Red Sox and Enemas

This is a long and unpleasant post. You may choose not read this post which, by the way, has nothing to do with the law.

I sit at my desk staring at my ticket stub from last night’s Red Sox-Yankees baseball thing (I refuse to call it a game, which implies structure, competition and competency). It reminds me that it cost $132. Double that for my wife, add $40 for parking, add 5 beers and 3 franks and one bag of nuts and guess what: my investment for the evening was: $377.

Here is how the evening went:

1. We used napkins to wipe the water from the rainshower from our seats. Mostly successful; I do not mind sitting as if in a wet diaper, I have had past experience in that capacity.

2. The Sox loaded the bases three times in the first five innings, twice with none out, and mustered two runs against a Yankee pitching staff that was decimated (I think they used eight pitchers; their starter lasted one inning).

3. Our pitcher (recently acquired, a NL all-star; you will note I do not mention his name, as I do not acknowledge roster additions until they either get a hit or win a ballgame), who earns more than you and me (combined), did last 5 1/3 innings (I make that about $20,000 per pitch) but at least he left with a 2-1 lead.

4. There followed an evening that made me think David Price was pitching because the bullpen lost the game, painfully, although the starter actually left with a lead. The Yankees, officially in rebuilding mode and having traded their two best players (pitcher Andrew Miller and hitter Carlos Beltran), proceeded to get five runs and then three runs in consecutive innings. They ended up with about 15 hits which means we left pitchers on the mound while being killed but, then again, no successor had success so why worry? Among highlights were a homer, walk and a couple of hits allowed by Ozawa (who by every August can no longer get my grandmother out, which should not be hard as she died decades ago) and three (count them) wild pitches by the same bum in the same inning, two of which scored runs (can you believe we left in a pitcher after two wild pitches? Some strange fascination about lightening never striking three times in the same place?).

After the pinch hitter for our third baseman struck out and Betts left the game due to muscle problems, at least we could stay around for the eighth and ninth because after all, the heavy hitting Red Sox surely could make up a five run deficit with six outs to play with.

Well, six outs there were, with nothing separating them.

And in all events we could stick around to see Ortiz bat. Girardi (Yankee manager for the uninitiated) pitched around Ortiz (three walks in four at bats, two intentional) but at least they pitched to Big Papi with none on in the ninth and a five run lead and Betances(Yankee relief pitcher for the uninitiated) throwing at 99 miles an hour.

5. So Big Papi promptly fouls a pitch off some part of his body, goes to the ground like a dying cartoon character (I would say, think of Kung Fu Panda but we already had one of THOSE nonfunctional things), and is damned near carried off the field between two straining minions. Of course, his replacement at the plate (some guy named Bruce Bentz or Mooky Bentz or Bruce Wayne, who can keep track??) promptly struck out.

6. It should be noted that the sainted Hanley Ramirez is in free-fall; zero for five, hitting under .270, soon he will not be hitting his weight. Of course you will walk Ortiz every time; you can count on the next out already.

7. Oh yes, there were two Yankee hitters who were roundly booed, in pure “Yankees suck” Fenway style. These moments were the highlights, of course. Se we roundly booed a man (Jake) who was a former Boston favorite who hit over .300 for our club for a total of four years before WE traded him through no fault of his own; and then the imperfect but impressive A-Rod. I stood up and clapped because A-Rod is a turkey but in Fenway they play baseball, not cater to discussions of PEDs, infidelity and ego, and A-Rod could play baseball as well as anyone who ever put on the uniform. There they are, the Sox faithful, booing a man who has hit almost exactly the same number of homeruns as hit by Ortiz, Pedroia and Betts TOGETHER.

In fairness, you should have no sympathy for me as I should know better. My record for in-person viewing Red Sox home games is that the Sox have won seven in the last two decades and have lost 1,331. No really, you could look it up. They should pay me not to come. Then again, this game lasted only a mere four and half hours (all Yankee games take forever; this one with something like 16 pitchers, took longer than forever).

So last night at Fenway was akin to a high colonic– administered with hydrochloric acid. The only difference being: if you took the enema, you would not have to wake up the next morning and remember the experience.

No Mass law on Noncomps

August 1 means the Massachusetts General Court has adjourned and, notwithstanding debate and passage of bills in both Houses, the legislature prior to its adjournment failed to pass ANY law affecting the enforcement of noncompetition clauses.  The two chambers failed to merge their bills which is not too surprising as there were several significant differences; however, the failure likely also reflects the division within the Massachusetts business community, with larger enterprises supporting stronger non-comp enforcement.  I would not be surprised to see this issue come up next session but, meanwhile, it is business (and lack of predictability) as usual here in the Commonwealth.

Corporate Governance in the WSJ

Take a look at the last page of the WSJ section A today: a list of six principles of corporate governance as recommended by  twelve corporate heavy hitters: Buffett, Immelt, Dimon, Larry Fink of Black Rock, etc.  Although I confess to not being quite sure why this group would buy a full page to extol good governance, their suggestions are not very controversial and all are commonly endorsed by governance attorneys, board advisers and indeed by the National Association of Corporate Directors:

Independent boards should meet regularly including without CEOs present; diverse boards are better; boards need a strong leader independent of management; there is no mandatory requirement to provide earnings guidance; alternate financial reporting should not obscure GAAP reporting; shareholders need “constructive engagement” with management and perhaps the board to permit them to vote properly (of course, access is articulated in terms of institutional investors).

In all events, it is hard to quarrel with the list, which really is a very basic list of some fundamental good governance practices.  It is a corporate analog to the suggestion that “everything I needed to know I learned in kindergarten.”  More later?  We shall see.

Mass Noncomp Law–status report

The below interim report is from my Boston labor law partner Bronwyn Roberts:

The Massachusetts noncompete and trade secret bill passed the House today 150-0.  To become law, the bill still needs to pass the Senate and be signed by Governor Baker.  (So not ripe for a client alert – in my opinion).

Here are some highlights (lowlights as the case may be):

Noncompete entered into at the commencement of employment must be provided the earlier of a formal offer of employment or 10 business days before commencement of employment.

Noncompetes must expressly state that the employee has a right to consult with counsel prior to signing.

There is a 1 year limit to noncompetes unless there is a breach of fiduciary duty or employee theft in which case the duration cannot exceed 2 years.

Noncompetes must be supported by “Garden leave” or “other mutually agreed consideration” specified in the agreement.  “Garden leave” is payment during the restricted period of at least 50% of the employee’s annualized base salary within the 2 years preceding termination.  There is no definition of “other mutually agreed consideration.”

Noncompetes are unenforceable as to nonexempt workers under the FLSA, student interns, employees terminated without cause (not defined) or laid off, employees under age 18.

Partnering in Healthcare, Healthcare IT investments

There are 36 Blue Cross/Blue Shield groups in the country, some covering multiple States, but the Massachusetts group has decided to go it alone. As part of this independent effort, Blue Cross/Blue Shield has established a wholly-owned subsidiary, Zaffre Investments, that invests in healthcare funds and also makes direct equity investments. Additionally, Zaffre also incubates a few companies at Zaffre’s own facilities.

Who should look to Zaffre for potential funding? Zaffre has a long term view of things: it asks, can this technology assist in the efficient delivery of healthcare over time? This sometimes creates some “interesting discussions” when Zaffre makes an investment along with professional investors (venture capital or private equity) with a shorter time frame to exit, according to Vice President for Investments Steve Fox, speaking at the June 24 Boston meeting of Sky Ventures (a platform for the presentation of emerging life sciences and healthcare companies).

Generally, Zaffre does not invest in device companies, nor in drugs and pharmaceuticals. They are looking for service and IT companies that support a service model focused on outcomes. They have an interest in consumer-driven health including health wellness, telemed, caregiving; and, in big data analytics.

Beyond that, Zaffre is all over the place, but to good effect. They will invest anywhere between $50,000 and (as part of a syndicate) $20,000,000. They do not seek control. They are stage-agnostic; they will do seed, early rounds, growth rounds, mature companies. They will lead or follow. Their geography is the United States. They do seek a board seat. They promise networking opportunities “through the front door” by direct access.

According to Fox, Massachusetts Blue Cross/Blue Shield, as a one-State non-profit, needed to diversify its revenue stream. Hence, a broad platform for investment.

Mass Noncomp Law Coming??

The Mass General Court (legislature) seems primed this session (about to expire) to pass and send to Baker a comprehensive law regulating non-comp agreements in Massachusetts.  Many details are still open, and Baker has not signaled whether he would sign.

Key issue: “garden leave” provision requiring company to pay 50% of salary to enforce most non-comps.  Also not clear: can you have a non-comp enforced against an employee you fire without cause?

Stay tuned.

Trends in SEC Enforcement


The Securities and Exchange Commission is utilizing enhanced tools to tighten its regulatory oversight, focusing fraud and corruption in particular, according to an expert panel presenting to the June 14th Boston breakfast meeting of the National Association of Corporate Directors of New England.

According to the current head of the SEC’s Boston office and to the former co-director of the SEC’s national Division of Enforcement, three particular tools are receiving substantial focus.

First, an explosion in the availability of data permits robust quantitative analysis of a company. Aggregating and analyzing this data may provide indicators of fraud. For example, by analyzing data concerning inventory, sales and income, data might provide predictability with respect to risk of income misstatement.

Second, the whistle-blower program provides persons who notify the SEC of wrong-doing with a reward of not less than 10% and up to 30% of any governmental recovery. There was discussion as to the efficacy of this program, however; many whistle-blowers prove to be disgruntled employees, or raise insubstantial matters, or are unsophisticated and lack understanding. It was proposed that an intelligent whistle-blower with good motives would almost certainly have come forward in any event. However, because of the likelihood of SEC focus (any whistle-blower advising the company is likely to also advise the SEC), whistle-blowing is forcing companies to take greater interest in employees disclosures.

Third, the SEC-Department of Justice recently announced a program to treat companies committing Foreign Corrupt Practices Act violations less harshly if the companies self-report. In no event will disgorgement of improperly obtained economic benefit be avoided, but DOJ penalties may be abated. It was noted, however, that one of the alleged “rewards” for self-reporting, the grant by the SEC of a “non-prosecution” agreement, is really illusory; in such cases, the SEC will issue a press release containing the same kind of damaging information as would have been publicized in a “prosecuted” case (which results in a consent decree outlining the same negative facts).

The SEC also is paying attention to the growing prominence of utilization of non-GAAP economic measures in reporting earnings; these alternate financial statements, typically keyed to the elimination of non-recurring expenses, are not subject to rigorous accounting standards and fall under deep SEC scrutiny if they are given “prominence” in disclosure or in the marketplace.

Finally, the SEC is focusing on municipal debt. Many municipal issuers are unsophisticated in finance and disclosure, are subject to manipulation by advisors, and present the risk of political corruption. Munis are an opaque market where valuations are arbitrary; bonds are purchased for long-term hold and tax-advantaged income (thus not subject to active trading which would ultimately mark-to-market).

Boards and “Bad” CEOs

Check out the recent article in the Harvard Business Review about what happens when your CEO lies about personal matters, has a sexual affair, makes questionable use of corporate funds, commits “objectionable” personal behavior, or offends customers or public groups.

The article predictably concludes that boards need to investigate and be proactive; no surprise there.  What seems anomalous is that eleven of the 38 studies incidents resulted in positive stock price action (although average stock prices fell slightly in the short term), yet 45% of companies later suffered adverse  reactions such as accounting restatements, lawsuits, shareholder action or bankruptcy.  And 58% of CEOs eventually lost their jobs over their actions.  And only actions involving financial activities resulted in uniform dismissal.

It is hard to parse all this data.  It may be that we do not know the whole story in many of these cases, or that the sample size is too small to be of much help beyond generating the obvious: boards should act.

And as for those companies where the stock ticked upwards?  Perhaps there is some truth in the adage that it doesn’t matter what you say about someone, just so long as you spell their name correctly.

Buying Companies in the PRC


There has been a lot of publicity about investments being funded out of China (in 2015, they totaled $118 billion dollars). But of equal interest is the opportunity for making acquisitions within China. Foreign investment into China in 2015 totaled $126.3 billion dollars. Not shabby.

First, let’s talk about the Chinese economy. Obviously the GDP growth rate has fallen, but even last year (2015) it was a more-than-robust 6.9%. The ongoing planning goal for the near term is estimated to be 6%, and bear in mind that this rate is now being applied to a more robust base (it is easy to have double digit GDP growth if your base is small).

There are numerous regulatory steps in order to make an inbound acquisition. You need anti-trust clearance, government approval for any foreign investment (it is wide open for biotech and completely shut for investments in internet media). There is a national security review not unlike that in the United States. As the RMB is not readily exchangeable, you need foreign exchange approval. Payment for the deal is tightly regulated (typically all deal consideration must be paid in full within three months; with special permission, you can stretch that to a year provided half is paid within six months).

There is sometimes a squabble as to the controlling language of the agreement (is it English or is it Chinese). But more importantly, there is discussion concerning governing law and venue of dispute resolution. In an acquisition, Chinese law must control. But for dispute resolution, you can negotiate for the utilization of Chinese courts, or arbitration in China, or arbitration in several identified international venues (Hong Kong, Singapore, Stockholm or London). According to my recent meeting with one of the three largest law firms in China (the firm has a startling 1,200 lawyer staff), commercial disputes generally are given fair hearing in Chinese courts (at least in the larger cities where local bias is less likely, and commercial sophistication higher).

Doing a deal in China is like doing a deal anywhere: you to pay attention to tax planning, tax rate (the corporate rate in the PRC is 25% and there is no “state” tax), and there is the usual dispute as to whether an acquisition is for equity or for assets.

These kinds of issues are important and require attention but, given the volume of money going into China, ultimately they will not constitute an absolute block (unless you are seeking an acquisition in a sensitive or totally prohibited space).

The Lawyer in the Dell

Today’s business news may seem technical but it is very important from a corporate standpoint: the Delaware Chancery Court stuck its nose into Michael Dell’s management buyout of Dell stock and   stuck buyers with millions of extra liability above and beyond the apparently market-set tender price.

AND– the court explicitly and purposely wholly ignored the market price in reaching its determination.

Shareholders claimed that the management buy-out was not at “fair value” and sued for more money under the Delaware appraisal statute: as in (I believe) all States, the corporate law permits disgruntled shareholders to seek court determination as to whether the price paid in a shareholder buy-out is fair to the selling shareholders, who as a practical matter will not have an option to stay in the company under most structures.  Until now, the trend for courts as been to say “well, shareholders in the market took the deal and the deal was thus priced fairly by market forces.”

Two take-aways: at least in management buy-outs where management by definition will always have better information than the shareholders no matter how robust the written disclosures may be, shareholders now have renewed hope which will lead to more litigation; and, in private buy-outs with small numbers of shareholders (to which the statutes apply and as to which a claim that the “market” fixed the price fairly doesn’t really ring true) it is a time for buyers to beware of litigation, as litigants have little to lose and lawyers often will take such cases on favorable economic terms in hopes of a big score.