Yes. So says R. Kim Craft and Joe G. Baker in a recent paper in the Journal of Economic Education entitled “Do Economists Make Better Lawyers? Undergraduate Degree Field and Lawyer Earnings.” Here is the abstract:

Using nationally representative data, the authors examine the effects of preprofessional education on the earnings of lawyers. They specify and estimate a statistical earnings function on the basis of well-established theory and principles. Along with standard control variables, categorical variables are included to represent graduate degrees in addition to the law degree and an assortment of undergraduate major fields. Holding a Ph.D. or M.B.A. degree, with the law degree, is associated with significantly higher earnings in some sectors. Lawyers with undergraduate training in economics earn more than other lawyers, ceteris paribus, and economics is the only undergraduate field associated with earnings that differ significantly. The available evidence supports the hypothesis that economics training increases a lawyer’s human capital compared with other undergraduate majors.

(HT: Tom Ulen at Law and Econ Prof Blog)

Bill Sjostrom broke the news of the disgraceful absence of directors at the recent Home Depot shareholders’ meeting here. I found the story so scandalous, however, that I did a bit more digging, just to see what sort of rationale for missing the meeting was proffered by the truant HD directors. All I found was the following little nugget of PR wizardry from Home Depot:

“While we understand that the approach we took to the annual meeting was a departure from past practice, it should in no way be construed as either a lack of respect for our shareholders or a lessening of our commitment to high standards of corporate governance and transparency. . . . If the board of directors’ absence or the structure of our annual meeting offended any shareholder, that was certainly not our intent.â€?

Allow me to offer three things:
1. If, according to HD, the directors’ absence should “in no way be construed as … a lack of respect for our shareholders,� how *should* it be construed? It is hard to alternatively interpret the facts: A bunch of important shareholder proposals were up for vote at the annual meeting, the directors knew or should have known that some shareholders had significant concerns that they would probably like to raise, the annual meeting is the one big shareholder gathering of the year (and the shareholders do *own* the company, after all), there are planes AND trains AND car services that regularly, frequently, and cheaply go from Atlanta, GA (HD headquarters, where the directors were), to Wilmington, DE (where the annual meeting was held). On those facts, how *should* the directors’ absence be construed?

2. We are told by HD that it was “certainly not� the intent of the HD directors to offend their shareholders. Now, I am admittedly no Dr. Phil, but I would like to think that I could have seen the shareholder offense coming down the pike if I were an HD director deciding whether or not to skip the annual meeting. Does HD want its investors to believe that *not a single one* of the 10 below-listed directors, with their incredible backgrounds and experience, could have predicted and warned of the shareholder offense? If it was fairly clear that the shareholders would be offended, and I maintain that it was, can HD say with a straight face that they really did not . . . expect (and therefore basically intend) to offend investors?

3. Is the statement issued by HD regarding the missing directors really the *best* that could have been offered by HD at such a time of upset? It was bad enough for the derelict 11 directors to no-show. HD’s absolutely pathetic responsive public statement just added insult to injury. Without being too cynical, it *might* appear to an outside observer – maybe, perhaps – that HD actually believes that their shareholders are neither (a) important nor (b) smart enough to realize that the press release is arguably . . . *ahem* disingenuous.
I am not a PR person, *and* I am shooting off the top of my head here, but if I had drafted the HD press release, I would have added a huge dose of crow and said something along the lines of:

“Clearly, we, the HD directors, misjudged the impact that our absence would have on our investors, and we are chagrined. Obviously our absence was not intended to evince a lack of respect for our shareholders, and we apologize. We anticipated that there would be less distraction and friction, and, thus, a more productive meeting, if we remained in Atlanta, attending to important matters at our headquarters. We painfully miscalculated how this venue decision would be perceived by our investors, and we want to express most sincerely our apologies and our continued commitment to serving HD and our shareholders.�

If the above proposed statement (which took me about two minutes to draft) required more time and thought than HD had available when issuing their pathetic public statement, I would have at least hoped the directors could have individually punted and shown some creativity in justifying their absences to avoid further offense:
“It was a ‘black-out’ date for my frequent flier miles.�
“My six-year old was graduating from first grade.�
“Wilmington, Delaware? Blasted Mapquest – I was in Wilmington, North Carolina.�
“I get car/train/plane sick.�
“Annual meeting? What annual meeting?�
“It’s not you. It’s me.�

Perhaps Joe Nocera said it best (in the NYT, dated 5/27/06 (Section C – The Board Wore Chicken Suits)) when he observed:
“I’m sure there are plenty of boards and chief executives who have contempt for their shareholders, but most of them are at least smart enough to keep it to themselves.�

No-Show Directors:

See here for the story.

For those following the option backdating scandal, the W$J has a regularly updated scorecard here listing the embroiled companies, etc.  (HT:  Lattman).

The NYT is reporting today (see here) that approximately 10,000 Vonage customers participated in its directed share program for its recent IPO.  Customers had until yesterday to pay for the shares.  However, given that the stock has dropped from its IPO price $17.00 to $12.50, some customers are refusing to pay.  Vonage indicated that it will repurchase unpaid for shares from the underwriters if necessary letting the customers off the hook.  This is probably a smart move given Vonage’s section 12(a)(1) exposure from its FWP snafu (see here).  But what about customer’s who already paid?  Will Vonage let them rescind?

We’re pleased to announce that we are one of a handful of blogs featured on Securities Mosaic’s new Blogwatch feature. You can check it out here.

Back in 2001 I published an article entitled Going Public Through an Internet Direct Public Offering: A Sensible Alternative for Small Companies? DPOs had been (and continue to be) touted as a financing alternative for a small company that needs capital but can’t attract angel or VC financing or an underwriter to take it public. I concluded that, except in limited circumstances, small companies should view DPOs only as a financing option of last resort (although it probably ranks above going public through a reverse merger). The big problem, of course, is that it is very difficult to attract investors when, among other things, there is no underwriter backing the deal with its reputational capital, established sales force, and aftermarket support and federal and state securities laws greatly limit permissible marketing activities. DPOs generally make sense only for a company with a strong affinity group (e.g., a micro-brewer or maker of organic pasta).

There have been a number of significant changes to federal securities laws since 2001. Two changes are of particular relevance to the advisability DPOs, one for the better and one for the worse. (more…)

In my first post on the economics of lawyer licensing (and in the comments) as well as my subsequent response to the Wilson/ Ribstein Point of Law discussion, I mentioned that this is an area where empirical evidence should add significantly to the debate since we have a good deal of variance in state restrictions on the market for legal services. Accordingly, I asked about the state of the empirical evidence on this issue. Larry Ribstein’s final entry answers my questions:

“Joyce Palomar, The War Between Attorneys and Lay Conveyancers—Empirical Evidence Says “Cease Fire!â€?, 31 Conn. L. Rev. 423 (1999) found little evidence of risk to the public from lay providers of real estate settlement services. But there’s obviously a lot more work to be done. Fred. S. McChesney & Timothy I. Muris, The Effect of Advertising on the Quality of Legal Services, 65 A.B.A. J. 1503 (1979) and Advertising and the Price and Quality of Legal Services: The Case for Legal Clinics, 1979 Am. B. Found. Res. J. 179 found that a legal clinic using advertising in high-volume practice reduced costs without compromising quality.”

Thanks Larry. As Dave Hoffman points out, measurement problems can pose difficulties for identifying the impact of varying levels of lawyer licensing on the quality of legal services. Despite these difficulties, the evidence supports what economic theory would predict: (1) cartels increase prices; and (2) licensure does not increase quality because of repuational sanctions and private alternatives. In addition to the papers that Larry cites (and as I note in the comments to Dave’s post), this summary of the literature (though a bit outdated) describes the state of the literature as follows: “Most of the evidence on this issue, however, suggests that licensing has, at best, a neutral effect on quality and may even harm consumers.”

Neither of these results is surprising from an economic perspective. The former result is exactly what is expects from a cartel which artificially restricts output. The latter result calls into question whether there are any offsetting benefits of the cartel arrangement. Finally, I agree with Larry that there is obviously a lot of useful empirical work to be done in this area which can exploit the variation in state UPL statutes to identify the impact of lawyer licensing.

According to today’s W$J (see here), only a single director (the Chairman and CEO) attended Home Depot Inc.’s recent annual shareholders’ meeting, and he refused to answer questions as to why the other directors were not there. A commentor to this post about Halliburton’s annual shareholders’ meeting asserted that “[t]he purpose of the meeting is to allow shareholders the opportunity – just once a year – . . . to confront management if they so choose.â€? This may be the position of some shareholders, but it is not supported by state corporate law. As the Home Depot meeting demonstrates, there is no requirement that directors or other members of management even attend (although skipping the meeting is probably unwise from an investor relations standpoint). For more on the purpose of annual shareholders’ meetings, you’ll have to wait for my upcoming paper “The Case Against Mandatory Annual Director Elections and Shareholders’ Meetingsâ€? which I will post on SSRN in the near future.

Ok, not really. But the Antitrust Modernization Committee voted overwhelmingly in favor to repeal the Act (HT: Antitrust Review). Apparently, nine Commissioners voted in support of a the statement: “that Congress should repeal the Act in its entirety” on the grounds that: (1) the Act does not serve any purposes not already served by the Sherman Act, and (2) the Act is a net cost to consumers and competition. Though I doubt that Congress will accept the AMC’s invitation to act on behalf of consumers and repeal the Act, this the right result.

I have written previously (and in this paper) on the role of antitrust regulation of business practices facilitating price discrimination in the wake of Independent Ink. My views are consistent with the AMC’s position that price discrimination alone should not give rise to antitrust scrutiny because the Sherman Act is sufficient to cover all practices that harm competition:

“The court could have rid antitrust law of the inference that price discrimination is anticompetitive in any manner. Benjamin Klein and John Wiley, Jr., for example, have argued that (70 Antitrust LJ 599 (2003)) price discrimination should be a defense. This sounds right to me. This does not mean that all such practices would be immune from antitrust liability totally. Practices that facilitate price discrimination may be happen to injure competition for other reasons, i.e. a tying arrangement may foreclose a rival from sufficient distribution as to achieve minimum efficient scale for a significant period of time, thus raising barriers to entry. But price discrimination adds nothing to that analysis on its own.”

This conclusion obviously also applies to the Act, which allows condemns pricing behavior without proof that competition has been injured or consumers are any worse off. For this reason, there is near uniform consensus has been a significant cause of consumer welfare losses. Though I suspect the Act will stick around for awhile (though perhaps without criminal penalties?) — it has survived other calls for repeal — the AMC’s conclusion may be influential at the agency level and otherwise.

As Lisa Fairfax notes over at the Glom (see here), Martha Stewart has decided to fight the civil insider trading charges filed against her by the SEC in June 2003 (more here). The complaint had been stayed pending resolution of the related criminal proceedings. With those proceedings resolved, the SEC lifted the stay last month. The complaint also named Stewart’s Merrill Lynch broker, Peter Baconovic, as a defendant. While from Stewart’s perspective there is not a lot of money at stake (the SEC alleges she avoided losses of $45,673 by engaging in insider trading), in addition to disgorgement of losses avoided and civil penalties, the complaint seeks an order barring Stewart from “acting as a director of, and limiting her activities as an officer of,� any public company.

The SEC is trying to nail Stewart as a tippee under the misappropriation theory of insider trading. Under this theory, the SEC has to prove, among other things, that: (more…)

See here! Skilling was found guilty of 19 counts (incl. conspiracy, fraud, false statements and insider trading). Lay was found guilty on 6 counts (fraud and conspiracy).

I imagine both men will make model prisoners, although Lay might be the better prisoner, since he is very good at closing his eyes to bad things and ignoring signs of trouble. (We are talking about potentially *decades* in jail, as we all know. I will be curious to see how that plays out. For the record, I do not think inmate attire is fitted for cuff-links, such that Lay might want to leave his trademark ‘links at home. Or perhaps he will pawn them to pay for his appeals. . .or fines of some sort . . . or recompense to his investors. . . .)

John Hueston, the prosecutor, made a statement a short while ago in which he said two things in particular that caught my attention:

1. He said something about the verdict proving that a CEO cannot just *not* ask questions. (Forgive the double negative, but one of the compelling points for the jury, in the prosecutor’s eyes, was that Lay failed, in part, by not pushing for information – not asking questions – ignoring the red flag information that was right in his lap – not acting in good faith! See here and here for my “Not in Good Faith” manifesto. Who would have thought that the same sort of the fundamental failings that trouble me about director behavior would translate so well (relatively speaking) to the criminal context when dealing with officers?)

2. In addition, Mr. Hueston emphasized that it is no longer acceptable to hide behind lawyers and accountants. I sure *hope* so! I wonder how long it will be before we have multiple sets of outside lawyers and accountants reviewing financials to ensure that nobody is hiding behind anyone. I see this as akin to when Boards started demanding their own counsel, apart from the GC and apart from the outside corporate counsel. I, for one, would be DELIGHTED if multiple layers of accounting and legal review turn out to be a short-term impact of today’s verdict. Even if the costs are duplicative and significant, those costs are still LESS than the cost to investors of another Enron-esque catastrophe.

As you’ve probably heard, Vonage’s IPO was a flop. It closed down 12.6% from its IPO price of $17. This represented the weakest first day performance of an IPO in nearly two years. It also greatly magnifies the apparent technical violations of the Securities Act I blogged about yesterday (see here). As Voange disclosed in its prospectus, it failed to comply with Rule 433 for its email blast and Rule 134 for its voicemail blast, and as a result these “could be determined to be . . . illegal offer[s] in violation of Section 5 of the Securities Act, in which case recipients could seek to recover damages or seek to require us to repurchase their shares at the IPO price.�

For Vonage, the best “defenseâ€? to any claimed violation would have been a nice first day pop followed by the stock staying above its IPO price until the one year statute of limitations ran. In such an event, there would have been no economic motivation for any investor to bring a lawsuit. Alas, that didn’t happen. If Vonage gets sued, it’s prospectus indicates it will rely on an “insignificant deviationâ€? defense. Per its prospectus: (more…)

Larry Ribstein and Jonathan Wilson are discussing the merits of lawyer licensing at Point of Law. I am especially interested in the discussion of whether lawyer licensing actually protects consumers of legal services from dishonest and incompetent lawyers. Wilson argues that removal of lawyer licensing may well result in lower prices for legal services, but will also the lower the quality of services provided to those without independent means to verify quality. In his own words:

The impact will be greatest on those who cannot afford lawyers now, the poor and the middle class. Today they rely on Legal Aid, legal clinics, friends, neighbors, relatives and self-help. They’ll still rely on these old standbys in a deregulated future, but they’ll also be tempted to try unlicensed alternatives and here is where the mischief will be made.

Online services and other unlicensed individuals will setup shop to sell legal services that they are prohibited from selling today. Their contributions to the legal “marketplace� will have no effect on the price of legal services to corporations, who will continue to buy top shelf lawyering, but they will sell their services to the poor and the middle class. To the extent their unlicensed services are deficient; it is the poor and the middle class who will feel the brunt of those failures. Will some unlicensed practitioners supply a need that is unmet today? Probably so. And so would the unlicensed doctor who might provide unlicensed healthcare at a cut rate with 90% accuracy. The problem will come from the 10% error rate.

Wilson’s argument begs the question of the state of evidence regarding the consequences of relaxing lawyer licensing restrictions. The testable implication of Wilson’s theory is that relaxations of lawyer licensing requirements should lead to lower quality services relative to those states with highly restrictive environments. Larry argues that there is no empirical support for Wilson’s predictions:

“[T]he exhaustive research that I did for Lawyers as Lawmakers: A Theory of Lawyer Licensing, 69 Mo. L. Rev. 299 (2004) revealed no credible arguments or data in support of the client protection rationale for lawyer licensing. Of course legal training provides important skills, as Jonathan argues in his recent post, and as I said in my post. But that doesn’t support licensing. Clients could be protected by markets, including certification by private organizations.

I am curious as to the state of the empirical evidence with respect to lawyer licensing and its impact on consumers. If I recall, the Federal Trade Commission has recently been involved in some advocacy efforts in favor of limiting the scope of unauthorized practice of law statutes. My sense is that a number of states must have relaxed unauthorized practice of law restrictions (I think Arizona is one), or similarly relaxed restrictions on lawyer licensing, such that one could directly test the impact of these restrictions on consumers in terms of prices and quality of service. There must be work on this somewhere. My quick Google search did not return anything right away, butdoes anybody know of empirical work in this area?