• John Coates
  • Jon Hanson
  • Lawrence Lessig
    John Coates | TREND IN M & A

    Shortly before Christmas in 1989—John Coates’s first year as an associate at Wachtell, Lipton, Rosen & Katz—the firm got a call from the Bank of New England, announcing that the bank was facing a billion-dollar loss, evaporating liquidity, and imminent failure. The bank had assets to sell, but arranging sales would take months. "If we didn’t get a bridge loan inplace by Monday, the day after Christmas, the bank would fail," says Coates.

    Today Coates is a much-sought-after specialist in corporate securities, mergers and acquisitions (M & A), and financial institutions law and regulation. He is also a new assistant professor at the School, teaching M & A this fall, and Corporations in the spring. When he left Wachtell, Lipton in May to come to HLS, he had worked first as associate, then as partner, on over 150 deals, many of them high-profile. But in 1989 he "couldn’t have been greener, or more daunted at the prospect of trying to save one of the largest banks in the country," he says.

    Wachtell was able to help the Bank of New England arrange an interim loan from J.P. Morgan, but not without anxious moments. "We were about to close on the loan when one of J.P. Morgan’s lawyers found a problem with the collateral, which was shares of stock of a Canadian subsidiary. At 11 p.m. on Christmas night, we needed to find a Canadian lawyer to give an opinion J.P. Morgan would accept, and get everything in place before the start of business. Somehow, we managed."

    Coates, who taught M&A at his alma mater, New York University School of Law, from 1993 through May 1997 (NYU wooed him for a permanent appointment, but Harvard won him), and Bank M & A at Boston University Law School, likes to tell students about the Bank of New England case "because it shows the real-world role that deal lawyers can play, even as junior associates."

    Another case Coates has imported from the boardroom to the classroom is IBM’s hostile takeover of Lotus in 1995. By the time Coates and other Wachtell attorneys were brought in to represent Lotus, its defenses were so poor that there was no way to avoid a takeover, he explains, but they thought they had a shot at improving IBM’s bid, including the deal price, the severance package for departing Lotus employees, and the benefits of those who stayed. "We managed to get IBM not only to agree to increase its bid price but also to double the severance originally planned, so in the end we salvaged a bad situation. It’s useful for students to hear about one of the few hostile takeovers in a ‘people industry,’ like software, that wasn’t a total disaster."

    "I like to think I can o›er some insights about what lawyers actually do in the merger process," Coates says. In recounting his experiences to students, he stresses the need for lawyers to understand the macro-economic environment a›ecting the merger decision, as well as the particular industry in which the merger is taking place—considerations that are not part of typical analysis in corporate law casebooks. Also, he notes that the academic literature often overlooks the importance of the personalities of the decision-makers. "Whether or not the two CEOs get along makes a huge di›erence in whether the merger will work," he observes. "Lawyers, as much as investment bankers, help bring compatible people together."

    Coates has written numerous articles on corporate securities and financial institutions regulatory law, and the subjects of his research often shape classroom discussion. He is finishing a paper on valuation in "freezeouts"— deals in which public shareholders are forced to take cash for their stock—which he regards as "one of the most important unresolved issues in corporate transactions, and largely ignored by scholars, probably because of the technical di¤culties it presents." Coates’s new research projects include scrutiny of the package of corporate documents companies adopt when they go public, and an exploration of the ways large financial institutions enforce internal compliance with the many regulations on their activities. "Regulators are increasingly relying on companies to self-enforce, so compliance policies are increasingly important," he says.

    For seven years Coates has been a coauthor of the leading annual survey of developments in bank M & A, such as the creation of interstate, regional, and national banks since a 1978 case permitting regional interstate banking. Another recent development Coates has been tracking is a boom in commercial bank acquisitions of investment banks, as legal barriers to such deals, in place since the Depression, continue to fall.

    The boom, he notes, makes this an especially exciting time to introduce students to the field. And while Coates will miss the boardroom and his friends at Wachtell, he is settling happily into teaching at HLS: "I’ve left the best law firm in the country for the best law school in the country."

    - Nancy Waring

    Hanson | The True Cost of Smoking

    This fall, Jon Hanson returned to the classroom as a newly tenured professor of law, teaching Corporations and a seminar on products liability. In the spring, he will teach the core course on Torts, in which he gives 1L students "the necessary dose of doctrine as well as an overview of intellectual and theoretical currents in law," he says. "I try to provide a firm foundation in law and economics—the dominant intellectual paradigm for understanding tort law—while introducing students to some prominent critiques of tort doctrine and of law and economics, including those o›ered by feminist legal scholars and critical race theorists."

    Hanson’s scholarship on tort law reflects his own mixed feelings about the role of law and economics. Although he considers himself a "legal economist," he casts a skeptical, if not critical, eye on much of the conventional law-and-economics wisdom regarding tort law.

    Hanson’s tenure appointment was followed by a period of intense research and writing, on a question he and co-author Kyle Logue, of the University of Michigan Law School, have grappled with for several years: How, if at all, should the cigarette market be regulated? According to Hanson, legal economists approach this question, typically, by considering whether there are significant "market failures"—that is, reasons to believe that the relatively unregulated cigarette market leads to "undesirable or ine¤cient outcomes." If so, regulation may be called for.

    While Hanson and Logue accept this approach, "we disagree with the conclusions that most legal economists have reached in taking it," Hanson says. In an article to be published in the March issue of the Yale Law Journal, he and Logue argue that the cigarette market is plagued by market failures.

    For example, says Hanson, smokers are "imperfectly informed" of the health risks of smoking. Although most consumers know that long-term smoking is hazardous, many smokers underestimate the risks to themselves and to others of their own smoking—in part because they do not view their decision to smoke as a long-term choice. Moreover, many of the costs of smoking are borne not by those who are physically harmed by smoking, but by their private and public insurers. As a result, consumers smoke more cigarettes than they would, and manufacturers have less incentive to design safer cigarettes than they would, if smokers knew and bore all of the costs of their habit.

    In late June, a group of state attorneys general announced a landmark proposal for a national settlement of lawsuits against the tobacco industry. Hanson swiftly went to work organizing the first academic conference to analyze the proposed settlement and to debate its likely regulatory e›ects. The conference, held at the School on July 31, was motivated by two striking omissions in the settlement process, Hanson says. "First, probably because of the secrecy and urgent pace of the negotiations, legal theorists and policy-oriented scholars had played no role in shaping the proposal and had had little or no opportunity to weigh in on the matter." And second, "perhaps reflecting the general anti-tort and anti-plainti›-lawyer sentiment in this country, very little attention had been devoted to considering the implications of the settlement’s tort law restrictions."

    Those implications were the focus of a roundtable discussion at the conference that brought together economists, legal scholars, public health o¤cials, and attorneys sharing their "view from the trenches," says Hanson. Of the three tobacco industry lawyers on the panel, only two spoke favorably of the settlement. Notes Hanson, "I know of no other setting where the cigarette industry has allowed its lawyers to speak so openly about their views of any industry-related legal policy."

    At the conference, Hanson and Logue sought to destabilize the emerging consensus among policymakers and public health o¤cials that the proposed settlement o›ered the best regulatory scheme attainable. They contend that the settlement relies far too heavily on "command-and-control" regulation requiring regulators to possess unrealistic expertise on cigarette designs and the cigarette market in order to be e›ective. Hanson and Logue prefer a system of "incentive-based" regulation that would require cigarette manufacturers to pay for all costs caused by cigarettes. Under such a system, Hanson and Logue argue, market forces become the friend, rather than the enemy, of public health. Hanson points out that the tort system has already served, and could better serve, as an incentive-based regulation of the industry, but that the proposed settlement largely eliminates that role for tort law.

    In September, President Clinton called on Congress to make significant changes in the settlement plan, which delays and complicates its prospects of becoming law. The President’s recommendations do not, however, address the regulatory pitfalls identified by Hanson and Logue. Whether legislators revise the current settlement or scuttle it, requiring a new process altogether, Hanson hopes the President and other interested policymakers will recall how successfully the tobacco industry has counteracted and, ultimately, financially benefited from ill-considered regulatory e›orts in the past. "My hope is that, at the very least, Kyle Logue and I will be able to remind the settlement’s proponents of the need for circumspection and humility when attempting to regulate this industry," he says. "The issues are complex and important, and I expect to be dealing with them for some time."

    Lawrence Lessig | A Constitutional Theorist in Cyberspace

    Professor Lawrence Lessig, a constitutional theorist and cyberlaw specialist, joins the HLS faculty this fall after six years on the law faculty at the University of Chicago. "I came here in part because of the Law School’s Center on Law and Technology," says Lessig, noting that "Harvard is becoming a center for addressing the policy implications of cyberspace."

    In his view American constitutional law is "backward-focused. It tends too often to be a passive articulation of history, as in ‘We’re just doing what the Framers did.’" This presents a serious problem in cyberspace, where there are so many new things for legal scholars to think about, says Lessig, including how to safeguard free speech, intellectual property, and individuals’ "informational privacy" on line. To rely on the Framers’ intentions, rather than seek solutions that make sense, would mean "an ever-shrinking Constitution in cyberspace."

    This year, in addition to the core Contracts course and a seminar interpreting constitutional fidelity in the context of the Civil War amendments, Lessig will coteach a new course, The High-Tech Entrepreneur, focusing on the fast-growing cyber-marketplace. Students will examine the dynamics of start-ups, mergers and acquisitions, and venture capital in the information industry, with the help of guest speakers—lawyers, businesspeople, and policymakers—at the front lines of high-tech ventures. Legal questions include whether a new paradigm for antitrust law is needed for the Internet, in light of, to name an obvious case example, expansionist Microsoft.

    Despite some hesitancy, largely due to unfamiliarity, "people are increasingly moving onto the Net for commerce," says Lessig, who buys most of his books via the electronic bookstore Amazon.com. "It remains to be seen how the government will regulate this, and how the Net will establish its own internal rules."

    Lessig previously taught a course on cyberlaw at HLS when he was a visiting professor during the 1996–97 winter term. He codirected the Center for the Study of Constitutionalism in Eastern Europe at the University of Chicago, and will continue his work comparing the constitutional interpretations of di›erent countries, particularly Russia and the United States.

    In fact, Lessig is planning a new book that will treat cyberlaw as a type of comparative constitutional law. His book will also examine the problems of regulation on the Net. "Traditionally, law directs human behavior," Lessig says. "Far more common in cyberspace will be regulation by code contained in the software," which determines how users gain access to on-line information. But who encodes the software, he asks. The government? Private companies? "The way we structure the code has vast social and political implications that are barely understood. With the law, we as citizens have the right to complain. When code instead of the law regulates, to whom do we complain?"

    The prolific author’s views recently influenced U.S. Supreme Court Justice Sandra Day O’Connor, who cited his 1996 article "Reading the Constitution in Cyberspace," Emory Law Review, in her minority opinion in Reno v. ACLU, which ruled that the Clinton administration’s proposed Communication Decency Act (CDA) was unconstitutional. CDA attempted to impose civil and criminal penalties for posting indecent material on the Internet, a move opposed by civil liberties groups. Says Lessig, "I expected [the justices] would strike the statute down. It was too broad and vague in its description of the categories of speech to be limited on the Net, and the litigators didn’t demonstrate the relative ease with which Websites could [use new technology to] block access by minors."

    He does not, however, regard the Court’s opinion as definitive. "I’m not in favor of CDA, but as a constitutional matter, these flames of victory on free speech grounds are very short-lived." Congress can now proceed to focus more narrowly the categories of speech to those already regulated in the outside world, and technological "filters" can be created relatively easily and at low cost. Such an approach, Lessig suggests, would result in a "zoning statute" that electronically distinguishes between adults-only sectors on the Internet and those open to children. "When Congress demonstrates the e›ectiveness of this approach," he predicts, "the Court will accept it."

    Lessig received a B.A. in economics and a B.S. in management from the University of Pennsylvania, and a master’s degree in philosophy from Trinity College (Cambridge University). He graduated from Yale Law School in 1989, then clerked for Judge Richard Posner ’62 of the U.S. Court of Appeals, Seventh Circuit, and the following year for Supreme Court Justice Antonin Scalia ’60. "Scalia is deeply interested in constitutional fidelity. His approach raised many questions for me, such as, how do we carry forward 18th-century ideas into 20th-century America?"

    - Julia Collins