Daily Archives: June 23, 2005

Bainbridge on criminalizing agency costs

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biobainbridgestephen.jpgU.C.L.A. law professor Stephen Bainbridge is one of America’s leading experts in the area of corporate and securities law, and he has long been generous in sharing his expertise on those subjects and others on his popular ProfessorBainbride.com weblog. Professor Bainbridge is also a formidable writer who is particularly gifted in breaking down complex legal issues in a simple and straightforward manner.
In this TCS Central op-ed (his blog post on the article is here), Professor Bainbridge takes dead aim at the dubious governmental policy of criminalizing business interests through the prosecution of agency costs, which are essentially the costs of poor corporate governance. The entire op-ed is a must read, and here is the money quote:

[S]hareholders deserve protection from theft, but not from risk taking, even when the risk in question is how much to pay an executive. Unfortunately, it’s not clear that prosecutors know the difference — or even care.

New study promotes change in treating lung cancer

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lung2.gifThis NY Times article reports on a new research study to be published today in the New England Journal of Medicine that is strong evidence that chemotherapy greatly improves the chances of survival for early-stage lung-cancer patients. Lung cancer is by far the leading cause of death from cancer, exceeding annual deaths from colon, breast, pancreatic and prostate cancer combined.
Lung cancer has long been one of most difficult cancers to treat. A high percentage of lung cancer victims are are smokers or former smokers, and because there is no systematic screening process for lung cancer, almost half of the 175,000 annual lung cancer cases are not discovered discovered until the cancer is metastatic (i.e., spreading), which makes survival unlikely. Currently, only about 15% of lung cancer victims survive beyond five years.
The standard treatment for early-stage lung cancer has long been surgery to remove the lobes containing the tumor, but that treatment has resulted in only a 54% survival rate beyond five years. Until this new study, no published research studies had shown a substantial benefit from chemotherapy after surgery for early-stage lung-cancer patients, who represent nearly a third of all cancer cases.
The results of the 10-year trial of 482 patients with early-stage lung cancer show that intravenous chemotherapy drugs improved five-year survival rates to almost 70%. That 15-point improvement will make doctors and patients much more willing to consider follow-on chemotherapy, which sometimes requires hospitalization. “There’s never been a lung-cancer trial that showed this benefit of treatment in any stage of disease,” commented Katherine M.W. Pisters, M.D., an oncologist at Houston’s M.D. Anderson Cancer Center in the Texas Medical Center, who has an op-ed on the study in the current issue of the Journal. In response to the findings, the American College of Clinical Oncology and the American College of Chest Physicians are currently rewriting their official guidelines to physicians to recommend chemotherapy for early-stage lung-cancer patients.
The study was funded by the American and Canadian governments’ National Cancer Institutes, and received $1.6 million from GlaxoSmithKline PLC.

This is really, really not going well

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Kozlowski6.jpgDuring the recent trial of former Tyco CEO Dennis Kozlowski, I noted here and here that the cross-examination of Mr. Kozlowski did not go well for the defense.
Consistent with that theme, this Wall Street Journal ($) article reports today that Mr. Kozlowski — who essentially was convicted of embezzling excess compensation from Tyco — wrote this letter several years ago to a Houston assistant district attorney in which he requests that the prosecutor seek the maximum prison term for a former executive of a Tyco unit who had been found guilty in a Houston state court for — you guessed it — embezzlement.
In his letter, Mr. Kozlowski wrote that the former Tyco unit executive’s crime “cannot be condoned in any manner” and that “not only did he steal from the stockholders … but he breached the fiduciary duty placed in him.” In advocating the “maximum term,” Mr. Kozlowski noted that the court needed to send a message that “wrongdoing of this nature against society is considered a grave matter.”
The former Tyco unit executive got 20 years, although he was paroled after four.

Big Chinese company takes on Chevron over Unocal

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unocal2.gifCnooc Ltd., China’s third-largest oil company and it’s major explorer of offshore oil and gas, yesterday made an unsolicited $18.5 billion cash bid for El Segundo, CA.-based Unocal Corp. The bid is attempting to scuttle the earlier $16.5 billion bid that San Ramone, CA.-based Chevron Corp. made for Unocal in April.
If successful, Cnooc’s bid would be the largest foreign acquisition ever attempted by a Chinese company and would be the first time that a Chinese and U.S. company have competed in a takeover battle. Cnooc had been considering making a bid for Unocal in April, but backed off at the last minute.
Inasmuch as a good case can be made that Chevron’s bid was over-priced, Cnooc’s offer for Unocal reflects that China’s government (about a 70% owner of Cnooc) will pay a high price to gain direct control over more energy assets to fuel its booming economy. Nearly half of Unocal’s reserves — the oil and natural gas equivalent of about 1.75 billion barrels — consists of natural gas in Asia. Cnooc is offering $67 a share for Unocal, and would have to pay Chevron a $500 million breakup fee and assume Unocal’s $1.6 billion in debt.
Although Cnooc’s bid will undoubtedly raise political concerns in Washington, prominent U.S. executives advised political interests to remain calm. The Wall Street Journal reported that Exxon Mobil Corp. Chief Executive Lee Raymond said it would be a “big mistake” for the U.S. government to block Cnnoc’s bid. “You have to have free trade. If you start to put inefficiencies in the system, all of us eventually pay for that.”