I'm also a week late on the Etsy IPO, and I trolled around the likely law prof blogs to see if anyone else had beat me to the punch (if I missed someone, please let me know and I'll update accordingly).
Etsy IPO'd last Thursday, pricing at $16 and opening at $30, raising $267 million. According the WSJ Blog, that's the most ever for a NY-based VC-backed firm.
But for my money the more interesting take came from the NYT, since it concerned organizational form. Etsy is a B-Corp-- but not a benefit corp. Here's Haskell Murray on the difference. Bottom line, a B-Corp is a certification thing, and you can be a for-profit B-Corp. A benefit corporation is a whole separate kind of entity, one organized not just for profit.
Here's the NYT on the importance of the B-Corp designation to Etsy:
Etsy declares in its public offering prospectus that it wants to change the decades-old conventional retail model of valuing profits over community. It states that its reputation depends on maintaining its B Corp status by continuing to offer employees stock options and paid time for volunteering, paying all part-time and temporary workers 40 percent above local living wages, teaching local women and minorities programming skills, and composting its food waste.
But wait, there's more. To maintain its B-Corp status, Etsy must reincorporate as a benefit corporation in a few years. B Lab's website says "companies must elect benefit corporation status within four years of the first effective date of the legislation or two years of initial certification, whichever is later." The NYT suggests a slightly longer glide-path: "B Lab is giving companies four years from the date any relevant state legislation is passed to comply with the state law or risk losing B Corp certification. Since Delaware passed that law in August 2013, Etsy has until 2017 to become a benefit corporation." Yet Etsy CEO Chad Dickerson is quoted as saying Etsy had no plans to reincorporate as a benefit corporation: “Regardless of certification, we plan to focus on delivering a strong business that also generates social good,” he said."
It will interesting to see how a publicly traded corporation like Etsy weighs the benefits of B-Corp certification against the risks and costs of moving to benefit corporation status. Risks like opening yourself up to 10b-5 and derivative shareholder suits if you fail to fulfill whatever social purpose you articulate in your articles of incorporation. Not to mention the securities law issues around stressing the importance of B-Corp status while seeming to suggest that it will lose that status in a few years.
The end of the semester hit like a ton of bricks, so there are a few blogposts that I semi-composed in my head and left unwritten. Plus this Associate Dean thing can make life a bit busy. But lest I get out of the habit of blogging entirely, here's a belated rant on Michael Malone's WSJ opinion piece, Reviving the Flagging Spirit of Silicon Valley.
Malone paints a picture of the vibrant, Wild-West Silicon Valley of yesteryear, where "anyone with brains, hard work, the guts to take real risks, and a whole lot of luck can become successful beyond their wildest dreams. That “anyone”—scientist, entrepreneur, secretary or receptionist—has a shot at the brass ring."
In Malone's story
The great turning point came with the dot-com bubble and its bust at the turn of the century. The bust allowed powerful institutions to get their hands on a place considered too renegade, too independent, and too successful to decide its own destiny. The federal government, long believing the Valley’s great companies were not displaying sufficient fealty—i.e., lobbyists and campaign money—came down hard on the tech industry. And as we all know, the Valley caved.
Then came a series of regulatory handcuffs. First was Sarbanes-Oxley, sold to the public as a curb on the corruption of the stock markets by over-pumped IPOs. In reality Sarbox was a way for Washington and big, mature tech companies to suppress new competitive startups that would lure away their talented employees. Next came the expensing of stock options by the Financial Accounting Standards Board.
I'm struggling with why my reaction to Malone's op-ed is so viscerally negative. After all, I teach and write in entrepreneurship. I like startups. And, for the record, what Malone says about the political economy is clearly right--it paid the price for thumbing its nose at Washington. Silicon Valley now spends a lot more money on Capitol Hill, and has reaped handsome returns, viz the JOBS Act.
Here's the rub for me: A lot of the policy arguments for the JOBS Act amounted to "We don't have as many IPOs/public companies as we used to! That's bad! Let's fix that!" To which I respond: How do you know what the right number of IPOs/public companies are? Just because they used to be at a certain level--say, in 2000--doesn't mean that's the right number. Maybe there are other reasons why IPOs declined, that have nothing to do with U.S. securities law.
To be fair, Malone 's gripe focuses on the fact that companies no longer widely distribute stock options to secretaries, receptionists, and the like. He blames FASB's move to expense stock options in 2004. But I keep coming back to Warren Buffet's simple questions: "“If stock options aren’t a form of compensation, what are they? If compensation isn’t an expense, what is it? And, if expenses shouldn’t go into the calculation of earnings, where in the world do they go?” FASB's rules should make sure that a corporation's books accurately reflect its finances. They're not about social engineering or fostering startups.
Malone mistakes correlation for causation thusly: "Say what you will, but the pre-Sarbanes, pre-FASB, pre-RSU Silicon Valley worked." It's not clear that the pre-Sarbanes, Pre_FASB Silicon Valley world was sustainable, even in a world without Sarbanes-Oxley or options-expensing. Moreover, his argument seems a particularly strange one given that Silicon Valley-style startups don't need any encouragement right now. A landscape with 83 private firms valued at $1 billion or more seems more bubblicious than moribund.
And, for the second time, get off my lawn.
Greenberg is suing the government for treating his firm unconstitutionally differently than other firms bailed out during the financial crisis - he argues, correctly, that AIG got killed, and was used as a vehicle to pay AIG's struggling counterparties out at 100 cents on the dollar. Whether that's a taking, given 1) that the government couldn't possibly treat everyone identically during the crisis, and 2) that AIG would have failed without the government's intervention, making the measure of damages difficult, is why many people have found the case to be unlikely.
So now that Greenberg is getting some good rulings, and sympathetic questions from the bench, the received wisdom seems to be that he is doing surprisingly well (though if he wins, an appeal is certain). I haven't read every transcript, but I do wonder whether the "day in court" effect is at work here. In appellate cases, I think that oral argument is an excellent predictor of the outcome. But at trial, with appeal likely, savvy judges often let the side that is going to lose put on plenty of evidence, and do well with motions, so that there can be no allegation of bias, and to minimize things to complain about on appeal. They get, in other words, their day in court. I'm not sure if that's what's going on there, but I know that when I was a litigator, I wouldn't want the court to treat long-shot adversaries with contempt, but rather with tolerance.
I don't totally get the advocacy play, but comics fans will enjoy the series of displays at the SEC's metro station - they are nice art, and they seek an SEC rule requiring disclosure of political contributions by publicly traded firms. Via Corporate Counsel, here's an example:
The corporate law community often places high hopes in judges as a mechanism for checking government or (in Delaware) defendant excesses. They usually go along, sure, but may in dicta indicate displeasure, or give critical speeches, and sometimes, as in the Newman insider trading case, the refusal to accept the Citigroup settlement, the ethics critiques made during the KPMG prosecutions, that displeasure will sprout into an adverse ruling.
It's a pretty interesting, but pretty gauzy, was of thinking about adjudication, maybe Orin Kerr would find it persuasive in the Fourth Amendment context, but in other areas of public law, administrative law, for example, the small community of bench and bar just don't see their roles that way. It's not, "SEC you've gone too far this time, and so we're cooking up a new reason to reverse you," it's "SEC [or EPA, or whoever], we substantively disagree with this policy, and we're cooking up a procedural reason to reverse it." Different, in that administrative law is not governed by equity, it is governed by process.
Anyway, my theory about the way white collar works in New York - opaque, clubby, but almost chivalrous - gets what I'm taking as a vote of confidence in James Stewart's nice overview of the fight between the judges and the US Attorney's Office in Manhattan over the pushy, PR-savvy nature of the US Attorney. The whole column is well worth reading - for one thing, it sounds like a bunch of judges talked to Stewart, which never happens, and there's the requisite, "greatest judges ever! but" from the prosecutors office and "whatta prosecutor! however" from the judges. But here's an excerpt that illustrates the way that this weird "just do justice" method of handling white collar crime works:
[Former statehouse speaker Sheldon] Silver’s lawyers moved to dismiss his indictment because Mr. Bharara had orchestrated a “media firestorm” that tainted their client’s right to a fair trial. Such motions are considered long shots, but Judge Valerie Caproni of Federal District Court in Manhattan wrote that Mr. Silver had a legitimate argument that the case should be thrown out because Mr. Bharara, “while castigating politicians in Albany for playing fast and loose with the ethical rules that govern their conduct, strayed so close to the edge of the rules governing his own conduct.”
Judge Caproni ultimately sided with the government, so there’s no way of knowing how close she came to tossing the indictment. But the possibility she even seriously considered such a step has set off alarms among some of her fellow judges. Judge Caproni herself acknowledged that dismissing an indictment is a “drastic remedy” that is “rarely used.” She also noted that the motion was not a disciplinary proceeding against Mr. Bharara. That didn’t stop her from spending a good part of the opinion questioning his ethics and chastising him for his public comments about the case.
This is, as they say, developing, and if you think that Bharara may be AG some day, one question is whether he will be able to avoid being blackballed by the bench ... and whether a blackballing would work outside of the white hankie world of white collar crime administration (didn't seem to work out so badly for Rudy Giuliani).
Over at Prawfsblawg, contributors are posting about their memories of blogging from the past ten years. I thought I would add mine here.
Gordon and I began Conglomerate in November 2004 after combining/abandoning our two "weblogs," BizFems Speak! (wince) and Venturpreneur. I'm sure I won't get this all right, but the other blawgers on the block were Volokh Conspiracy, Bainbridge, Ideoblog (Larry Ribstein), The Right Coast, Leiter Reports, Crescat Sententia (then law student Will Baude and others), Sentencing Law & Policy, Crooked Timber (ok, economists), and a handful of others. Then came Prawfsblawg. Then Concurring Opinions. Then my Marquette colleage Eric Goldman's Technology & Marketing Blog. Not to mention the Law Professors Blog Network (Paul Caron). Then everybody. I wrote with nostalgia about 2005:
Blawgosphere 2005 was like a freshman dorm. I felt like I was great friends with all sorts of law professors, and we all sort of new about each other, just from the blog. We knew what Steve had for dinner and Orin linked to a picture of my dog. Sure, we all had different specialties, but we were thrown together for intramural sports and mixers. On our blogs, we spent a lot of time talking to each other just about law school in general. Now, we're like in graduate school. We each focus on our own stuff, and link to primary sources in our field. We link to each other occasionally, out of nostalgia, but not often. Back then, we had a lot of conversations that were rarely discussed in big groups: getting into law school, going through the meat market, whether students should be on law review, whether students should clerk, what the standard course package was, etc. One of our posts that got the most traffic was on blind grading! But now, these discussions seem stale. Do we really need to have another round of "where are the women bloggers?" or "what should professors wear to class" or "what do you call your students?" It's almost like your freshmen buddies asking you five years later "Is Goofy a dog?" and you think, "Didn't we already cover this?"
I remember going to Law & Society in 2005 in Las Vegas, and it was like a family reunion with cousins I hadn't seen since childhood, even though I had never met them in person. Suddenly, even though I was teaching in Milwaukee, Wisconsin, I had colleagues across the country it would have taken me years to meet through going to conferences. It was a little weirder meeting readers, where the informational asymmetry was real -- they knew what movie I went to last week, but I didn't know their names. Still, I loved it. I loved the camaraderie and the fellowship.
Of course, Danny Markel was a big part of that camaraderie, and many of the anniversary posts at Prawfs are dedicated to his memory. And, of course, Larry Ribstein. I unwittingly picked a fight in the blawgosphere with Larry Ribstein, and he recommended me for a job. The rest is history.
I'm behind on a few movies, so here's a twofer. I'll start with the bad news.
Spongebob. However bad you thought it would be, it's worse. The kids and I went on a cold day during Spring Break when it was at the dollar movie. We overpaid. The youngest, age 7, swears it was good, but he's just doing that to save face.
I'm not a Spongebob hater. Back in the early 2000s, when I had toddlers and a stream of Blue's Clues, Dora the Explorer and Caillou, Spongebob was a welcome respite from cloying sweetness. Spongebob was laugh-out-loud funny but still had a sweet spirit. I can still tell you episodes I enjoyed: the claw episode, the driving test episode, the marching band episode, anything with Sandy. But then Spongebob became annoying to me. I have not spent enough time or analysis to know whether the show got worse, or it just wasn't new any more, or Phineas and Ferb filled that smart-but-sweet family cartoon void better. Anyway, I have outlawed Spongebob in the same way that others outlawed Barney. Too much is too much. But here we are watching (the second) Spongebob movie in the theater.
The basic plot is familiar -- Plankton wants to steal the formula. The actual plot is beyond my understanding: something about Antonio Banderas as a pirate reading a magical book about Plankton trying to steal the formula, then the pirate ending up with the formula and Bikini Bottom looking worse than Pottersville after Uncle Billy loses the money. There's a time machine and a magical space dolphin. Then the Bikini Bottom characters go to the surface to get the formula back from the pirate. (the trailer is almost all about the "out of water" portion of the movie, but 90% of the movie is not "out of the water.' It's almost as if the writers were on some sort of psychedelic imagination-enhancers and everyone got to put in an idea. Don't go. Don't Redbox. Just don't. Surely there's a rerun of Phineas and Ferb on.
Home. This movie may not be the good news, but it's better than Spongebob. We were very excited to see this movie based on the trailer and it was a Friday night destination. It was ok. The marketing is really interesting. To "seed" the idea of a new movie with new characters based on a little-knownchildren's book "The True Meaning of Smekday," the producers created a short film called "Almost Home," which played in theaters before other Dreamworks movies. That short film, featuring Steve Martin as the incompetent leader of the alien Boov, was really funny. The longer movie is not quite as funny.
As seen in the short, the Boov are on the run from another alien race, the Gorgs, and are having a hard time finding a hospitable planet. They finally find Earth. Of course, Earth has inhabitants, so Captain Smek tells the Boov that humans are stupid and in need of the Boov to take over, which they do. The Boov relocate the humans to Australia. (The Boov are all on one spaceship, so it's hard to imagine that they fill up the entire non-Australian planet, but they seem to fill up at least New York and London.) Our heroine, Tip (full name Gratuity, unexplained), is separated from her mom and hiding out in New York from the Boov. Our almost hero, Oh, is a Boov on the run after he is blamed for attracting the attention of the Gorgs to the Boov's new planet. Soon, Oh and Tip are driving a car (made to hover by Oh, who is something of a technician) to Australia. Apparently the car moves at the speed of the Concorde, though it looks to just be ambling in the sky. Like other road movies with two opposite characters, the scenes between Oh and Tip are pretty funny. The best scenes are in the trailer if you don't want to spend any money.
I haven't read the book, but the movie requires you to suspend a lot of disbelief. If Tip is 14, how does she know how to drive a car? In New York? Why is she named Gratuity? How do 7 billion people fit in Australia? Where did all of those row houses for the humans get built in one day? How did any of this happen in one day? The best part of the movie is of course Oh, who is voiced by Jim Parsons from The Big Bang Theory. His character is very similar to Sheldon's character. He is very literal, selfish, and lovable.
When you join a transnational regulatory network, you have to report to the network that you're acting consistently with its principles, that you have the powers that it expects you to have, and that you're a worthy member of the club. The SEC just made its case to its peers through a 700 page Q&A that is worth a look, though it exemplifies the differences in the way a lawyer or a social scientist might approach the question "what do you do?" The SEC is full of lawyers, and so this report includes not so many numbers, but plenty of discussion of regulatory powers, and representative matters that show how those power are exercised.
However there is some aggregate data. For example, the SEC keeps track and categorizes the sorts of cases that it brings. In 2013, the agency was, for example, mostly likely to initiate a securities offering proceeding, which it did 103 times, followed by 68 reporting and disclosure cases, 50 market manipulation cases, and, bringing up the rear, only 44 insider trading cases (the agency was only asked about these categories, the reporting is on page 184 et seq. Did I know this? More pump and dump proceedings than insider trading cases? Anyway, it's that sort of thing that will surely have you reading the whole 700 pages, just as I did.
The 14th annual workshop on Conducting Empirical Legal Scholarship, co-taught by Lee Epstein and Andrew D. Martin, will run from June 15-June 17 at Washington University in St. Louis. The workshop is for law school faculty, lawyers, political science faculty, and graduate students interested in learning about empirical research and how to evaluate empirical work. It provides the formal training necessary to design, conduct, and assess empirical studies, and to use statistical software (Stata) to analyze and manage data.
I co-teach a year-long Business Ethics class that culminates in the students writing and presenting a case study. (It occurs to me that I haven't blogged much about this class, and I will rectify that, but that's for another post.)
Today I want to talk about a case study that focused on textbook pricing-- undergraduate, because there is more information available. One student recounted a single Intro Bio textbook that cost $500. I remember thinking books were expensive back in my college days, but $500! How does textbook inflation compare with other metrics? According to the GAO, the price of textbooks increased 82% between 2002-2021, tuition and fees increased by 89%, and overall consumer prices grew by 28% (this stat and the others come via the excellent case study).
Where does all that money go? I've always wondered. According to this US News article, 21.6 %of the purchase price of a new book goes to the bookstore, 1% to shipping, and 77.4% to the publisher. And according to the same article, in 2008 (the last available data) 15.4% of the purchase price went to marketing, 11.7% to authors, 32.2% to paper, printing, and overhead.
We told the students to be neutral in the case study, so here's the publishers' position: students increasingly want products that accompany textbooks, including study guides and applications like online quizzes and homework for teachers. These things cost money to develop.
While the case study focused on college textbooks, of course the students talked about their experiences in law school. The consensus is that casebooks are way too expensive. There's a lot of frustration over the fact that rental prices and digital casebooks are not much less expensive than new ones. The students heartily condemned the widespread practice of changing a few pages in a casebook and then trotting out a new edition to avoid cannibalization from the secondary market.
I had pushed the case study author to address the professor's role in all this--not the casebook authors, but the professor selecting a casebook. Because, as the students are all too aware, this isn't a pure market, it's a mediated one. Students enrolled in a course are captive to their professor's textbook choices. Which brings me to my ethical question: what responsibility do I as a teacher have to my students in selecting a casebook? Should I pick the cheapest one? How much, if at all, should price matter to me? Some of my colleagues have even developed online casebooks, that are either free or available at a very low cost.
I can't go that far. I switch Corporations casebooks every year because 1) I'd get bored otherwise and 2) the students would have the notes from prior years and they would phone it in. And, frankly, I'm not excited about the prospect in compiling and editing a bunch of cases--there are plenty of people out there who have spent a lot of time thinking about how to structure a casebook, and they've done a better job than I could. The compromise I've currently struck is never to select a casebook in the first year of a new edition. That way at least the students have the choice of buying used. I'm not sure this is the right balance, but it's one I can feel okay about, at least for now. More deeply, it seems like as we move to digital publishing something has got to give.
After the jump, the NTT announcement.
Full time, but non tenure track. Details after the jump.
VLS is a beautiful law school, in a beautiful place, and it isn't owned by the state of Vermont. So why did it commission a study establishing its economic importance for the Vermont economy? I would guess that it is either an effort to lay the groundwork for a bailout, or a pitch that the law school should be made a part of the state university system. The study's bottom line:
VLS is shown be a very strong contributor to the local economy. By virtue of the unusually high proportion of operating expenditures made in Vermont, itself a product of relatively high salaries of its professional staff, VLS is responsible for a high level of job and income creation. VLS generates not only strong payroll-related spending, but when combined with student and visitor expenditures, resulting employment growth is very strong. The 2.9 employment multiplier for VLS, discussed in the section on total economic impact, is dramatic evidence that VLS produces a highly localized impact in a small state that normally sees a high proportion of expenditures flow from the State for goods and services produced elsewhere.
It's hard to know what the future holds, of course, but the school has been engaged in some serious downsizing - the sort of downsizing that would suggest that hiring a consultant to defend the value of the school is an expense worth foregoing. And there have long been mutters about a takeover, either by Dartmouth or UVM - the law school is located almost exactly between them. Could the law school be making a case for a merger? There's also all of this previously.
Understanding the Modern Company
Organised by the Department of Law, Queen Mary University of London,
in cooperation with University College London
Saturday 9 May 2015, 09.00 to 17.00
Centre for Commercial Law Studies
Queen Mary University of London
67-69 Lincoln’s Inn Fields
London WC2A 3JB
From their origin in medieval times to their modern incarnation as transnational bodies that traverse nations, the company remains an important, yet highly misunderstood entity. It is perhaps not surprising then that understanding what a company is and to whom it is accountable remains a persistent and enduring debate across the globe.
Today, the company is viewed in a variety, and often contradictory, ways. Some see it as a public body; others view it as a system of private ordering, while still others see it as a hybrid between these two views. Companies have also been characterized as the property of their shareholders, a network, a team, and even akin to a natural person. Yet the precise nature of the company and its role in society remain a modern mystery.
This conference brings together a wealth of scholars from around the world to explore the nature and function of companies. By drawing from different backgrounds and perspectives, the aim of this conference is to develop a normative approach to understanding the modern company.
- Professor William Bratton, University of Pennsylvania
- Professor Christopher Bruner, Washington & Lee University
- Professor Karin Buhmann, Roskilde University
- Dr Barnali Choudhury, Queen Mary University of London
- Professor Janet Dine, Queen Mary University of London
- Professor Luca Enriques, University of Oxford
- Professor Brandon Garrett, University of Virginia
- Professor Martin Gelter, Fordham Law School
- Professor Paddy Ireland, University of Bristol
- Dr Dionysia Katelouzou, King’s College London
- Professor Andrew Keay, University of Leeds
- Professor Ian Lee, University of Toronto
- Dr Marc Moore, University of Cambridge
- Dr Martin Petrin, University College London
- Professor Beate Sjåfjell, University of Oslo
- Professor Lynn Stout, Cornell University
To register, please visit: www.bit.ly/QM-Modern-Company