposedly stronger, braver, and less emotional than women. However unfair or inaccurate, this belief, along with the association of vulnerability, anxiety, and fear with women, has persisted throughout most of Western history. Once one scratches the surface of this myth, however, it becomes apparent that stereotypical “masculinity” (and “hyper-masculinity” even more so) is in fact defined by fragility. This fragility, moreover, is of a truly perplexing nature: it actually increases, rather than decreases, with power and privilege. Why did a world-renowned athlete who lives in a “fortified mansion surrounded by barbed wire” not even stop to turn on a light before shooting his girlfriend four times (if one takes seriously Pistorius’ claim that the shooting was an accident)? Because he was so intensely afraid of being victimized by burglars. Why did a popular NFL linebacker shoot the mother of their infant daughter nine times at close range? Because she did things that made him angry and scared, like staying out late at a concert. Why did more than a dozen men take turns raping an 11-year-old girl, one of them recording the rapes on his cellphone? Because they were so overwhelmed by her seductive clothes and makeup that they couldn’t control themselves. Why did a middle-aged white man with a gun in his glove compartment shoot eight times into a vehicle with four teenagers in it? Because he was so scared of the teenagers’ loud music and attitude that he imagined they must be pointing a gun at him. Why do American citizens – even those who live in gated, high-security enclaves complete with security guards, alarm systems, and identification checkpoints – need an infinite number of virtually unregulated, high-capacity weapons? Because hurricanes and terrorists threaten their very survival. Why should qualified women be denied the opportunity to be recognized and promoted for combat activity? Because some male soldiers – supposedly well-trained, experienced male soldiers – might become paralyzed by the sight of a woman in distress.

This is not the “New Age sensitive male” mocked by comedians and pundits. These men don’t ask questions or cry when they feel vulnerable: they kill, rape, and discriminate. And society largely allows, even encourages, them to do so. Instead of demanding that these men take responsibility for their own weaknesses, our society accommodates and excuses them. This is the flip side of blaming the victim: excusing (or justifying) the perpetrator. The time and energy spent criticizing a girlfriend’s supposed greediness, or an 11 year-old girl’s supposedly provocative clothing, or teenagers’ supposedly loud music could be spent challenging and marginalizing the inability of certain men to control themselves.

To acknowledge and reflect on one’s vulnerability is a good thing; to hold the world in thrall to it is not. Feeling vulnerable is often different from actually being vulnerable, and even actual vulnerabilities should not be used as a license for malicious or reckless behavior. With the supposed vulnerability of famous athletes, soldiers, and gun owners everywhere on display, perhaps we can also appreciate the vulnerability of those far more at risk.

  February 28, 2013 at 3:50 pm   Posted in: Criminal Law, Current Events, Feminism and Gender, Uncategorized   Print This Post   39 Comments

In Honor of Alan Westin: Privacy Trailblazer, Seer, and Changemaker

posted by Danielle Citron

Privacy leading light Alan Westin passed away this week.  Almost fifty years ago, Westin started his trailblazing work helping us understand the dangers of surveillance technologies.  Building on the work that Warren and Brandeis started in “The Right to Privacy” in 1898, Westin published Privacy and Freedom in 1967.  A year later, he took his normative case for privacy to the trenches.  As Director of the National Academy of Science’s Computer Science and Engineering Board, he and a team of researchers studied governmental, commercial, and private organizations using databases to amass, use, and share personal information.  Westin’s team interviewed 55 organizations, from local law enforcement, federal agencies like the Social Security Administration, and direct-mail companies like R.L. Polk (a predecessor to our behavioral advertising industry).

The 1972 report, Databanks in a Free Society: Computers, Record-Keeping, and Privacy, is a masterpiece.  With 14 case studies, the report made clear the extent to which public and private entities had been building substantial computerized dossiers of people’s activities and the risks to economic livelihood, reputation, and self-determination.  It demonstrated the unrestrained nature of data collection and sharing, with driver’s license bureaus selling personal information to direct-mail companies and law enforcement sharing arrest records with local and state agencies for employment and licensing matters.  Surely influenced by Westin’s earlier work, some data collectors, like the Kansas City Police Department, talked to the team about privacy protections, suggesting the need for verification of source documents, audit logs, passwords, and discipline for improper use of data. Westin’s report called for data collectors to adopt ethical procedures for data collection and sharing, including procedural protections such as notice and chance to correct inaccurate or incomplete information, data minimization requirements, and sharing limits.

Westin’s work shaped the debate about the right to privacy at the dawn of our surveillance era. His changing making agenda was front and center of  the Privacy Act of 1974.  In the early 1970s, nearly fifty congressional hearings and reports investigated a range of data privacy issues, including the use of census records, access to criminal history records, employers’ use of lie detector tests, and the military and law enforcement’s monitoring of political dissidents. State and federal executives spearheaded investigations of surveillance technologies including a proposed National Databank Center.

Just as public discourse was consumed with the “data-bank problem,” the courts began to pay attention. In Whalen v. Roe, a 1977 case involving New York’s mandatory collection of prescription drug records, the Supreme Court strongly suggested that the Constitution contains a right to information privacy based on substantive due process. Although it held that the state prescription drug database did not violate the constitutional right to information privacy because it was adequately secured, the Court recognized an individual’s interest in avoiding disclosure of certain kinds of personal information. Writing for the Court, Justice Stevens noted the “threat to privacy implicit in the accumulation of vast amounts of personal information in computerized data banks or other massive government files.”  In a concurring opinion, Justice Brennan warned that the “central storage and easy accessibility of computerized data vastly increase the potential for abuse of that information, and I am not prepared to say that future developments will not demonstrate the necessity of some curb on such technology.”

What Westin underscored so long ago, and what Whalen v. Roe signaled, technologies used for broad, indiscriminate, and intrusive public surveillance threaten liberty interests.  Last term, in United States v. Jones, the Supreme Court signaled that these concerns have Fourth Amendment salience. Concurring opinions indicate that at least five justices have serious Fourth Amendment concerns about law enforcement’s growing surveillance capabilities. Those justices insisted that citizens have reasonable expectations of privacy in substantial quantities of personal information.  In our article “The Right to Quantitative Privacy,” David Gray and I are seeking to carry forward Westin’s insights (and those of Brandeis and Warren before him) into the Fourth Amendment arena as the five concurring justices in Jones suggested.  More on that to come, but for now, let’s thank Alan Westin for his extraordinary work on the “computerized databanks” problem.

  February 24, 2013 at 10:18 am   Posted in: Criminal Procedure, Current Events, Privacy, Privacy (Consumer Privacy), Privacy (Electronic Surveillance), Privacy (Law Enforcement)   Print This Post   4 Comments

Addictive by Design

posted by Frank Pasquale

I was honored to see Prof. John Banzhaf weigh in on a recent post on wellness programs. That post suggested parallels between the addictiveness of tobacco, and that of many food products. Little did I know the NYT was about to publish a blockbuster article on exactly that issue:

[In a 1999 meeting of food industry leaders,] [t]he first speaker was a vice president of Kraft named Michael Mudd. . . . As he spoke, Mudd clicked through a deck of slides — 114 in all — projected on a large screen behind him. The figures were staggering. More than half of American adults were now considered overweight, with nearly one-quarter of the adult population — 40 million people — clinically defined as obese. Among children, the rates had more than doubled since 1980.

Mudd then did the unthinkable. He drew a connection to the last thing in the world the C.E.O.’s wanted linked to their products: cigarettes. First came a quote from a Yale University professor of psychology and public health, Kelly Brownell, who was an especially vocal proponent of the view that the processed-food industry should be seen as a public health menace: “As a culture, we’ve become upset by the tobacco companies advertising to children, but we sit idly by while the food companies do the very same thing. And we could make a claim that the toll taken on the public health by a poor diet rivals that taken by tobacco.”

Fast food lawsuits are looking more prescient by the day.

Illustration: Via Engadget article on interactive ad patents.

  February 21, 2013 at 2:47 pm   Posted in: Agricultural Law, Culture, Current Events, Economic Analysis of Law, Food, Tort Law   Print This Post   24 Comments

Fleming on the Life and Work of Ronald Dworkin

posted by Danielle Citron

Over at Balkanization, Professor James Fleming has a touching eulogy honoring Ronald Dworkin, see here.  Professor Fleming is The Honorable Frank R. Kenison Distinguished Scholar in Law, Associate Dean for Intellectual Life, and Professor of Law at Boston University School of Law.  It’s a fitting tribute, all the more so given that Fleming has enriched Dworkin’s life-long project of taking rights seriously and, like Dworkin, has been a extraordinary guide in helping us understand the moral complexities of pressing constitutional issues.  New week, we shall be talking about Fleming and Linda McClain’s new book, Ordered Liberty: Rights, Responsibilities, and Virtues, which develops a civic liberalism that takes responsibilities and civic virtues – as well as rights – seriously.

  February 18, 2013 at 11:01 am   Posted in: Constitutional Law, Current Events, Symposium (Ordered Liberty)   Print This Post   One Comment

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