If It Was Your Money.

Posted on November 18, 2009 by Larry Salibra

I recall one day when I was first hired in-house and my boss came into my office upset with an opinion I had given. After he was finished reading me the riot act, I told him that he had a right to expect the very best opinion I could give, and he or other members of the management team could follow it or ignore it, that was up to them, but they did not have the right to tell me what that opinion was going to be.

Some years later, I was intransigent about a legal position we should take to represent the best interests of the shareholder. The business manager was resisting it because he felt the lawsuit would impact the price of future products in a manner that would adversely affect the way his performance was measured. He expressed considerable exasperation working with me, however, as he walked out the door he looked back and said, “Although I do not like working with you as a business colleague, if it was my money you would be the only person I would hire.”

I am sharing these experiences with you because this morning I was captivated by the House oversight hearings on the continuing saga of the Bank of America purchase of Merrill Lynch. What I had not known was that a Bank of America General Counsel was terminated for no reason apparently except that he had given advice that was contrary to the wishes of the CEO. His successor, although a lawyer, had not practiced for 10 years. He testified, as did every other member of the BofA Board on the panel, that he had the highest respect for his predecessor’s skill and capability, but that it did not occur to him to ask why he was abruptly fired in the middle of the BofA purchase of Merrill. Considerable skepticism was expressed concerning the candor of this testimony—and justly so, since a General Counsel who assumes a position in the context of a termination which appears questionable or improper is as guilty of the malfeasance as the perpetrator – he or she merely enables the malfeasance.

Your client is the company and its shareholders—not necessarily the person who holds your career in his hands. We need to remind those in our profession of that fact, and that their failure to adhere to the principle not only ultimately brings shame upon themselves, but also upon the profession.

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Punishing the Victims

Posted on September 28, 2009 by Larry Salibra

I am sure that most of you have some passing familiarity with the dispute surrounding the bonus compensation of Merrill executives just prior to its sale to Bank of America. The claim was that Merrill had intended to pay its executives 5.8 billion dollars, 12% of the purchase price that Bank of America agreed to pay for Merrill, and that Bank of America executives knew this fact and withheld it from shareholders in order to receive consent to the purchase.

Other than some passing knowledge of an SEC suit and some unflattering comments by media commentators concerning the fact that the court had failed to permit an agreed settlement, I knew very little until a friend sent me a copy of the Court’s opinion refusing to accept the settlement.

The first thing that strikes you about this is the style of the case—SEC v Bank of America.   I am no expert on SEC law but it was curious that the SEC would sue the Company for allegedly deceiving itself. A review of the opinion quickly reveals the simple logic for the judge’s decision—we should not be punishing the victims.

The complaint alleges that various officers of Bank of America knew of the bonus arrangement but failed to disclose it to obtain shareholder consent. The settlement the judge noted was to have Bank of America, ultimately the shareholders, pay a 33 million dollar fine for having been duped. Needless to say the judge found this resolution unsatisfactory.

What follows in the case is then a series of explanations of why the actual alleged offenders could not be liable. The executives were not responsible because they relied on the lawyers, the lawyers were not responsible—well you read it. It does contain much of the confusion and contradictions that one finds in a Gilbert and Sullivan Operetta, without perhaps the happy ending.

The most curious is the explanation of why having the shareholders pay 33 million for having been defrauded was actually in their interest.

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Over The Top

Posted on January 28, 2009 by Larry Salibra

I did not know that Harvard Business School offered courses in design and decorating offices. It appears that John Thain, the former CEO at Merrill concentrated in that area of study while he was there. Apparently office design and decorating is not a course limited to the business schools. You will be surprised to learn that law schools offer the same course, particularly if you are interested in becoming a federal judge.

I was recently in one the new federal court houses. The first thing I noticed was there was nobody around in the vast lobby except for four guards. Perhaps I missed the rush but it was mid-afternoon on Thursday.

When I left around five PM after my meeting, the lobby was just as empty. Not a soul to be seen except the four guards.

The vast space of the lobby was matched by the vast space of the judge’s chambers—not the Chief Judge mind you, I suspect I would have needed a GPS to find my way around the Chief Judge’s chambers. When you enter the chambers you walk down a long entrance aisle with doors with various labels such as “Do Not Enter Staff Only” until you come to one labeled Judge’s Reception. Along the other side of the aisle you see row after row of law books, apparently an entire paper library for this judge alone. I had been practicing for many years, and most of the law books I saw were back drops on television used to make whoever was in front look more prominent. For decades, our research has been almost exclusively electronic, but for reasons unknown to me this new court house appears to have a huge paper library for each judge.

When you enter the chambers area you are overwhelmed by the space. You could fit my old office in the judge’s receptionist’s alcove two perhaps, three times. I suspect the judge had law clerks, but they appeared to have been absorbed in the great expanse of the space between the outer wall we entered and an equally long inner wall which again had a series of doors. My former boss could have housed our entire former law department, 8 lawyers with support staff and modest a paper library that had some texts that had not been converted to electronic format between those two walls with space to spare.

Then there was the judge’s office—perhaps it did not have an $87,000 area rug; however, I cannot be sure because it was so vast it was simply impossible to scope out the entire area without going on an Australian Walkabout.

So what are federal judges around the country doing in these huge spaces, trying cases of great national and international import-perhaps, on some occasion in some court room? But on the whole, what is going on in federal court these days is not great deal more compelling than what is taking place in county court, where the contrast can not be more compelling. The county court house is full—I often have to scavenge for space when I mediate there. And the court rooms and chambers are nice, respectful and far more modest.

We are justly critical of the excesses of John Thain’s conduct and other business executives but we must keep an eye on our own profession’s conduct. The lesson that Thain’s conduct teaches is the size and expense of your office cannot create respect.
 

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