Designing the Perfect Business Legal System

Is it possible for government to decree an ideal business climate, or must that business  climate be generated organically, by business itself, and with the least possible governmental interference?  A penchant for strong liberal government “interference” is attractive; however, experience in the business sphere indicates that centralized government control comes with costs: lack of direct knowledge, tendency to question innovation, and limitations driven by the quality (or lack of quality) of the government bureaucracy itself.

Addressing these questions with students in a society that has traditionally had a managed economy is going to be very interesting.

In any event, for good or ill here is an outline of some initial thoughts on creating a perfect business law environment:

*abolish any federal system and thereby create a single “government” at least for business matters; it is hard enough to comply with requirements of one government, having differing state laws and state court systems is expensive and counter-productive

*require alternate dispute resolution; going to court takes forever, costs a fortune under the US system, and strongly favors the deep-pocket litigant

*establish a single “entity” of entity for all businesses; the founder of a business simply selects tax treatment and automatically enjoys insulation from liability as if a corporate form were adopted

*each industry should be called upon to generate “standard” documents or contractual provisions

*a new regulatory system should be created to regulate capital formation; the current almost universal use of unregistered “brokers” in the sale of smaller businesses criminalizes an important business service

*reduce  much of the reporting burden on public companies; over-regulation drives business away, and limits economic exits for investors thereby limiting investment itself.

I hope to blog regularly during my teaching in Russia.  It is not yet clear to me what sort of computer access I will have.  My predecessor had to borrow the office of another faculty member and utilize hard-wired computers.  The degree to which WiFi and blackberry will be available to me is something I am just beginning to explore (once I have straightened out my housing, visas, how to get rubles and a whole bunch of other mundane but necessary arrangements).  More on all of that in a subsequent blog.

Russian Teaching Program Set

After months of waiting (I cannot really say negotiating, because there was no communication coming from Belgorod State University law faculty until this month), the subject topics for my lectures finally have been approved.

The first lecture will cover (perhaps too ambitiously) the shape of American law today:  the federal system, the courts, the role of case law, the role of administrative law, and the function of federal preemption (the primacy of federal law over state or local laws which are inconsistent).  It seems to me no one can appreciate a description of how American law operates unless they have this as a starting context.

The temptation to dwell extensively on the United States Constitution has to be resisted, I think; giving a single lecture on the entire structure of American law doesn’t leave enough time to wax poetic, nor does the Constitution have much to do with the day to day operation of businesses.

Some of the other subjects are mundane nuts and bolts:  contract law, different types of business entities, business names and trademarks, and real estate ownership and leasing.

I have attempted to slant a large part of the curriculum toward establishment of an entrepreneurial business community.  There is one lecture entitled “Raising Money for Business” that discusses the non-equity financing of business.  There is a separate lecture on practicalities in the issuance of equity both on a private basis and in an IPO.

I had suggested a session which traces the history of a newly formed high technology company.  I thought that such a program might merge the theoretical with the practical, and also might have appeal, given the recent establishment (late 2010) of the so-called “Russian silicon valley.”  Actually, the Russian statute is entitled “The Law On The Innovation Center Skolkovo” and establishes a zone in which participants may only exercise research activities and emerging commercialization from that research.  Numerous Western companies are making multi-million dollar investments in this project.

Regrettably, the faculty did not seem to want to focus specifically on such a case study.  Rather, the culminating lectures will focus on how to establish “The Ideal Business Law System,” based upon my (admittedly personal) assessment as to “what is good and bad in US business laws.”  As my thoughts gel on how to structure the ideal legal system to support business, I will share my concepts, and solicit feedback, in a subsequent blog post.

The Perils and Pace of Communicating

I have delayed posting until I had some preliminary feedback from Belgorod State University as to my general plan, which is to teach many of the basics of business law (obviously at a pretty general level) but also spend time on the design of a legal system which would be encouraging to the growth of business.  I hope to construct this design based on the good and bad in our system, as informed by your comments.

As you might have gathered by now, my communications have been painfully slow.  I work through an English-speaking and very helpful person at the University, but the School does seem to work at its own pace.  Right now, I await contact with an English-speaking professor at the law faculty, to measure receptivity to my concept.

Since my lectures are to be fully written here in the US, and sent to Russia to be translated (presumably as an aid to my oral translator and to the students themselves), I am anxious to get drafting.  But I am hesitant to invest too much effort unless and until I get some feed-back.

The teaching format has been described to me as straight lecture, with an unwillingness (or lack of experience) on the part of the students to engage in classroom dialog or even ask questions.   I am assured that after class there are ample opportunities to interact and that questions in that context are free-flowing, so I am practicing by drinking lots of vodka and then having my wife, also an attorney, pepper me with legal questions.  I am a wine person, and have proven very inept at the exercise.

In business news here, there is much to ponder and much to consider in terms of carrying messages to the students in Belgorod:

*tax policy:  what if anything is the real effect on business of raising (or cutting) taxes on earned income for the wealthy?

*information gathering by investors using expert consultants: how can you increase knowledge in the marketplace, seemingly a goal that should be universal, without giving unfair advantage to the person industrious enough and rich enough to pay for expert consultants?

*monetary policy: is it smart to relatively devalue to drive exports

*what do you manufacture?  how important is it to grow local consumer consumption, vs hard goods, exports, infrastructure?  once you think you know the answer, what if any role does government have in effecting that outcome, and how can it do so?

*retirement age: is 75 the new 65? (in France, 62 is the new 60…) what is the impact of retirement age on business models?

*patent suits: the Wall Street Journal reported recently that a company, formed to hold patents, had amassed about 38,000 of them and was in the business of collecting royalties or, for the first time, bringing suit against infringers who would not pony up; a good idea to allow such a free market result?

Posts to date have been helpful indeed but what I really need is for someone to take a shot at designing one section or area of an ideal business environment, pointing out what legal regulations could be useful to support identified and desirable business practices.  Anyone brave enough to try his or her hand?

Is US More Soviet than Russia?

The title is not designed to be provocative or even clever (I have surely been successful in avoiding the latter).  It just occurs to me that with the bailouts of our industry by our government, with the promise in today’s Wall Street Journal of a new multi-billion dollar wave of bond purchases by the Fed, with our National health reform legislation, with ever-incresing government regulation of business through OSHA, EPA and numerous other government agencies, and with the increased pace of regulation of corporate governance inherent in the Dodd Frank Act, are we moving towards a planned economy and away from open-ended capitalism?

When I teach in Russia, will I be teaching about a legal system that is a capitalism-friendly, or a hybrid system some elements of which may resonate historically with the law students there?

Should I be teaching about Dodd Frank, which is after all the most important Federal economic legislation in a very long time?  Is this statute part of the new definition of an evolved economic system, or an aberation in governance driven by a unique but transitory economic occurrence?

Should I teach about the new provisions of the law that create mandatory 10%-30% bounties for persons who whistle-blow illegal actions for which the SEC is able to collect penalties of $1Million or more?  What does that say about how we have established the rule of law for businesses?  (In the same issue of the WSJ, today, there is an article about a former employee who blew the whistle on Glaxo and will collect a bounty of $96Million — not an SEC case, but the same principles.)

Certainly a more mundane academic ciriculum will be easier to teach and, given language issues and cultural issues, easier to learn.  And I don’t propose to be a “shill” for our system, but rather to describe its important exportable elements.  It’s just that identifying those elements seems to be growing more, not less, elusive.

I could use some help from folks reading this blog; please let me have your thoughts.

What Western Business Law is Counter-Productive?

Our business law is very dense.  There is the common law: how you contract, what you do that creates liability, how you borrow money, how you hire and fire.

There is a large historical list of statutes and regulations by which government has cut into the common law: labor laws, anti-trust laws, securities laws, laws concerning sales or the granting of mortgages or liens on property, laws on how to resolve disputes, laws levying taxes – just to name a few.

There is also a rapidly growing list of statutes that are preceived to cut much more deeply into the historical fabric of how business operates:  SEC disclosure rules; the Dodd-Frank Act that regulates corporate management and financial markets; mandatory insurance coverages for employees; restrictions on hiring.  You can add your own favorites to this list.

I would like to end up with a list of law or legal principles that are thought to be indespensible to the operation of a market economy, sort of business law best practices.  And perhaps a list of things NOT to do in the business regulation field.

Would anyone like to suggest which list the following things should populate?

*Jury trials for business disputes

*Anti trust laws (there are of course many aspects to these)

*Minimum Wage and Hour standards

*Specific disclosure requirements to sell shares of stock to large institutions

*An ability of a company to declare bankruptcy and erase all its debts without (generally speaking) the management or shareholders having any liability

*A tax at the entity level of profits

I am not trying to be sensationalistic or provocative.  I suggest that there are some very fundamental elements of our business legal system that have evolved with their own internal logic and have reflected our social and economic histories, even our Constitution itself.  But, as a drill in logic, if you had a clean slate (I understand Russia is not quite a clean slate, but IF you had one), what if any basics would you consider discarding or very radically eliminating?

And, even with respect to our business laws (common law or statutory law) which are not so global or fundamental, do you have favorite “bad ideas in business law” that you would like to identify?

My thought for teaching: anyone can teach what “is.”  How about a taste of what “ought to be”?

What to Teach? One Past Experience

My primary question is, what should I teach in my brief tenure?  What should budding Russian lawyers take away from an initial exposure to US business law?

One predecessor at Belgorod (seems I am not the first US attorney to land on these shores) told me that his initial ambitious course agenda was carved back at the request of the faculty so as to address some fundamentals.  He was kind enough to share his entire course with me and I set forth the outline below:

Introduction

What Lawyers Do

US Law (seems to outline our court system)

Contracts

Torts

Business Entities

Legal Requirements of Businesses Dealing With Customers

Raising Money for Business

Business Names and Trademarks

Leases

Franchises

Real Estate.

It reads a bit like a law school curriculum; those readers lucky enough to have avoided law school no doubt are distraught (seeing the above list) to have missed the excitement!  But the key inquiry is: what is missing? And is that important?  Possible areas:

*How do you sue someone; what does it cost; does it work to create justice; private dispute resolution (arbitration, etc.)

*Anti-trust.  Is there such a concept in an economy that was until recently monolithic?  Should they care about this?

*Protecting IP — certainly a major issue here.

*Corporate governance: how should a business be run, by whom and for whose benefit?

*Bankruptcy and insolvency: can and should a person or business escape debt, and when?  What is our solution and is it a good one?

*Tax–I confess not to know a single thing about the Russian tax system.  But tax drives so much US business structuring.  Do we have a tax system that encourages what should be encouraged?

*What business practices in the US send you to jail?

*Securities exchanges, capital markets, PE funds, hedge funds.

SO– I need your input.  What should I be telling these students that is most likely to be useful?

Planning With Family

IMG_5482.JPGThose of you interested only in the substance of the teaching mission not only have my utmost respect but also might skip this fifth blog post; while personal matters will be kept to a minimum,  some may have an interest in the mechanics of taking my (small) family to Russia.  As you might expect, almost all my predecessors did this alone, or at most with a spouse,  no matter where they taught in Eastern Europe.

My wife Laura is an attorney practicing family law.  We have offered to have her lecture about the US practice in divorce and child protection, in a different program from the one in which I will teach.  While away, Laura will arrange for other attorneys to cover her practice, as she is a ”solo.”

My son Matthew, who will be eight by the time we leave the US, is another story.  We hope the educational aspects of the trip will compensate for missed school time, and we will take as much homework with us as possible; my understanding of the housing arrangements and weather is such that I think he will have lots of time for homework.

Attorney Andrew Nea, who practices with a well-known firm in Virginia, has preceded me in teaching at Belgorod and has graciously shared some of his experiences.  He tells me that the faculty and students are warm and friendly, so I have no real apprehension.  However, the mechanics of his life in Belgorod would require some family adjustments.

The housing he was afforded was quite adequate but attached to the University and not necessarily child-friendly as, for example, there simply were none.  I will explore renting a small apartment although for such a short visit that will likely prove difficult.

The food at the school was, says Andy, not quite what American palates expect, let alone an eight year old.  I am not sure that cheese and herring purchased at a nearby supermarket will satisfy Matthew and I’m not sure what to try to bring with us.   I am told that food is plentiful and inexpensive, but I bet you could wait a long time for a Fenway Frank or a cup of Boston Clam Chowder.  I wonder if I can start training Matthew now by going to local Russian restaurants (there are a few in the Newton/Brookline, Massachusetts area, reflecting a transplanted population).

I also expect that Newton Russian is unlike Belgorod Russian….

Call for Help: What do I teach Russians about US Law?

The main purpose of my trip, noted in my first post, is to collect suggestions for teaching United States business law in Russia.  My hope is that teaching the “best” US business law has to offer will resonate logically in a country which is attempting to establish its business foundations.

I suspect that many ideas will seem alien, illogical or at least out of place.  But I want to identify the best subjects to teach, and then find a way to “get it across.”

I solicit from all readers your suggestions as to subjects best taught, or best avoided.  Anyone with specific experience in teaching business law overseas, or in a former socialist country, could be most helpful.

As a lawyer I am interested in bridging the gap between our legal system (which is historically common law and case law based), and the Russian-European tradition which (as I understand it) is primarily code-based.

On the other hand, it has been suggested to me that the way the American regulatory system is progressing, we are really becoming a code-based country in our business legal system, so maybe the difference is not all that important.

I solicit your thoughts for topics:

  • Corporate/entity organization
  • How we tax
  • How we finance business
  • HR issues
  • Uniform Commercial Code and Security interest and mortgages
  • Protecting IP
  • Dispute resolution and alternate dispute resolution
  • Business ethics
  • Management and governance of business enterprises
  • Appropriate degree of government involvement in regulation
  • Anything else?

Belgorod: A Brief Introduction

Although I had hoped to be sent to Siberia, my teaching assignment for American law is to be at Belgorod State University.  I must confess I had to go to Wikipedia and map sites in order to orient myself.

Belgorod is a city in Southwestern Russia, just North of the Ukraine border.  There are about 335,000 people in Belgorod and the name in Russian means “a white city.”

Regrettably, the history of Belgorod seems to be one of war and strife.  Ravaged in 1237 by the “Hoards of Batu Khan,” it was refounded in 1596 as a fort to defend the Southern borders from the Tatars.  Unfortunately the town was occupied by Nazi Germany in 1941, and was the site of the largest tank battle in world history during July of 1943, prior to its liberation that August.

My university has about 30,000 students and numerous undergraduate and graduate programs.  My students will be 19 or 20 years old.  I will speak in English; I will have an interpreter.

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I am now trying to learn more about Belgorod and the University.  Seemingly at least one other Western attorney has taught there, and I am reaching out to him (he practices in Virginia).

Going on the internet to find information about Belgorod is indeed challenging.  Mostly you get “pop ups” suggesting that you might want to meet beautiful Russian girls who are in search of a husband.  While the prospect is tempting, I am not sure that my wife Laura would fully understand.

Travel sites are short on useful information about Belgorod.  Amazon is equally unrewarding; while I willorder an MP3 download of Tam Letal Pavlin’s songs from Belgorod (“A Peacock Once Went Flying”), I was somewhat put off by the Belgorod-embossed stainless steel mug, and surprised by the total absence of guidebooks or other useful literature.

Anyone who is up on Belgorod, please post some comments and give me some help here.

How Did I End Up Teaching Law in Russia?

Practicing attorneys receive periodic emails and faxes from an organization which until recently was somewhat mysterious to me: The Center for International Legal Studies which is run by Professor Dennis Campbell from Salzburg, Austria,  The Center has operated for over thirty years on a non-profit basis and sponsors academic exchange programs.  It cooperates with a variety of universities in the West, including notably Suffolk University Law School here in Boston.

CILS matches lawyers with accredited Eastern European faculties, including those in the former Republics of the Soviet Union.  Senior lawyers in all fields are invited to teach for periods of two to six weeks, after taking a week of training at CILS in Salzburg.

So in April of 2010 I found myself sufficiently intrigued to apply to the Center for an appointment.  The task is somewhat daunting; you submit your application, resume, writing samples, and a couple of recommendation letters (I haven’t had to get those since I was graduating law school).  You must undertake to pay your own fare, pay CILS for the training session, and pay your way also at the University to which you are assigned.  There followed an interview process (Professor Campbell comes to the United States, travels around and meets with us “senior” lawyers).

In June I was pleased to be accepted into the program, and was assigned to serve as Visiting Professor during the Spring of 2011 at Belgorod State University in Southwestern Russia.

I will blog shortly about what I have been able to learn about Belgorod, at least preliminarily.  This is a part of Russia with which I have no familiarity, nor did I visit in this area during my one prior trip to the then USSR in the late 1970s.  I had indeed asked not to be posted to the major Eastern cities (which I had previously visited), although I am not sure I was quite prepared to be posted to Belgorod.  More about that later.