A blog on entrepreneurship
Some early returns ...
"Venturpreneur ... is very sharp and promises to add an interesting new angle to the blawgosphere."
Greg Goelzhauser
"Venturpreneur [is] supposed to focus on entrepreneurship, but already it's veered off topic a bit, and it promises to be entertaining."
Jack Bogdanski
Venturpreneur is maintained by Professor D. Gordon Smith
of the University of Wisconsin Law School
|
|
| |
Favorite Blogs
Thoughtful opinions.
Timely information.
Good writing.
Blogroll Me!
|
|
| |
|
|
|
|
Venturpreneur
By D. Gordon Smith
|
|
| |
Sunday, November 02, 2003
It's Official ... I have moved!
Check out my new site: http://venturpreneur.com.
23:00
Sunday, October 05, 2003
Holding Pattern ...
No, I haven't died. I am in the process of moving this blog to another site (http://venturpreneur.com), and I am saving up thoughts until that site is live. (Plus, things have been insanely busy here.) Anyway, we should be live at the other site in about a week. It's been great, blogspot, but the time has come to upgrade.
00:42
Monday, September 22, 2003
What's the deal with Contracts professors?
Last year, when I first began teaching Contracts, I signed up for a listserv, the purpose of which is to discuss contract law. I am on a similar listserv for corporate law, but the activity level on the contracts list is much higher. Not only that, but the professors there spend much of their time dissecting twisted hypotheticals constructed for (or by) their first-year law students. By contrast, professors on the corporations listserv rarely use the list, and when they do, it is usually to discuss recent developments in corporate law.
Instead of thinking about the contract hypotheticals, I started wondering why contracts professors would be so much more interested in this sort of activity than corporations professors. Perhaps more people teach contracts, so that list gets more traffic? Perhaps contracts professors spend more time working out fundamental questions, while corporations professors build on that foundation? Perhaps contracts professors are smarter (or dumber?) than corporations professors? Maybe the contracts listserv has some participants who feed this type of discussion, but the corporations listserv doesn't? Hard to tell, but if anyone is listening, I would love to hear your theory.
18:06
Vicarious and Limited Liability
Call me crazy, but the idea that society is willing to impose liability on one party for the acts of another is fascinating to me. Of course, it isn't just that we are willing to do this, but rather trying to figure out when we are willing to do this. Today, while I was substitute teaching for a colleague in Business Organizations, I discussed a recent New Jersey case in which a "rogue" law firm partner committed malpractice and stole client funds. In addition, this partner lied on a malpractice insurance application, and the insurance provider was attempting to rescind the policy. The case is complex, but it boiled down to a question of whether the malpractice insurance provider should be bound to a policy that was issued based on a misrepresentation by the rogue partner. On the one hand, this seems like a simple question of agency law. Every partner is an agent of the partnership; therefore, the agent's actions are the partnership's actions; therefore, the partnership cannot be protected by the policy because it was obtained under false pretenses.
But the trial court in this case had an interesting take on this issue, concluding that we should not punish all of the partners by rescinding the policy when only one of the partners lied. This reasoning would result in the insurance company -- rather than the law firm partnership -- bearing the burden of the partner's wrongdoing. The possible responses to this are many. We might say that the "innocent" partners should be more careful in selecting their fellow partners. Or that they are not really so innocent because they should have been monitoring the rogue partner more closely. We might also argue that they received the benefit of the agency relationship and now they must bear the burden.
All of these are perfectly acceptable responses, and the appellate court seemed to embrace this line of reasoning, ruling that the policy should be rescinded. But then add this fact: the law firm partnership was a limited liability partnership. As a result of this decision, the insurance company is off the hook. And the innocent partner is exposed only to the extent that he had money invested in the partnership. If the obligation exceeds the partnerships assets -- which appears to have been true in this case -- the big loser will be the third party, who suffered a loss, but now has no possibility of full compensation.
All of this makes me wonder again about the interplay of vicarious liability and limited liability. Does our current allocation of burdens make sense? Something tells me it doesn't, but I need to do more work on this before I can be sure.
17:51
Contract Dissonance
My teaching schedule this semester includes the basic Contracts course plus my Law & Entrepreneurship Seminar. The former focuses on contract law while the latter is primarily about contract practice (how private parties structure entrepreneurial relationships through contract). Perhaps surprisingly, these courses have almost nothing in common. Issues of contract formation, contract damages, and the nature of consideration, which tend to dominate basic Contracts, are almost absent from the study of financial contracts. By the same token, discussions of incentive mechanisms that are the staple of Law & Entrepreneurship are largely missing from Contracts. I don't mean to imply that law is irrelevant to financial contracts, but my sense is that the importance of law is felt most on issues of good faith and fiduciary duty.
17:26
Sunday, September 21, 2003
Team Production ... Not
Reading Steve Bainbridge has paid off again. He alerted me to Lynn Stout and Margaret Blair's website, called "Team Production: An Alternate Theory of the Corporation." Lynn and Margaret invited me to participate in a conference at Georgetown Law Center several years ago in which they "launched" this idea with funding from the Sloan Foundation. They suggest that the theory of team production, first developed by Alchian & Demsetz, "explains why corporate law has historically protected the broad discretion of corporate boards and managers to balance the sometimes competing interests of all" stakeholders.
Despite my fondness for Lynn and Margaret, I am not buying. In my contribution to their symposium, I wrote: "The essence of the team production problem is that team members have an incentive to shirk.... [This] incentive to shirk derives from the inability to monitor team members perfectly and compensate them based on productivity." The fundamental problem with team production in corporate law is that monitoring is both possible and effective. In these circumstances, the theory of team production does not come into play.
02:55
The Garlic Shoppe
My one new find at the Mall of America was The Garlic Shoppe. I have long been fond of garlic, but The Garlic Shoppe pushed my feelings to a new level. The pivotal event was my sampling of various pickled garlics. Wow! They are selling franchises, and I would be sorely tempted, if not for my wife's not-so-veiled threats. Something to do with the effect of garlic on body odor....
By the way, the proprietor of The Garlic Shoppe told me that most garlic still comes from Gilroy, California -- home of the world-famous Gilroy Garlic Festival -- but that China has been making inroads. Everywhere I look, it seems, China is making inroads.
02:26
The Mall of America
Enough about the dispute. How about the Mall?
I had not visited the Mall of America prior to this trip, but since I was doing a case study of the lawsuit for control of the Mall, I felt obliged to make the trip. I even took one of my seven-year-old twins, who enjoyed the amusement park immensely.
All in all, however, the Mall was a disappointment. We parked on the east side, which was run down and dirty. The stores were mostly familiar, and we found very few that enticed us to enter (for the one notable exception, see my next entry on the Garlic Shoppe). In the end, we spent a little money on the rides, bought some cotton candy and some batteries for my camera, and found a Twins cap for my son. (Go Twins!!!) Like most tourists, our expenditures were modest because we were not there to find big-ticket items. After all, how would we get them home?
02:16
Mall of America Dispute
I spent Friday in the law offices of Dorsey and Whitney in Minneapolis, studying documents relating to the dispute between the Ghermezian Brothers of Canada and the Simon family of Indianapolis. No, I am not a consultant in the high-profile case, but I am writing a case study of the dispute for my forthcoming casebook. The case revolves around general partnership law, more particularly the law of fiduciary duty.
Here is an abridged version of the story: the Ghermezian brothers obtained permission to develop the land where the Mall of America now stands and recruited the Simons for their expertise in developing and managing large properties. The Ghermezians and Simons formed a general partnership. To finance the deal, the partners looked to the Teachers Insurance and Annunity Association (TIAA), which invested $630 million or so in the construction of the Mall. TIAA converted its investment from loans to limited partnership interests in 1992. Several years later, feeling the need to reduce its exposure, TIAA attempted to sell part of its limited partnership interest, but the partnership agreement prohibited such sales without the consent of the general partner (which was controlled by the Simons). According to the Ghermezians, the Simons then proceeded to negotiate secretly with TIAA, announcing a deal to purchase part of TIAA's interest in the spring of 1999. This transaction tipped the balance of power in the relationship, and the Ghermezians sued for breach of fiduciary duty, among other things.
Last week, a judge agreed with the Ghermezians. In a startling opinion, Judge Magnuson ordered the Simons to transfer the partnership interest to the Ghermezians, who now have to raise over $81 million in nine months. In addition, the judge placed the Ghermezians in charge of the management of the Mall.
The judge clearly perceived the Simons as bad actors, though he was not thrilled with either side's conduct. The most interesting aspect of the case to me: although the Ghermezians' contract claim is still alive, the parties did not do a good job of regulating this sort of behavior through the contract, and as a result, the judge based his decision on the law of fiduciary duty. "Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior." The Simons flunked the test.
01:40
Thursday, September 11, 2003
Steve Bainbridge joins the blogosphere!
A hearty welcome to my friend Steve Bainbridge, who has made the leap into the blogosphere with Corporation Law & Economics. The subtitle -- "A Corporate Governance and Law Blog, with Notes on Politics and Wine" -- gives you some sense of how eclectic your visit to this blog is likely to be. Steve is a great writer, and I cite him all of the time in my articles. He has a lot to say, and look forward to reading it.
13:50
Tuesday, September 09, 2003
Blogging and Lawyer Marketing
I just received a call from Jan Pribeck, who is writing a story about blogging for the Wisconsin Law Journal, a practitioner's journal here in the Badger state. I have noticed a fair degree of interest in blogging among practicing lawyers. The promise of blogging is that it can promote the lawyer or law firm to a large potential audience. The obstacles, however, are many. In particular, blogging is a time consuming enterprise, and it is a pretty indirect method of reaching potential customers. Lawyers complain often about their stressful schedules. Add blogging to an already stressed life, and you are not going to like the results. More importantly, perhaps, the best blogs have a point of view. An attitude. Many lawyers are rightly skeptical of taking firm public positions, not only because they may drive away potential clients, but because they find those positions used against them in litigation or negotiations. Blogging can be a fairly effective marketing tool for personalities -- how many of you would know Glenn Reynolds from his law review articles? -- but most lawyers are not selling their personalities. Quite the opposite, in fact, they are often selling their ability to assume a client's personality (or at least embrace a client's cause). In that context, blogging sends the wrong message.
15:06
|
|
| |
|
|
|
