Yes, a corp law academic has thoughts about Wordle.

In an earlier post I had written:

… whether we are talking about crowdfunding, or equity crowdfunding, or DAOs, the common thread again seems to be mutual aid and reciprocity (as pointed out by Professor Hall in the case of Buy Nothing groups) and I will add, a sense of community

The “sense of community” was also one of the things motivating the meme stock phenomenon and now it seems to be a big factor in the success of Wordle too.

According to Dr Penny Kyburz, Wordle is popular because it is simple, easy to understand, and scarce (only one word a day). But along with all this, she adds that the “share” feature was important too. Not only does the feature allow you to share your results on social media, it keeps the shared post mysterious enough for others to want to check it out. I myself ignored it for a long time because I usually avoid jumping on the bandwagon of the moment but curiosity got the better of me. But ultimately I think that the ability to be part of something may others are engaged in, be able to discuss how a certain work did not seem fair to you, to brag about how you got it in the first attempt, seems to be what is sustaining people’s interest in Wordle.

As Mark serrels and daniel Van Boom write:

So Wordle isn’t just a word game, it’s a conversation starter and a chance to show off on social media. That’s why it’s going viral. 

This is especially true during the pandemic when many social interactions have either been halted or transformed. Prof. Katy Pearce is quoted as saying that Wordle offers “an easy, low-stress way of generating conversation and achieving a straightforward daily task in an era where even daily tasks and low-key interaction are sometimes strenuous and overwhelming”.

My takeaway from all these trends is that the office and in person working will not disappear although the pandemic has taught (and if not, should teach) us that remote work is possible and should be allowed when necessary for the employee’s well being.

Investor activism on ESG in Australia

A study (published in 2021) of shareholder resolutions on ESG in Australia finds that the pool of shareholder ESG filers is very concentrated:

The pool of filers of the shareholder ESG resolutions in Australia is particularly concentrated. Not including co-filers, the 83 resolutions were filed by only seven proponents… other than two resolutions filed by Galilee Blockade, every resolution since 2015 (70 resolutions) has been filed by one of only two filers – either ACCR or Market Forces.

On subject matter of these resolutions, the authors report:

Of the 83 shareholder resolutions advanced in listed Australian companies between 2002 and 2019, 48 concerned climate change,… A further 26 resolutions, at least notionally, related to governance. The other resolutions related to workers’ rights, human rights, free and informed consent, and gambling.

Nothing on diversity.

The authors explain [in FN 27]

All but one of the ESG resolutions categorised by ACCR as ‘governance’ resolutions involved proposals to amend company constitutions to allow shareholders to advance advisory resolutions [required because of how the law in Australia is structured]. The exception was a 2003 resolution in the company Boral, which was to allow Global Reporting Initiative (‘GRI’) style reporting with the company’s annual report. In this respect, Australia has not experienced the same level of shareholder governance resolutions relating to executive remuneration and board gender diversity as has been experienced in the US.

Stablecoins and Hayek!

An intriguing article by David Sanz Bas discusses Hayek’s Denationalization of Money and its relevance to stablecoins.

For Hayek, the problem of trust in the issuing entity —a problem that is also found in the different public issuing monopolies— can be resolved via competition. In his words, “Competition would certainly prove a more effective constraint, forcing the issuing institutions to keep the value of their currency constant (in terms of a stated collection of commodities), than would any obligation to redeem the currency in those commodities (or in gold). And it would be an infinitely cheaper method than the accumulation and the storing of valuable materials” (Hayek 1990, 48). This phenomenon can already be observed in the collateralised Stablecoins market.

The authors illustrate how Hayek’s ideas are reflected in stablecoins by looking at Diem (originally called Libra):

Libra is a collateralised Stablecoin that will be issued by a conglomerate of companies acting as the legal entity Libra Association (which includes Facebook, Spotify, Uber, Anchorage, Shopify, Ribbit Capital and others). This Stablecoin is backed by a basket of state fiat currencies and short-term financial instruments (Triple-A bonds, etc.). Since Facebook is one of the companies promoting the creation of Libra, and the project is supported by other large companies, its launch has created expectations that it will be used massively…. Following Hayek’s insights, the Libra Association has published detailed information regarding the characteristics of its cryptocurrency, with the clear intention of gaining the confidence of the public. When the moment comes, the Libra Association will announce the purchasing power of its cryptocoins so that users have a reference.

The article is super interesting and something to come back to as different stablecoin offerings develop.

Magical contracts

The entry into the tri-wizard tournament has always reminded me of the corporate constitution. You are magically bound by contract once you put your name into the flame (to enter the tri-wizard tournament) just like how you are *magically* bound by the corporate constitution when you buy shares in the company. So I was interested to see a different contract law take (by Prof. Timothy S. hall) on the matter:

Although Harry has not entered his name into the Goblet, his name nonetheless emerges from the Goblet as one of the Hogwarts Champions. Dumbledore tells Harry that he must compete, as the selection of his name has created a binding “magical contract.” Of course, because a contract requires the assent of both parties, how can it be that Harry is bound to compete?

Prof. Hall adds in a footnote:

One answer might be that competing is a term (perhaps implied) of the contract between Harry and Hogwarts. I tell my students that their selection for Socratic questioning in class binds them to participate, regardless of whether they have expressed an intent to participate (by, for example, raising their hands), because that is part of the ground rules of law school, and they accept those rules by enrolling in law school and being assigned to (or, for upperclass courses, voluntarily enrolling in) my class. However, despite what some first-year students may believe, class participation is rarely a life-threatening exercise, and participation in the Triwizard Tournament seems a bit too material an obligation to hang on an implied duty.

There rest of the discussion includes other incidents from the Harry Potter series with a focus on intent in contracts – check it out here (p. 464).

Corporate law ideas from literature

Corporate purpose, deriving meaning from work, and viewpoint diversity – some thoughts after reading Yosifon’s MOBY DICK AS CORPORATE CATASTROPHE

Professor David Yosifon’s new article, Moby Dick as Corporate Catastrophe, brings to life a number of corporate law issues – corporate purpose, agency costs, aligning incentives of agents (managers) with that of the owners, misbehaving corporate leaders, the role of general counsel, etc. I will discuss three of them here:

Corporate purpose

My favourite passage from the book is below. I like it because Yosifon provides us with a side of the corporate purpose debate that he is not an advocate of. I think we have something to learn about academic practice and about corporate law in this article.

Melville paints both sides of the corporate purpose debate, and while anyone can find confirmation of their priors in the text (as my preceding paragraphs well show), the honest reader is also confronted with complexity that must in the end leave them uncertain. Novelists do not have the policymaker’s responsibility to finally make legal decisions and settle designs with particularity, as must be done. But knowing the complexities in a beautiful way can make us humble about our policy choices and unsanctimonious towards our opponents. Just when you are sure that shareholder primacy has made a mess of everyone involved, this comes: Ishmael brings along his new best friend Queequeg, a Pacific-Islander tattooed from head to foot, to sign up with the Pequod too. Queequeg gives the managers a brief demonstration of his harpooning skill by striking a bulls-eye through a small tar-stain floating in the water off the side of the ship. Captain Bildad quickly offers him the “90th lay”, a far better rate than was given to Ishmael. The profit-motive is narrow, so narrow that it can sometimes sneak a path right through the worst demons of human nature. Queequeg is judged not by the inked icons on his skin, nor by racist presumptions about his character, but by the content of his harpooning skill. This anti-racist policy is dictated not from Bildad’s Bible, nor any conscious humanitarianism, but from the acid bath of the market. [Works of Richard Epstein and Thomas Sowell are referenced for this last claim]

Deriving meaning from work

Another passage in the article I like, speaks to the meaning we find in our work and how corporations fit into that idea:

But thinking it through, he comes to understand the inevitability of human connection:

I saw that this situation of mine was the precise situation of every mortal that breathes; only, in most cases, he, one way or other, has this [conjoined] connexion with a plurality of other mortals. If your banker breaks, you snap; if your apothecary by mistake sends you poison in your pills, you die. . . . [H]andle Queequeg’s monkey-rope heedfully as I would, sometimes he jerked it so, that I came very near sliding overboard. Nor could I possibly forget that, do what I would, I only had the management of one end of it.

Ishmael’s recognition that he is inevitably involved with other people is catalyzed by his first conceiving of his situation as being like a joint-stock company. He builds from that idea to a mature, accepting understanding of the relatedness of all humankind.

Yosifon links this “what sentiment of being the idea of the corporation might provide to” Ishmael “to help him make a gratifying sense of himself, and his relationship to others”. I like this passage and the idea Yosifon draws from it because we all do derive some sense of being from where we work. It is what makes us take a job even if it pays a little less than another – we are looking for intangibles that might help us with that “sense of being”.

Diversity of views and perspectives

Last but not least, I want to highlight a passage that shows the value of people who can speak up against bad decisions:

It takes a special hubris for an executive to scheme as wildly as Ahab, but just common human frailty for a corporate lawyer like Starbuck to let him get away with it. Subordinate to a charismatic leader, who has the frothy allegiance of the crew, Starbuck is motivated to find reasons not to act against the tide sweeping over the ship. Being creative and intelligent, he is able to find those reasons. He sees that something is seriously wrong but decides that there is still plenty of time before he needs to act, if indeed he needs to act at all. Maybe the problem will work itself out. The harm may potentially be great, but maybe it is not very likely to occur after all.

Although this passage focuses on the general counsel, I would draw on this to think about corporate boards and executives as well. The idea here is probably closest to my research because I argue when I write about diversity that to really use the benefit of different perspectives and viewpoints available, we should be able to create a culture that allows dissenting views to be voiced.

I’d recommend Yosifon’s article on Moby Dick and corporate law with the same enthusiasm with which I recommended his previous paper, corporate law as an existential project.

Scrooge

Now to get to Scrooge from a Christmas carol, a conversation between Amy Willis and Sarah Skwire at OLL is interesting. I agree with Skwire when she says that it is not the business that’s at fault, rather the man that’s at fault. In any case, the entire conversation is fun. The conversation also discusses Dickens’ other book, The Chimes but I won’t say anything about that because I have not actually read The Chimes!

Don’t be a pass-through

Indra Nooyi’s book, My Life in Full has received good reviews with issues like work life balance and pay equity for women being highlighted. Obviously, I found all those aspects very interesting too, (especially since I am working on a book on diversity in corporations) but I want to highlight a different point from the book here. Without accusing anyone she says at one point in that book that twenty people had already signed on to a document approving a new enterprise system to handle PepsiCo’s growth, and that she was the second-to-last person that needed to sign. This was a system that she herself had proposed, and yet recounts that she was reluctant to sign on to the document after looking at how much it would cost. Were the costs justified? She then talks about how she cancelled her family’s annual trip to India to study everything she needed, to understand the proposal, and then went back to ask questions of the team that had made the proposal. She only signed on to it after they had answered all her questions.

Nooyi uses this story to caution others in corporate management: ‘Don’t be a pass-through’, and adds that it is not so much about trusting the people that work for you but rather about ‘basic responsibility’. While we could interpret this story as one that supports the idea (coming from various studies) that women on the board tend to ask more questions, I think that the real issue is that all directors should be carefully reviewing and asking the questions they need answering before they feel comfortable about a decision. It is not so much about adding women to the board so that they can do all the work that others are not doing abut about getting everyone on the board to do the work….or in Nooyi’s words, not being a ‘pass-through’.

NFTs as veblen cousins of crowdfunding stakes

NFT is apparently a word that can describe the year gone by (per this FT article). Why would people would pay for an NFT of anything when you could have a screenshot of it? Apparently ‘screenshoting an NFT is like taking a selfie with someone else’s Maserati’ according to NFT fans. Okay so NFT is the latest veblen good. So what? Why should I, a corporate law academic (or you, readers of this blog) pay attention to it? Well the NFT craze could also be holding within it some information about how the market for digital assets will develop in future. Kaczynski and Kominers write in an HBR article:

Because NFT ownership is easy to certify and transfer, we can use them to create markets in a variety of different goods.

… NFTs can function like membership cards or tickets, providing access to events, exclusive merchandise, and special discounts — as well as serving as digital keys to online spaces where holders can engage with each other. 

So just like some other veblen goods, say a luxury car, NFTs not only has status value but also provides exclusive access to some spaces. So ‘owning an NFT effectively makes you an investor, a member of a club, a brand shareholder, and a participant in a loyalty program all at once’.

At the lower end of the market, this is exactly how crowdfunding has worked. Retail investors invest with almost no hope of a profit because of non-monetary motivations. I (as a retail investor) might invest in a project simply because I believe in it or because I want to feel like I am part of a community of investors that helped a project come to life. So NFT is the veblen good version of crowdfunding.

While we may think that NFTs will probably end up giving us access to spaces online or on the metaverse, they could just as well do the same in the physical world (the ticketing industry is one space that seems to be ripe for disruption by NFTs). So this is one of things to watch out for in 2022 even if you (like me) don’t really care for veblen goods.

The purpose of listing rules

Do companies that want to appoint diverse directors need a regulation to tell them to do so? Obviously not. Yet, an article in the Wall Street Journal claims (based on comments from various people involved) that Nasdaq is set to out-do NYSE in its IPOs for 2021 because of Nasdaq’s ESG rules including its latest diversity disclosure rule (or as I call it in my forthcoming book, its new “aspirational quota”). The article also cites the absence of “splashy bell ringing ceremonies” because of Covid-19 restrictions.

“In August, the Securities and Exchange Commission approved a change to Nasdaq’s listing rules aimed at pushing companies to achieve more gender and racial diversity on their boards. … Still, IPO advisers say the rule helped Nasdaq attract companies led by younger management teams focused on ESG goals.”

Obviously, these “younger management teams” do not need to rule to tell them to appoint diverse directors. If anything, the new rule might have provided the ability to virtue-signal. This brings me to wonder what the purpose of listing rules is in the first place. Ironically, Nasdaq has justified its diversity rule by claiming that the rule would increase firm profits, and substantiates this claim with a selective list of studies.

Buy nothing groups, crowdfunding, DAOs, and human nature

Buy Nothing groups, crowdfunding and DAOs have a common thread about human nature running through them.

Let’s start with Buy Nothing groups. Professor Lauren Hall has a great post about this on EconLib. I’ve extracted a small portion of it below:

While I sometimes see coverage of BN groups that discusses them as though they’re some new form of community made possible by technology, I actually think the most interesting parts of the BN project is how much of it is in fact very very old. BN is, in a sense, a kind of throwback to our pre-market lives, focused on mutual aid and generalized, indirect, and direct reciprocity. But the modernity of it means that it is, in fact, completely compatible with (and perhaps even relies on) a modern market economy. 

I had written something similar about equity crowdfunding which grew from charitable crowd-funding which probably had chain mail as its precursor! Of course technology helped reduce transaction costs. Having the crowdfunding platform as a gatekeeper that vets founders and crowdfunding ventures engenders trust in investors. The transaction costs get further reduced via Decentralised Autonomous Organizations or DAOs which use smart contracts (where contractual obligations are input as code) employing blockchain technology (or distributed ledger technology). [I should add a caveat here that some platforms like Etherium do have high costs – just look at the fees charged by the Constitution DAO.]

Anyway, whether we are talking about crowdfunding, or equity crowdfunding, or DAOs, the common thread again seems to be mutual aid and reciprocity (as pointed out by Professor Hall in the case of Buy Nothing groups) and I will add, a sense of community. That people invest into equity crowdfunding ventures because of altruistic and community-mindedness is well documented. The recent excitement about the Constitution DAO almost winning a bid to buy a rare first edition copy of the U.S. constitution by pooling more than $40 million tells us that average people were interested in being part of something exciting. None of the individual members would get to own the copy even if the bid was successful. A Wall Street Journal article captures the mood really well:

A giddy prankster atmosphere has pervaded the entire effort, as investors who have never collected anything in real life started donating sums in the cryptocurrency ether. Some advertised their participation on Twitter and Discord with jokes or memes featuring actor Nicolas Cage, who once played an historian seeking to steal the Declaration of Independence. Hours before the sale, a man dressed in colonial garb was seen strolling the sidewalk outside the auction house’s York Avenue headquarters in New York carrying a sign that read, “I’m buying the Constitution.”

Ultimately it is heartening to note that even as new technologies emerge, there will be innovations powered by altruism and community-mindedness.

“Trickle-down” effects of board gender diversity?

I saw headlines in RNZ about new research suggesting that women on boards eventually lead to women being appointed as managers (based on data from UK firms). This sounded interesting and told a different story from what was seen in Norway (which has a 40% quota for women on boards). So I decided to investigate. First, I was glad to see that one of the authors of the paper is Ellie Chapple (a friend who has contributed to this blog and editor of a textbook I have contributed to). The RNZ article seemed to suggest that the research was by a different author – in reality it is by a group of authors. Second, the actual paper told – surprise, surprise – a little more than what the RNZ article was suggesting. So here I extract the findings of the article:

“…greater women board representation is associated with a higher proportion of women senior managers.”

“The results show that non-executive directors are associated with greater proportions of women appointments to senior manager level.”

The authors explain this by saying:

“Women in senior positions act as a signal to those in entry-level positions that there are opportunities to be promoted and move up through the organization.”

But what I find interesting is that the study also has a contradictory finding which the RNZ article did not highlight:

“Conversely, our results show that higher proportions of executive directors are not associated with greater women senior manager roles.”

The paper suggests that this is because:

“…for firms with fewer women in management, a male-dominated workplace is perceived as one where women are not viewed as role models with legitimate authority.”

For me the contradictory results are not easily explained at all. Shouldn’t women in executive director positions have the same, if not more, signaling value to employees, as women in non-executive director positions?

Towards the end of the paper the authors attempt to explain the contradiction via agency theory:

“We find that the beneficial effect of women on boards is largely the result of women non-executive directors rather than women executive directors. This finding suggests that the monitoring capacity of the position (non-executive vs. executive director) is the likely theoretical mechanism shaping the women on boards and women in senior management relationship.”

If I had to convince myself, I would probably put the following spin on this finding: If we assume that the women non-executive directors are appointed in the current wave of diversity activism then they are possibly attempting to focus on the number of women in management. On the other hand, executive directors who made their way through traditional channels are perhaps more focused on normal business. Also, it is possible that they might feel that the existing system works and so does not need to be fixed, because they made it through that system (thanks to my friend Leonid Sirota for putting this point to me).

Anyway, irrespective of how convinced (or not) I am, this is an interesting study and I wanted to highlight it. I also wanted to rant a bit about some media reporting of academic findings. I should also credit the authors of the study for acknowledging towards the end that “qualitative work elucidating the executive and non-executive director effects” would be interesting future research.