Author Archives: sdiamond

Who really owns Hewlett-Packard?

Therese Poletti interviewed me recently on the board changes at HP. The new CEO and Chairman have now pushed four directors out and added five more. As the article makes clear, I am not impressed.

But the change underway at the company leaves me with an even more unsettling feeling: who really owns HP? In theory, the shareholders own the company – they have voting power to hold the board and management accountable.

But nothing has been heard from any shareholder of significance since the Mark Hurd scandal broke. Two tiny investors have sued, claiming the company wasted corporate resources in paying Hurd to go away. Good luck with that.

Larger shareholders who have the sophistication to weigh in on the listing ship that is HP, like Cal/PERS, have been silent. Well, not exactly silent. Cal/PERS recently did attack a prominent Valley company for inadequate corporate governance, but HP was not the target. It was, believe it or not, Apple!

With the constantly shifting leadership at HP, I am reminded of a tale about the 1960s. A hippy was hitch hiking down Highway 1. A van painted with flowers and wild colors stopped to pick him up. After a while the driver asked if the hippy would take over the wheel. The driver said he wanted to get in back with some other folks and, well, you know, indulge. He told the hippy to feel free to do the same if another hitch hiker came along. One did and the first hippy in turn climbed in back and turned the van over to the new occupant. He, too, indulged with a few other people in back including the first driver.

The day wound onward and eventually the first hippy realized the van had reached his destination. He asked the newest driver to stop and he got out of the back and started walking home.

And then it it hit him…not a single person in the van when he got out had been in the van when he got in, and none of the people in the van when he got in were still there when he got out.

Who knows, maybe that van is still making its way up and down the California coast line.

HP seems kind of like that van. No one really owns it, they’re just using it. It’s one thing to let a flower power van function like that, but our country’s largest IT company? Really?

Motley H-P board isn’t what Apotheker needs Therese Poletti’s Tech Tales – MarketWatch.

“DeMaurice Smith Takes On the N.F.L. Owners”

The NY Times profile of new NFL union leader DeMaurice Smith indicates he is putting to work all the key elements of successful union leadership: a strategic plan, internal union education, building good relationships with fellow unions and making a credible argument to the wider public.

It will be an uphill battle for the union, as always, but Smith comes to the table with a great skill set for the job as a former federal prosecutor and corporate lawyer. What he lacks in union experience itself he seems to be committed to making up quickly.

I like this guy.

DeMaurice Smith Takes On the N.F.L. Owners – NYTimes.com.

H-P’s new Board of Directors: rational shakeup or rehab for ousted executives?

So what is it about HP these days? It’s top management is looking more like a home for executives who fail elsewhere.

Since when did the foundational Silicon Valley firm become a way station to retirement?

The new CEO, Leo Apotheker, was fired from SAP after 8 months as its CEO. The new Chairman, Ray Lane, was fired as President of Oracle. And three of the newest board members failed at their last gigs: Meg Whitman was trounced by a 70 year old in the governors’ race and some believe her last few years at E-Bay were nothing to brag about, Patricia Russo was pushed out in a shareholders revolt at Alcatel/Lucent, and in circumstances that are not clear Gary Reiner left GE as its Chief Information Officer after a long career there.

If one is looking for a logical explanation for the new board members, it is striking that two have long time consulting backgrounds and two have strong connections to private equity groups. This suggests that the real plan is to break up the company – since there is no word from Apotheker, a software salesman, about how he intends to run a hardware company, perhaps this is the real explanation – he isn’t going to run a hardware company. He is going to break it up and sell it off and use the cash to build a new business. I made that point in the Mercury News coverage this afternoon here.

H-P Shakes Up Board of Directors – WSJ.com.

UAW leaders caught in dilemma

The UAW is starting out contract talks with the Big 3 auto companies in a defensive and paradoxical position. The employers are pushing for a link between pay and productivity and quality as this Wall Street Journal story notes. Of course, most assembly line workers have little serious influence on these goals given the heavily engineered modern assembly plant.

But all collective bargaining is as much political as it is economic. Public sympathy for industrial unions is at an all time low, even inside the labor movement itself where concern with immigrant rights and keeping a tenuous grasp on political influence takes up more time.

And greatly complicating the situation is that the UAW run healthcare retiree trust sacrificed economic independence and now owns a big equity position in Chrysler and GM. Thus the union, for the first time in its history, is really on both sides of the bargaining table. That is an untenable position.

And it does not help that so much of the rest of the labor movement has been distracted by issues like immigrant rights and rather desperate efforts to maintain political influence in the Democratic party. The decline of manufacturing employment in the U.S. has left unions like UAW without the broader support they need. Unless the new UAW leadership under Bob King has plans to aggressively engage the UAW rank and file in a broader campaign to change the balance of power in the industry these will not be easy negotiations.

Fragile Pakistan a sacrifice to IMF?

The Financial Times published my letter today pointing out the absurdity that the IMF is pressing Pakistan to repay a loan to the point of cracking open the fragile governing coalition there. The result has been price hikes for gas and the assassination last week of a key governor.

At at time when the US and other countries are sending young men and women to die in the region why are we making it more difficult for the first liberal Pakistan government in many years to help?

My blogging colleague Pundita has been following Pakistan closely for many years and for those who wish more background are recommended to click on the link to her site.

FT.com / Comment / Letters – Fragile Pakistan a sacrifice to IMF?.

Law professors gather at AALS meeting in San Francisco, violating union boycott

Sadly, one of my professional associations, the Association of American Law Schools, decided to go ahead with its annual meeting this weekend at San Francisco hotels despite a union boycott in place to support collective bargaining.  Pro-union law professors have attempted to organize support for the hotel workforce and will hold a rally in San Francisco on Friday, January 7. (A website on the rally is now here.)  In a frustratingly ineffective effort to gain support for the union (there were a few exceptions, thankfully) I sent the following letters out to colleagues at Santa Clara as well as the head of the AALS’ securities regulation group:

Colleagues,

An end of term reminder that the AALS meeting this year is being held at a hotel that is under an official boycott by the union that represents its employees for failure to agree on a new collective bargaining agreement.  Hilton is owned by the giant private equity group Blackstone which posted a 13% increase in profits last year but is refusing their workforce a modest increase in pay and benefits.  An informational picket line is possible (as was the case during the recent meetings of the African Studies Association in San Francisco) and I have asked my AALS section, Securities Law, to move the meeting to a neutral venue such as a local law school.  The letter I sent to my section is below.

In light of our law school’s longstanding commitment to equity and social justice I hope you can find a way to express your support for the labor force of the hotels such as by boycotting the AALS meetings, writing a letter in support of the workers to the AALS, many of them first or second generation Americans earning a fraction of what lawyers or academics earn, and asking your sections or panels to move to another venue.  My understanding is that San Francisco law schools are making space available for various events.

For more information including whether or not a picket line will be present at the hotel, see this union website:

Sincerely,

Stephen F. Diamond

Associate Professor of Law

Santa Clara University School of Law

Hi, Elizabeth,

I appreciate your solicitation of member reactions to the situation at Hilton. I, for one, would not be willing to cross a picket line. My grandparents were lifelong trade unionists in San Francisco and in fact participated in the 1934 General Strike there. I was in the labor movement before law school and my experiences then had a lot to do with my decision to become a lawyer and law professor.

I had planned to attend AALS sessions this year but now have to reconsider. So I would hope that rescheduling at nearby law schools (we could likely accommodate some folks at SCU but that is about an hour south) or union friendly hotels is feasible.  Otherwise I believe we should cancel the sessions in support of the collective bargaining process.

I would also suggest, however, contacting the union to find out the status of negotiations since January is a long ways away still and so there is always the possibility of a settlement.

Hope this is helpful.  Please feel free to share my views as you see fit.

Best,

Steve Diamond

Is Facebook already a public company?

Hot startup companies face a dilemna: how to generate liquidity for early stage investors and employees without conducting an IPO, or “initial public offering.”

An IPO requires the preparation of a prospectus in a process that is overseen by investment bankers, lawyers, accountants, the stock exchange and, not least, the SEC. Not until the SEC declares a registration statement (which includes the prospectus) prepared by the company and its legal and financial advisors “effective” can a company actually sell its shares to the investing public.

But when that prospectus is filed, even if in early draft form, it becomes public and is available on the SEC’s EDGAR database. And that means the core business model of the company is available for competitors to review.

Some years ago Google ran into a version of this problem. It had handed out more than $80 million of options to buy stock to employees and consultants. At a certain point the company crossed the threshold of 500 investors set by the SEC and, as well, it ran afoul of a ceiling on securities allowed to be issued to employees and consultants by the SEC without disclosure to them.  Google was therefore obligated to file an annual report roughly equivalent to a prospectus or provide recipients of the stock options with details about the company’s business. They did not do so and that led to an SEC investigation and in turn the SEC slapped their wrist, extracting a promise not to do it again.

Of course, by then Google had gotten away with what they had wanted to do: time their IPO without giving up the ability to hand out shares prior to filing their prospectus.

Continue reading →

Remembering Ron Santo

I knew Ron Santo, first, from a distance, as a lifelong Cubs fan and then, when he retired, as one of his regular caddies when he turned to golf at the local country club.

He was a generous and warm person with a giant personality who dominated the golf course the way he dominated the field. Within a few short years he was a scratch golfer and club champion, regularly smashing 300 yard drives down the center of the fairway, in an era long before 300 became the norm among professional golfers – prima facie evidence of his tremendous athletic ability.

He was a breath of fresh air in that all too clubby and cloistered leafy green suburban environment.

He will be missed.

Ron Santo, Longtime Cubs Stalwart, Dies at 70 – NYTimes.com.

Chalmers Johnson, influential scholar and critic of US foreign policy, dies at 79

Some 20 years ago, I was a visitor at the Graduate School of International Relations and Pacific Studies on the U.C. San Diego campus. My office was across the hall from that of Chalmers Johnson. This was just before he did something that all too rarely happens in academia – he walked away from the field of political science because he saw the malicious influence of narrow rational choice theory.

A decade before 9/11 he lamented the deterioration in qualitative analysis and area studies that “rat choice” had caused in the field. In part this was linked to a wider problem: an obsession with quantitative and empirical analysis in the social sciences generally.

His perspective influenced my approach to human rights theory expressed in this review essay on the impact of realism on human rights.

More well known is Johnson’s transition from a fairly conservative figure – one who was known for an occasional crude and politically incorrect joke when he was on the Berkeley faculty and served as an advisor to the CIA – to a bold and provocative theorist of the left, strongly critical of global U.S. military power.

Chalmers Johnson obituary: Chalmers Johnson, influential scholar, dies at 79.

“The Big Fail” – a legal black hole in the economy

Adam Levitin explains why the legal problems at the heart of the real estate crisis may end up making the last three years look like a speed bump.

The problem is that our banks turned themselves into designers of loans that they then were supposed to have sold off in packages to outside investors. Now that that homeowners are failing to pay their mortgages it turns out the banks may not have ever really transferred the mortgages as they promised.

So who is going to have to cover the losses now?

Here is one tantalizing clip:

The banks are in serious trouble if there are widespread securitization fails. If the loans weren’t transferred to the securitization trusts, then they are on bank balance sheets, which means that (1) the losses on the loans are the banks (to be sorted out with the investors), and (2) the banks need to be holding capital against the loans that haven’t gone into foreclosure.  Depending on the scale of the problem, the banks might not have enough capital to cover the securitization fails….

The Big Fail – Credit Slips