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Beaulieu Vineyard Georges de Latour Private Reserve (Napa Valley) 1991

At age 13, this wine still has a long life ahead of it. At the rim, it is beginning to shade towards brick but there is still a pretty deep ruby center. A powerful bouquet of cedar, cassis, and dried dark fruits. On the palate, it offers black currants, tobacco, cedar, and leather. Outstanding. Grade: A

Christmas Eve Dinner: Beef Tenderloin Steaks with Goat Cheese Sauce

Beef Tenderloin Steaks with Goat Cheese Sauce

• 2/3 cups milk

• 1 slice white bread, crusts trimmed, torn into small pieces

• 1 large egg, hard-boiled, chopped

• 1/4 cup crumbled soft fresh goat cheese

• 1 garlic clove, crushed

• 1 teaspoon Dijon mustard

• 1 tablespoon extra virgin olive oil

• juice of 1 small lemon

• Pinch sugar

• Pinch salt

• 1 teaspoon ground white pepper

• Pinch nutmeg

• 1 pound beef tenderloin cut into 8 slices

• 1/2 cup all purpose flour

• 1/4 teaspoon black pepper

• 1/8 teaspoon salt

• 1 tablespoon butter

• 1 tablespoon olive oil

• 1/4 cup Cabernet Sauvignon

• 2 tablespoons Cognac

• 3 tablespoons finely chopped fresh chives

Scald the milk in a small saucepan. In a small food processor, combine the scalded milk, bread, egg, and garlic. Process until well blended. Add the goat cheese, garlic, mustard, olive oil, lemon juice, sugar, salt, pepper, and nutmeg. Process to a smooth consistency. Transfer sauce to a medium saucepan.

Using the heel of your palm, briefly pound out filet slices to about inch thickness. Mix flour, salt, and pepper. Lightly dredge steaks in flour mixture, shaking off excess. Melt 1 tablespoon butter together with olive oil in a large skillet over high heat. Saut beef in batches until brown, about 1 minute per side. Transfer beef to platter. Add wine to skillet; bring to boil. Add cognac. Touch a match to wine/congac mixture to flame. Add beef; turn to coat.

 

Bring goat cheese sauce to a simmer. Stir in 2 tablespoons of the chives. Spoon onto plate; top with beef slices; dot beef slices with a bit of sauce.

 

Serve with gnocchi and Cabernet Glazed Shallots

Cabernet Glazed Shallots

• 1 tablespoon butter

• 8 shallots, peeled and trimmed

• 2 cups Cabernet Sauvignon

• 3 tablespoons sugar

• 1/3 cup sparkling apple juice

Melt the butter in heavy skillet over low heat. Add the shallots. Saute until the shallots are begin to soften, stirring occasionally, about 10 minutes. Add the Cabernet and sugar. Stir until the sugar dissolves. Simmer mixture until the liquid is reduced to a glaze consistency, stirring occasionally (about 20 minutes).

Add the apple juice to skillet, increasing heat to return liquid to boil. Reduce heat and simmer until the liquid is reduced to a glaze consistency, stirring occasionally (about 15 minutes). Season to taste with salt and pepper.

Serve with:

Gnocchi (locally I can get the Frerrara brand)

A well-aged Cabernet Sauvignon (preferably 10 years old or more)

Scatter remaining chives over each plate and dot plate borders with remaining glaze from shallot preparation.

Cowen on Bebchuk and Fried on Executive Compensation

Regular readers will recall that I'm spending my Christmas break writing a review for the Texas Law Review of Lucian bebchuk and Jesse Fried's book Pay Without Performance: The Unfulfilled Promose of Executive Compensation. Their book is getting a lot of attention both in the press and the academy - and deservedly so, as they do a very good job as advocates of a so-called managerial power model of executive compensation.

Bebchuk and Fried forcefully contend that “managers have used their influence [over corporate boards of directors] to obtain higher compensation through arrangements that have substantially decoupled pay from performance." In other words, the executive compensation scandal is not the rapid growth of management pay in recent years, as too many glibly opine, but rather the failure of compensation schemes to award high pay only for top performance. They attribute this failure to management’s control over the board of directors. They claim that “directors have been influenced by management, sympathetic to executives, insufficiently motivated to bargain over compensation, or simply ineffectual in overseeing compensation.” As a result, executive pay has greatly exceeded the levels that would prevail if directors loyal to shareholder interests actually bargained with managers at arms-length.

In today's WSJ($), economist and blogger Tyler Cowen offers a very thoughtful review of Pay without Performance. Key observations:

Messrs. Bebchuk and Fried focus their criticisms on the "arm's length" model of hiring CEOs. According to such a model, a potential CEO and the company in search of an executive will strike a rational bargain, calculating costs and benefits on each side and picking the compensation scheme that will best serve the purposes of all concerned. Messrs. Bebchuk and Fried assemble an array of evidence to suggest that cozy deals between CEOs and their boards get in the way of this admirable rationality.

But the arm's-length model is not so easily defeated. Assume the worst -- that CEOs and boards are in cahoots. Outside capital still approaches this corrupt bundle from its own arm's-length point of view. If the problem were a big one, surely some firms would set up truly rational and fair executive-pay incentives to attract capital at a lower cost. And over time we would expect those firms to succeed in the marketplace. But there is no evidence of this happening. One would think that new firms would be in the best position to correct the inefficient status quo, but the data do not suggest that they are set up with more "rational" models of governance.

(Temporary nonsubscriber link here.)  In other words, you would only buy Bebchuk and Fried's thesis as a complete explanation of what's going on with executive compensation if you have no faith in markets at all. When you see my review, you'll see that I've concluded that their model is but one of several complimentary rather than competing explanations for the observed pattern of executive compensation practices.

William Klein

My UCLA colleague, co-author, and friend Bill Klein is one of the few legal scholars to have established a world-class reputation in two distinct fields (in Bill's case, taxation and business associations). Tax Prof Blog has posted a profile of Bill, which focuses on his tax work. It's a very nice tribute to a great scholar.

My Waitlist

The Associate Dean just informed me that my Business Associations class next semester is full and has 20 students on the waiting list. She's going to make me move to a bigger room and take the students off the waiting list. (Why she didn't make me do that in the fall when the class was also over-subscribed is something of a mystery, but I don't ask obnoxious questions of a lady with the power to make me teach at 8 am!)

But hold on a minute. Via Marginal Revolution, we learn of this amusing story:

Jay Wilson, a second-year law student at New York University, was desperate to register for a popular course in constitutional law.

Unfortunately for him, the course, taught by the youthful Daryl Levinson, was completely booked for the upcoming spring semester. Fortunately, Mr. Wilson had some money to spare. In a posting on an online bulletin board at the law school, Mr. Wilson offered $300 to any student willing to drop the course to make room for him...

Students interviewed at the law school said the practice of exchanging course spots is common at the school. As a kind gesture, some cash-strapped students have promised to bake cookies for willing traders or pass them invitations to exclusive parties.

Mr. Wilson, they said, took things to a new level: a no-nonsense business deal, the sort of financial transaction that they expect to deal with only after graduation. (Link)

Marginal Revolutionary Alex Tabarrok goes on to observe:

Of course, the authorities soon moved to quash such deals.  The dean, however, did not explain why paying to get into a class is wrong but paying to get into law school is good.  Hmmm....perhaps Mr. Wilson would have had better luck had he offered to pay the dean rather than another student.

So why shouldn't the Associate Dean let me auction off, say, 10 spaces to the students on the waiting list? I'd go halfsies with her. Heck, I'd even make a donation to the law school's annual fund.

Larry Ribstein has a somewhat more serious (and sensible) take on the matter:

I have a follow-up suggestion:  limit enrollment of every course to some minimum required to offer the course, then let students bid, and evaluate professors based on the bids.  For this purpose, it doesn't have to be real money -- just offer the students a set amount of "class cash" so they have to ration their resources.  [ProfB: Hey! Wait just a darn minute. I like cold cash better than "class cash."]

... If we are going to have students evaluate teachers, let's do it in a meaningful way, with markets.

You say this is not nuanced enough -- we don't know why students are bidding high for a course and it might be for bad reasons?  But students have a lot at stake in their legal education, and they are entitled to the assumption that they're mature, responsible adults. No reason not to trust the market in this case.

Jonathan Chait Peddles Shopworn Stereotypes

In a LAT column, Jonathan Chait rolls out two old canards to explain the dearth of conservatives in academia:

1. "First, Republicans don't particularly want to be professors. To go into academia — a highly competitive field that does not offer great riches — you have to believe that living the life of the mind is more valuable than making a Wall Street salary." Wrong. As I pointed out in my recent TCS column: Network Effects: Liberals and Conservatives in the Academy: What about all those conservatives who have taken low paying jobs at think tanks like Cato, Heritage, or AEI? Or the public interest lawyers working at low paying jobs at places like the Pacific Legal Foundation? My firm belief is that those institutions provide a pool of individuals who would be perfectly happy to settle into the academy, if they had a fair shot at finding an academic job.
2. "Second, professors don't particularly want to be Republicans. In recent years, and especially under George W. Bush, Republicans have cultivated anti-intellectualism." In other words, conservatives are stupid. Wrong again. As I also pointed out in my TCS column, Data from the widely used General Social Survey (GSS) consistently show that Republicans are better educated than Democrats (on average, they have more than half a year more education and hold a higher final degree). In addition, Republicans score better than Democrats on two tests included in the GSS. As for Chait's argument that conservatives are anti-intellectual, how about all those fine public intellectuals who write for opinion journals like Policy Review, Commentary, or First Things, to name a few? Or how about all those policy wonks working at places like AEI or Heritage?

In sum, Chait reveals himself to be woefully ignorant of both the academy and conservatives. As I explained in my TCS column, most of the dearth of conservatives in the academy can be ascribed to instituional biases. Sometimes, however, it is actual bias.

The latest example comes from the hiring of famed international law professor Jack Goldsmith at Harvard law School. Although Goldsmith was hired, his liberal opponents not only went public with their opposition, but also are continuing to try to get him fired. This is an almost unheard of breach of academic courtesy.

Nobody I know seriously claims that Jack Goldsmith is not qualified to serve on the Harvard Law Faculty. Indeed, according to the Boston Globe, Harvard Law School Dean Elena Kagan (a former Clinton staffer) observed of Goldsmith:

Goldsmith, author of noted books and articles on international law, has moved into his office at Harvard and is scheduled to begin teaching in January. Kagan said Tuesday that ''I'm as proud of this appointment as I could be."

Goldsmith's ''work was lauded by a great many people, and we determined that he was an absolutely superb teacher and scholar," she said. ''He puts issues on the table that everyone focuses on and debates, and he's done that in a very short career. He's a very agenda-setting scholar, and that's exactly the kind of exciting scholarship that we want to have here."

Glenn Reynolds opines that: "Notwithstanding that Goldsmith has been critical of my position on cyberporn and the Commerce Clause, I think that he's a first-class scholar and a good hire for Harvard."

So why are the liberals, including three of the five international law specialists at Harvard, opposing him? Not because he is incompetent, but because they don't like what he thinks. It is the worst sort of McCarthyism; but, of course, that's precisely what the academic left is best at. And all of Chait's obfuscation can't change that basic fact.

Update: Nick Confessore opines of Chait's piece: " it's the best thing I've ever read on the subject." Huh. For Chait's tired rehash of long disproven stereotypes to qualify for Confessore's top spot, it must be the only thing Confessore's ever read on the subject.

Update2: Henry Farrell says my analysis of Chait's second point contains a non-sequitur and further opines:

Nor does the fact that Republican intellectuals exist contradict the fact that there is a strong strain of anti-intellectualism to Republican Party rhetoric, and Republican attempts to appeal to voters (as, for example, the pillorying of Al Gore for using big numbers and complicated ideas). While this anti-intellectualism doesn’t completely explain the dearth of Republican academics by any stretch of the imagination, it surely helps contribute to the hostility of many in the academy, as does the open hostility of many Republicans to evolutionary biology and the very real scientific consensus on global warming.

One would have thought my point was obvious, but let me spell it out. Point one: There are a lot smart conservatives out there interested in intellectual matters and the life of the mind. They're qualified to be academics and likely would pursue an academic career if they had a fair shot at landing one. Point two: Even if Chait and Farrell are right that there is a streak of anti-intellectualism in the Republican party, so fricking what? Why does that justify the academic left's discrimination against conservatives? (You'll note Farrell just sort of glides past that point.) Would Farrell say that environmentalists should be excluded from the academy because some eco-nuts commit the grossly anti-intellectual act of vandalizing laboratories doing animal research? Of course not. So spare me your stereotypes and generalizations. And stop using Karl Rove's (highly successful) campaign tactics as your spurious justification for discriminating against conservative academics. Just because your Democrat party can't beat Bush doesn't justify taking our your anger on right-of-center job applicants.

Update3: Farrell now says:

I simply point to a major flaw in Bainbridge’s argument; he egregiously misinterprets Chait for his own rhetorical purposes. This has no bearing on the underlying question of whether there is, or is not, discrimination against conservative academics. In Bainbridge’s response, he doesn’t even bother to try and justify his misinterpretation; instead he tries to change the subject again by claiming (without any evidence whatsoever) that I’m trying to justify anti-conservative discrimination.

I don't think so. Chait said:

Second, professors don't particularly want to be Republicans. In recent years, and especially under George W. Bush, Republicans have cultivated anti-intellectualism.

Perhaps I erred in assuming this was a thinly disguised version of the "conservatives are stupid" argument, but I'm not the only one who read it that way. San Diego law professor Tom Smith wrote:

Jonathan, this a good first draft. However, I would try next time to rely a little less on tired cultural stereotypes such as “Democrats are smart/Republicans are stupid; Democrats are altruistic/Republicans are greedy.”

(Do go read the whole thing.) On the other hand, CE Petit also took me to task for conflating intellectualism with educational achievement. (It's another one worth reading in full.)

In any event, I also went on to point out that even if you buy his factual premise about the GOP, there remains a substantial streak of serious intellectualism among conservatives. In light of the substantial intellectual firepower on the right side of the life of the mind, Chait's argument made no sense unless he's arguing that the academy is somehow justified in discriminating against conservatives because of the alleged anti-intellectualism of the GOP. How else would one interpret it?

As for Farrell, remember what he said:

While this anti-intellectualism doesn’t completely explain the dearth of Republican academics by any stretch of the imagination, it surely helps contribute to the hostility of many in the academy ...

If that's not an attempt to invoke the "hostility of the academy" to justify - or, at least, explain - the dearth of conservatives in the academy, what is it?

Silver Oak Cabernet Sauvignon (Alexander Valley) 1992

A beautiful Cabernet at prime drinking age. A rich bouquet of black currants, cedar, and olives. Deep flavors of prunes, cassis, leather, and cedar. Grade: A

Kevin Phillips on Joe Kennedy

Former conservative (and current populist crank) Kevin Phillips tells the Washington Post why he likes Joe Kennedy:

"An old buccaneer and bootlegger like Joe Kennedy became an SEC head for Roosevelt and cracked down on his own class."

Wrong. Kennedy never had an epiphany after which he became a class traitor (for one thing, the Kennedys hadn't yet become respectable, let alone royalty). Kennedy used his position at the SEC to settle old scores from his days on Wall Street, put potential future competitors out of business, and advance the political prospects of friends and family. But, heck, isn't that what the revolving door is for?

In any event, it ill-becomes even an odd duck like Phillips to say anything nice about Joe Kennedy, who was a perfectly awful man:

He was a notorious adulterer who carried on with a long list of women, including actress Gloria Swanson and even his own Hyannis Port secretary, and cruelly flaunted his infidelity in front of his wife and children. (Swanson and Joe's wife and children would dine together.) Joe arranged for his daughter, Rosemary Kennedy, to be given a lobotomy in the fall of 1941 without even consulting his wife, the child's mother, Rose Kennedy. The then highly controversial and experimental treatment left Rosemary, who had been suffering from what is now regarded as a case of clinical depression, a woman with the emotional development of a two-year-old child, one who could not wash or dress herself, not even put on her own pair of shoes. Joe paid off politicians and newspapermen, especially to endorse his son Jack for president and also cover up family dirt, like Jack's notorious infidelity and Teddy's expulsion from Harvard College for cheating. Joe openly did business with gangsters and bootleggers during Prohibition, whether his ventures were legal or not isn't really the issue. Notorious gang boss and murderer Frank Costello considered Joe his friend and business partner. ...

Much of Joe's reputation today as an investor is sullied by the company he kept as a business leader and a politician. He did business with gangsters in the liquor business during Prohibition, sleazy stock market operators during the 1920s, and slimy yes-men in Hollywood. But probably what left most of his reputation in tatters was his endorsement of anti-Semitic and pro-Nazi views during the 1930s, especially after his appointment by President Franklin D. Roosevelt in 1938 as Ambassador to Great Britain. ...

Harry Hopkins, Roosevelt's most trusted aide, [learned] that Joe had sold Czech securities and made $500,000 in profits while U.S. Ambassador. He apparently traded on top secret intelligence information that the Germans were going to invade Czechoslovakia and when they did the Czech stock market collapsed and Joe covered his shorts.

Curiously, however, it is the Bush family rather than the Kennedys that draws Phillips ire.

Wine in the Supreme Court

The Supreme Court heard argument today in the cases raising the constituionality of state restrictions on the interstate shipment of wine. According to CNN:

Several justices appeared troubled by the notion of unequal treatment, although they also seemed uncertain about whether overturning state laws that have been in place since Prohibition was the solution.

Actually, that is precisely the correct solution. As I argued in my TCS column Bacchus Bytes Back:

The Supreme Court should strike down these antiquated special interest laws. As I recall my civics lessons, preventing economic Balkanization was one of the principal reasons the Founders replaced the Articles of Confederation with our present Constitution. Discriminatory state bans on direct-to-consumer sales represent precisely the sort of economic Balkanization that would have offended the Founders. These laws advance no legitimate state interests, but rather are designed solely to protect entrenched special interests. It is time for them to go.

Update: We are quoted in a MSNBC story on the Supreme Court case on the legality of state bans on interstate shipment of wine:

"It's the discrimination that's the critical problem with these statutes," said UCLA law professor Stephen Bainbridge.

Bebchuk and Fried on Executive Compensation

As previously reported, I am reading with great interest Lucian Bebchuk's and Jesse Fried's book Pay Without Performance, which is a damning critique of executive compensation. I find much of their argument plausible and even persuasive, but I also think they overstate the case a bit.

Their analysis is premised on what they call "managerial power," which claims that management controls the mechanism by which its own pay is set. Hence, they argue, executive compensation fails to align managerial interests with those of shareholders. Although this claim seems true with respect to some types of compensation at some companies some of the time, there is evidence to the contrary. For example, the latest issue of the Economist reports on an interesting study of executive perks:

Raghuram Rajan, the IMF's chief economist, and Julie Wulf, of the Wharton School, looked at how more than 300 big companies dished out perks to their executives in 1986-99. It turns out that neither cash-rich, low-growth firms nor firms with weak governance shower their executives with unusually generous perks. The authors did, however, find evidence to support two competing explanations.

First, firms in the sample with more hierarchical organisations lavished more perks on their executives than firms with flatter structures. Why? Perks are a cheap way to demonstrate status. Just as the armed forces ration medals, firms ration the distribution of conspicuous symbols of corporate status.

Second, perks are a cheap way to boost executive productivity. Firms based in places where it takes a long time to commute are more likely to give the boss a chauffeured limousine. Firms located far from large airports are likelier to lay on a corporate jet.

In other words, executive perks seem to be set with shareholder interests in mind, which tends to undercut the likelihood that managerial power is a unified field theory of executive compensation.

Calpers President Fired

Sean Harrigan was ousted from the board of the No. 1 U.S. pension fund on Wednesday after spearheading a controversial corporate reform drive that drew the fund into pitched political and boardroom battles. (Link)

About time. Calpers has always been something of a gadfly in corporate governance, but for a long time the big pension fund actually did some good. Under Harrigan's watch, however, Calpers' missteps have escalated, ranging from mere stupidity to outright abuses of the powers Calpers' vast portfolio conveys upon it. E.g.?'

1. In order to advance the political ambitions of Phil Angelides, California's state treasurer and a Calpers board member, Calpers last spring targeted directors for removal at 2700 corporations. As I pointed out at the time: "A campaign directed at 2700 companies cannot succeed."
2. Also last spring, Calpers announced that it would note vote to re-elect investor Warren Buffet to Coke's board. I said the decision was based on "a bad policy that will not serve investor interests in the long run."
3. Calpers intervened in the Southern California grocery store strike on the side of the unions. At that time, 11 of the 13 Calpers board members were either union members, union officials, or politicians who take union campaign contributions. In particular, Harrigan is also the executive director of the very union (the UFCW) that was on strike! I said: "Those who like classical references will want to ask "Quis cusotdiet ipsos custodes?" Those who lean towards Biblical references will invoke Matthew 7:3-5."

Harrigan took much of the blame for these and other missteps; and appropriately so:

[A] UK governance activist said on Wednesday: “Sean's heart is in the right place but he never understood that thumping the table is not the best way to get companies to change. He comes from a union background, where it's all about confrontation. His approach alienated many of us who previously followed Calpers' lead.”

That same theme was aired at a Calpers board meeting weeks later. The gathering heard from luminaries such as Arthur Levitt, former Securities and Exchange Commission chairman, who warned that the fund must avoid “going off on political tangents which do not directly impact investment performance”.

Richard Koppes, a former Calpers general counsel, said the fund had become “too political”. He added: “There is serious concern that you are causing damage to the corporate governance movement.” (Link)

The problem is bigger than just Harrigan, however. It has been apparent for quite a while that the members of Calpers board are making policy on the basis of their own personal and political preferences, not the good of their beneficiaries. Firing Harrigan must be just the first step. It is time for a thorough going reworking of Calpers governance system, which at present is dominated by political appointees rather than representatives of the beneficiaries. It is time to stop the board from using the retirement savings of countless California public servants as a soap box for ends unrelated to maximization of the return earned by the fund.

Executive Compensation

I have been reading Pay Without Performance: The Unfulfilled Promise of Executive Compensation by (Harvard law professor) Lucian Bebchuk and (Boalt law prof) Jesse Fried. Bebchuk and Fried take issue with the standard academic account of executive compensation, which goes something like this: Executive compensation is a classic agency cost problem.  Although CEOs and other executives are agents of the corporation and its shareholders, they have incentives to shirk. Indeed, they have incentives to behave opportunistically - i.e., to maximize their own wealth and perks at the expense of their shareholder principals.  Accordingly, executive compensation schemes must be designed in ways that constrain shirking and opportunism; in other words, executive compensation schemes should strive to align executives' interests with those of the shareholders.  In the literature, this usually leads to a recommendation of some sort of performance-based pay scheme, typically entailing the use of stock options.

Bebchuk and Fried do a good job of explaining why executive compensation schemes fail adequately to align managerial and shareholder interests. In brief, they make the very sensible point that managerial influence over the board of directors taints the process by which executive compensation is set. In other words, the system by which agency costs are to be checked is itself tainted by an agency cost problem.

I get off the boat, however, when it comes to the solution. Bebchuk and Fried want to displace the time-tested corporate governance system of director primacy with an untested new system based on shareholder primacy. As regular readers of my academic work know, this is anathema in my book. (See, e.g., Director v. Shareholder Primacy in the Convergence Debate. I'm writing a review of their book for the Texas Law Review, which will focus on this point, and which should be available on my scholarship web site in a month or two.)

Having said that, however, Bebchuk and Fried are to be praised for having written a book that makes highly technical doctrinal and economic analysis accessible to the educated lay reader, while not dumbing down some very sophisticated analysis. As a result, the book remains useful to the specialist as well. It is definitely a book that anyone interested in corporate governance and executive compensation ought to own.