Real Estate Investment Trusts

September 15th, 2008

As a follow up to my last post noting that hard assets, such as real estate, tend to be good inflation hedges, I wanted to provide some basics on real estate investment trusts (“REITs”).  A REIT is an investment vehicle that owns either mortgage notes, real estate or a hybrid that both mortgage notes and real estate.

REITs came into being in 1960.  Most REITs at that time were mortgage REITS – they owned mortgage notes on real estate assets.  However, today, real estate and hybrid REITS are common.  Via securities, a REIT allows one to invest in large, income-producing real property.  That said, REITs come in a variety of flavors and can be sliced and diced a number of ways.

In the United States, three types of REITs as securities exist.  Publicly-traded REITs register with the U.S. Securities and Exchange Commission (the “SEC”) and trade on national stock exchanges.  The are also non-exchange-traded REITs, which also register with the SEC, but which don’t trade on a stock exchange.  Finally, private REITS neither register with the SEC nor trade on a stock exchange.

Additionally, REITs may be distinguished by the type of real estate they invest in.  This can be either broad or narrowly-focused.  For example, there are office REITs, multifamily property REITs, hotel REITs, shopping center REITs, warehouse REITS and storage facility REITs.

Another way a REIT may differentiate itself is for it to focus on a specific state or geographical region.

Companies must qualify to be classified as a REIT.  To do so, they must meet specific requirements of the Internal Revenue Code.  These requirements include the following:

* The REIT must be managed by a Board of Trustees or a Board of Directors.

* The REIT must be taxable as a corporation.

* The REIT must have 100 different shareholders.

* No more than 50% of the REITs shares may be held by five or fewer individuals.

* REIT shares must be fully transferable.

* At least 75% of the REIT’s gross income must be real estate-related, such as from rents or mortgage interest.

* At least 75% of the REIT’s total assets must be real estate assets.

* The REIT’s stock in its taxable subsidiaries may not be more than 20% of its total assets.

* A REIT must distribute at least 90% of its taxable income to shareholders as dividends.

These are some, but not all, of the main limiting characteristics of a REIT. A good book on real estate syndication in general, including REITs, is Samuel K. Freshman’s Principles of Real Estate Syndication.

Inflation and Hard Assets

September 7th, 2008

We’ve had many years of low inflation in the United States.  In the past year, however, inflation has increased.  The U.S. economy is complex and many reasons are behind this acceleration.  For example, the industrialization of the economies of China and India have increased the demand for commodities, which are used to build infrastructure.  So the prices of commodities, such as steel and oil, have risen as demand has increased globally.

The law of unintended consequences also has played a part in inflation.  Congress passed and President Bush signed the Energy Independence and Security Act, which mandated a huge boost in the use of corn-based ethanol.  This occurred at a time when world grain stocks are at a 30-year low and prices at historic highs.  With more demand for corn, prices shot up.  Livestock producers and food processors incurred greater costs, as corn is a staple of livestock feed.  As a result, the cost of food rose and now, for example, eggs cost 40% more than they did a year ago.  In fact, even the prices for non-food crops rose as farmers switched from them to grain crops, which are more lucrative.

So what holds value during inflationary times?  Hard assets typically do.  One such hedge against inflation  is real estate.  Despite the housing downturn due to the subprime crisis and resultant credit crunch, real estate historically has been a good long-term investment when inflation accelerates.  Although the market is not at its peak, we haven’t seen a decline in U.S. commercial real estate comparable to the residential slump.  Good value may lie in commercial real estate investment over the next few years.

Technological Change and Software for Boards of Directors

August 30th, 2008

What is amazing about technological change is how quick it is in today’s world.  It seems as if the rate of change in human history can be compared to a snowball that grows bigger and bigger and rolls faster and faster down a hill as time marches on.

Only 25 years ago, printed material permeated our lives.  Today, electronic data has largely complemented or supplanted the print medium for many routine processes.  New software applications seek out niches to exploit like water seeping through the earth to fill all the cracks in a rock.

One niche in which electronic means are taking hold is in software for Boards of Directors.  New software for corporate governance allows for worldwide, instantaneous, 24/7 access via easy-to-use interfaces.  It means that printed materials don’t have to be dragged around or distributed.  Confidentiality and security are enhanced.

State corporate law statutes regarding Board meetings have evolved to reflect this technological change by allowing for meetings by remote communication and remote participation (See, e.g., Massachusetts Bus. Corp. Law ch. 156D, § 8.20).

Companies that offer software or online applications for Boards of Directors include BoardVantage (Director Suite) and Diligent (Boardbooks).  Collaborative content management software, such as that produced by EMC (Documentum eRoom.net), also could be used, although it is not specifically designed for corporate governance.

Practical Advice About Confidentiality Carve-Outs

August 21st, 2008

Many different types of agreements include confidentiality provisions.  These provisions define the information that is deemed to be confidential.  I recently reviewed a consulting agreement and it had a flaw common to provisions that discuss confidential information:  the lack of any specificity regarding when information might not be considered confidential.

Broad, generic drafting creates potential flash points.  Instead of protecting both parties by clarifying the details, its broadness makes a potential dispute more likely.  I don’t argue the point that, in some cases, one party purposely will leave a clarifying section (AKA a carve-out) out of the agreement because it is advantageous to do so. But often, it’s just sloppy drafting without carefully crafting what is appropriate in the circumstance.

Here are some carve-outs that I suggested be added to the consulting agreement:

1. Information that, at the time of disclosure, is generally known in the pertinent field or is in the public domain;

2. Information that, after disclosure, becomes generally known in the pertinent field or becomes part of the public domain without breach of the provisions of this Agreement by either party;

3. Information that either party can show it possessed at the time of disclosure and did not acquire, directly or indirectly, from the disclosing party;

4. Information that either party can show it independently developed after disclosure without reference to the other party’s Confidential Information;

5. Information that Contractor can show it received from a third party which did not acquire it, directly or indirectly, from Company under an obligation of confidentiality and which did not require Contractor to hold it in confidence;

6. Information that Company can show it received from a third party which did not acquire it, directly or indirectly, from Contractor under an obligation of confidentiality and which did not require Company to hold it in confidence;

7. Information that is required to be disclosed by applicable law, by rule or regulation of a court or government agency of competent jurisdiction, or pursuant to legal process; provided, however, that the party required to make such disclosure shall (a) use its best efforts to limit such disclosure, (b) use its best efforts to promptly provide the other party with advance notice of any such request for disclosure so that said other party may seek a protective order or such other appropriate remedy as said other party deems necessary, and (c) make such disclosure only to the extent so required.

Number 7 is an interesting provision, in that, without it, a party could be stuck between being in violation of the law or breaching the contract.  Let’s say Company is sued by a third party and confidential information, as defined by the Company-Contractor Agreement, is or becomes an issue in the lawsuit.  If the third party’s lawyer deposes Contractor, but the Company-Contractor Agreement doesn’t include # 7, then if Contractor testifies in the deposition, he is in breach of the Agreement – and could then be subject to suit by Company.  Yet if he does not testify, he is in violation of the law.  Clearly, it is in Contractor’s interest to include this provision in the Agreement.

Capital Ratios of Financial Institutions

August 14th, 2008

With the stocks of banks and investment banks imploding in 2008, there’s been much talk of capital ratios.  Regulators require banks to maintain minimum capital requirements.  The reason is to prevent them from failing due to overzealous lending during economic expansions that could result in financial setbacks when the economy turns down.  So just what are capital ratios?

In the United States, there are two primary capital ratios:  Tier 1 and Tier 2.  The Tier 1 capital ratio is the most important one, and that’s what I’ll focus on here.

The Tier 1 capital ratio consists of the ratios of the bank’s stockholders’ equity, preferred stock and retained earnings to its total risk-weighted assets.  Risk-weighted assets are calculated by putting each of the bank’s assets and off-balance sheet items into a basket and assigning a risk category to that basket.  Risk categories range from 0% to 100%.  If the overall risk is lower, then the bank is considered more stable for depositors and more conservative for investors.

The problem today is in determining both the valuation of and the risk relative to the assets.  Some, as I noted in my earlier posting on auction rate securities, are hard to value, but are less likely to default.  Others, such are a letter of credit, may be considerably riskier.  So actually determining the Tier 1 capital ratio involves art as well as science. Thus, bank stocks, which have fallen considerably this year, may still be overvalued.

Regulators use the Tier 1 capital ratio to segregate banks into five categories ranging from well-capitalized  to critically undercapitalized.

The Tier 2 capital ratio includes undisclosed reserves, general loss reserves, subordinated term debt, hybrid instruments, among other items.

Title 12 of the Code of Federal Regulations includes the regulations regarding minimum capital ratios.  A much more detailed compendium of what is included in bank capital ratios is available in Appendix A to Part 3.

The (Not Exact) Characteristics of a Successful Leader

August 7th, 2008

Once upon a time, a CEO I worked with critiqued the difference between our leadership styles.  He told me, “You’re like a coconut.  You’re hard on the outside, but soft on the inside.  People think you’re tough until they get to know you.  Then they realize you care about them.”

He then said something shocking.  He said, “I’m just the opposite.  Everybody likes me instantly.”  “But I’m hard on the inside,” he continued, waving his arm at a group of people working for his company.  “I could care less if any of them walked outside and got hit by a car.”

What was shocking to me was not his statement, but that he admitted it.  He was not a very nice person, but he was so confident that he could admit it and not care what people thought about him.

This CEO started with a few people and built a publicly-traded company.  As could be expected, he’s not good at maintaining long-term relationships with most of his employees.  Once they figure him out, they move on.  He can’t be trusted; I’ve seen him break contracts that he signed, but later decided not to honor.  Plus, every few months, the company had a new strategy.

Nonetheless, he’s been successful if judged only in terms of building a company and creating wealth.  He has the smarts, he’s crafty and he has tremendous confidence.

That caused me to think about what the characteristics of a successful leader are.  There are thousands of books on the topic.  If you google “what makes a good leader,” in a fraction of a second, you get more than 1.5 million entries.

Having been an attorney who’s worked with hundreds of companies and in leadership roles myself, what I’ve learned is that there is no one type of leader.  No one combination of characteristics exists that leads to the corner office at the top of the skyscraper.

Vision is overrated.  It’s important, but once you have the vision, you need to be able to act on it.  This requires a certain amount of organization – the ability to get things done.  You need ambition, so that you actually do act on it.  And you have to make people believe in you; that’s where the confidence comes in.  Plus, there are a few other traits that the books mention, such as keeping cool under pressure and making tough decisions on time, among others.

Yet good leaders come in a myriad of combinations.  What works in one organization or situation may utterly fail in another.  So to say that there’s any one, two, five or ten characteristics that define a leader is wrong because the mix of traits or lack of any one trait depends on the company, the circumstances and the individuals involved in the endeavor.

A difference exists, though, between leaders and those that stand out as great leaders.  The great ones I’ve met have the ability to listen, and let people feel like they’ve been listened to.

And I do think integrity is critical.  The CEO I mention above was successful, but was constantly losing good people.  Had he kept them, his company would have been much larger and much more profitable.

General Colin Powell offers some good thoughts in this leadership primer.

Auction Rate Securities and How the Failure of One Market Can Snowball Into Other Markets

July 31st, 2008

How can a failure in one market snowball and create failures in others?  Here’s a simplified example, in the case of auction rate securities (ARS).

Much has been written this year about the sudden illiquidity of the ARS market.  ARS are a product often used by companies to invest their excess cash.  The inability to properly value such securities led to problems because they need to be properly valued on a company’s balance sheet for financial reporting.  Additionally, when that cash was needed, reselling the ARS at what was their supposedly appropriate value was an issue, as they were trading at significant discounts because of market illiquidity.

An ARS is a debt security, most often a municipal or corporate bond, in which the interest rate is reset via a Dutch auction on each payment date.  Essentially, it is a long-term bond with a 20 or 30-year term, but with variable interest rate, so that it acts like short-term debt.  A Dutch auction, also known as a descending price auction, is the winning bid at which the lowest possible interest rate at which equilibrium occurs (equal numbers of buyers and sellers exist), such that all securities can be sold.  For ARS, the auctions to reset the interest rate usually are held every 7, 28 or 35 days.

In February, 2008, the market for ARS collapsed and more than 1,000 auctions failed.  This is because the ARS’ insurers were in financial difficulties because they previously had insured mortgage-backed securities that were now defaulting at higher rates.  Suddenly, the ARS were seen as riskier because the insurers backing them were less secure.  Although an auction may fail, the ARS’ rates do reset,  typically increasing to the maximum rate allowed for the issuer of that particular ARS.  Demand for the securities decreased.  The investment banks that make a market in these securities refused to act as bidders of last resort, which they previously had done.  Consequence:  the market for ARS froze.

Investment banks had pitched these securities as “cash or cash equivalents” to companies.  But cash and cash equivalents are considered liquid.  Suddenly, many companies which held ARS had to revalue their holdings, and some reclassified them as short-term investments.  These changes reduce cash holdings on the balance sheet.  In some cases, a company may technically default on its debt covenants based on the ratio of cash on its balance sheets.  Public companies with significant amounts of ARS as a percentage of cash could see a drop in their share prices.

Even if the issuer underlying a particular ARS is fine, the lack of liquidity and auction failure created problems for investors.  These problems, with began with the failure of mortgage-backed securities, spiraled into auction rate securities, affected companies’ balance sheets and perhaps, share prices.  This, simply put, is how the failure of one market can snowball into other markets.

The Legal Underpinnings of Annual Meetings

July 24th, 2008

A corporation in the United States is a legal entity that typically is formed to conduct business.  Its internal affairs are governed by the law of the state in which it is incorporated.  That means that under state law, a company’s shareholders must annually elect directors and transact other business that may be appropriate at the time.  This may be done at an annual meeting.  However, it is not only state corporate law that governs annual meetings.

The corporation’s organizational documents – the articles of incorporation (AKA certificate of incorporation) and by-laws – also control annual meetings.  For example, they may allow action to be taken without a meeting, upon the written consent of the shareholders.  Organizational documents provide the skeleton of the annual meeting, in that that may provide for the meeting time, date and place (or the way to determine the meeting time, date and place), setting the record date to determine the shareholders who will be eligible to vote and the voting rights of various classes of securities if there is more than one class.

Corporations with securities registered on a national securities exchange also must comply (unless they are exempted securities) with proxy rules, the rules and regulations enacted by the Securities and Exchange Commission (SEC) under Section 14 of the Securities Exchange Act.  Broadly stated, a proxy is a consent or authorization to act for another.  Regarding an annual meeting, the SEC’s proxy rules govern the form of the proxy and the form of the annual report provided to shareholders, regulate the information to be presented in the proxy statement, address the procedures pursuant to which shareholders receive the proxy and annual report before a meeting, and also mandate certain filing requirements.

Finally, national stock exchanges  (e.g., the New York Stock Exchange) have listing requirements which include rules addressing annual meetings.  Corporations with securities listed on a national stock exchange must comply with such rules.

A Management Flaw – and Financials Disasters That Shouldn’t Have Happened

July 17th, 2008

One critical flaw that has hobbled and even killed companies is not managing growth.  Companies that don’t manage their growth produce unhappy customers, unhappy vendors, unhappy franchisees and sometimes, spectacular flame outs.  Why would a company put itself in this position?  Lots of reasons . . . attempting to grab market share, be the first into a new market and dominate a niche, management hubris or just plain greed.

Here’s an example of management hubris:  I interviewed for an executive position with a $700 million company that started growing extremely rapidly (It had doubled in the past 2 years.).  I spent 1.5 hours with their head of HR.  He told me, “We don’t have competition” and “I’d rather have someone do C+ work and get it done tomorrow than A work and get it done next week.”  Those sort of red flags say to me that when this company falls, it’s going to fall hard.

Two companies that should’ve been category killers, but ended up flaming out, are Boston Chicken (which changed its name to Boston Market) and Krispy Kreme Donuts.  Both had fanatics among customers and captivating products.  Both were loved by Wall Street.  In both cases, there was no dominant national chain in their niche, a la McDonalds in the hamburger category (KFC offered fried, not rotisserie, chicken.).  Both flamed out.

In Boston Market’s case, large loans fueled growth that occurred much too quickly.  Essentially, the company began to see itself as a financial, not food service, company, making money selling franchises instead of focusing on growing steadily and producing high quality meals.  The company failed to build a strong management team and had high executive turnover.  Food quality varied from unit to unit and even in individual units, depending on the time of day and number of customers.  Even its marketing strategy, with constant coupons, led to higher growth and lower margins.  Eventually, it filed for bankruptcy.

When Krispy Kreme opened in new areas, cars waited in long lines.  Although founded in 1937, its downturn came when it saw how lucrative franchising could be.  It sold its first franchise in 1995 and went public in 2000.  Its stock soared.  Yet it grew too rapidly without addressing a fundamental flaw:  stores that were too big – for selling just doughnuts – and cost too much to operate.  Some stores were too close together.  The company later began selling doughnuts to supermarkets, cannibalizing franchisees’ sales and flooding the market with product, lessening its cachet.  Franchisees paid high equipment and supply fees.  Ninety percent of sales were doughnuts, a much higher rate than competitors that diversified their offerings.  In other words, the company grew much too rapidly without first proving their franchise model.

On June 29, private equity firm MGL Asset Management Group LLC bid $7.25/share to take the company private.  But the company once traded at almost $50/share.

China and India Follow up – Investment and Economic Ramifications

July 10th, 2008

A month ago, I wrote about the emergence of China and India in the world economy.  Their expansive growth, though, results in their being more greatly affected by global economic trends.  As Investor’s Business Daily notes in U.S. Slowdown Shows In Drop of China ETFs, lower consumer confidence and drops in spending among American consumers has hurt Chinese economic growth.  That’s because the U.S. is the largest export market for Chinese goods.

Technical analyst Michael Kahn, in his Barron’s column, What Happened to China and India?, states that both countries are in bear markets.  While the long-term fundamental stories are sound, there’s no technical reason to expect a recovery in the Shanghai “A” share index, the Bombay Sensex index or the iShares FTSE / Xinhua China 25 Index Fund (FXI) anytime soon.  The latter is a popular ETF that mirrors an index of the largest 25 Chinese mainland companies traded on the Hong Kong Stock exchange.  More information is available on the FTSE / Xinhua website.

The Death of Customer Service?

July 4th, 2008

One-hundred percent of businesses talk about how important customer service is, how their customers are number one, how much they value their customer relationships. My experience is that, for many businesses, customer service is something to talk about, not do. Only a small percentage of companies make it a primary focus. Here’s a case in point.

Since December, 2007, I have been trying to get a major metropolitan newspaper to deliver a Sunday paper to me. My goal, as I’ve stated to them, is that “I want to wake up when I want on Sunday morning. I would like to make a cup of coffee, open my apartment door, look down and see the newspaper.”

I’m between houses and am renting in an urban area, so what I’ve asked for shouldn’t be a problem, given that distribution is one of the primary functions of a newspaper. Yet, the company’s inability to consistently provide me with a newspaper one day a week has led even their publisher to agree that their performance is unsatisfactory . . . but nothing has changed.

I first subscribed to the paper when I moved to Massachusetts in 1999. On March 9, though, I wrote a letter to the publisher canceling my subscription and asking for an explanation why they couldn’t deliver my paper. Here’s what I wrote:

“I did not receive delivery of my newspaper on the following dates: December 9, December 16, December 30, January 6, January 13, February 10 and March 9. Formal complaints have been filed, promises have been made. Alas, all to no good.

Instead of receiving my Sunday paper, I have, however, received many, many excuses from those in your organization and from your distribution center in Chelmsford. I’ve learned that there continually is a new driver (that’s the main excuse), that the driver is having a problem, that they have ‘visualized the driver leaving the paper there.’

Today, I heard again that ‘we don’t have a key for the building,’ which was not true because I’ve heard it before and spoke with the management office about it. ‘Management won’t give us a key’ is another common excuse that’s also untrue. Even if that were true, I did discover my newspaper on one afternoon, thrown out in the snow in front of our building on one of the dates in February that I did receive it, so they could at least do that.

Again, today, I was told (once again) that I would receive a replacement paper within an hour and the driver would ring me. Of course, it never showed up and no one contacted me (once again).

I’ve also heard, over the past couple of months, that ‘I don’t know what else to tell you.'”

I cannot fathom why this organization has so much difficulty performing a function so basic to its business. With increased competition from other media, one would think that in an era of declining newspaper circulation, publishers would make an extra effort to ensure customers are satisfied. Particularly in urban areas – and in my case, in a large apartment building – the marginal revenue of a single additional subscription pretty much goes to the bottom line. I can’t believe I’m the only subscriber having these problems.

The publisher wrote back to me that “the management of our circulation department has been made aware of the delivery problems you have experienced” and he hoped I would give them a chance to win back my business. The editor, who I’d also copied on the letter to let him know why his news was being read by one less person, wrote me that he forwarded it to the Senior Vice President for Circulation and Marketing and to the Director of Call Center Services (who is also listed as a “Relationship Marketing Director”).

Consequently, I was disappointed that over the next four weeks, I received only two Sunday newspapers. Opening my door was like playing Russian roulette: I never knew if a paper would be there or not. I called once and was told the paper was delivered to the wrong address. But I never received a replacement.

So I contacted the paper’s management again. The relationship director emailed me that the “horrible service . . . makes no sense” and “It will be fixed.” The publisher wrote me that “50% service is unsatisfactory.” He assured me that my delivery problems “have not gone unnoticed.”

The following Tuesday, I received a daily paper, which I do not want. The relationship director wrote that “That should be fixed.” I received emails from him about all the people in the organization he’d spoken with. But I’m not interested in how they do it. I just want to open my door and see a newspaper on Sunday morning.

Over the next three weeks, I received two Sunday papers. I also received a call from someone at the newspaper asking again about how they could get a key to the building. Since I had answered the question over and over, I referred him to the relationship director. Once more, I wrote the director. I said, “I can’t spend any more time answering anyone else’s questions on how to get your operations done. I just want my paper.”

Last week, my intercom rang early on Sunday morning. The delivery person brought the paper up and handed it to me, along with a lecture when I asked him to please just bring the paper and leave it in front of my door.

Now, I understand what it’s like to deliver newspapers. I had a rural route for years growing up, trudging through snow, in the hot sun, seven days as week – and those Sunday papers, full of ads, were heavy. I got up early before school and even had an after-school route, until the afternoon paper shut down. I learned that customers were golden – they paid your bills – and you never, ever spoke harshly to a customer.

What’s clear, other than the disconnect between management and the folks on the ground, is that customer service is not valued in this organization. It’s not a priority of the paper’s leadership and that attitude flows right down to the delivery people. A newspaper needs to write news. It needs to sell ads. But if you can’t provide that information to your customers, what’s the point? Eventually, you’re going to go out of business.

This major metropolitan newspaper is going through all the motions of customer service, but the low priority they assign to it means it is highly ineffective. I’ve written the publisher and the relationship director that “I don’t think my expectations are too high, but you can’t get the job done. Please leave me alone.”

I’ve received a response. They say that the problem is deplorable and has now been fixed. The saga continues . . . .

Performance Appraisal

June 26th, 2008

In late March, Sheryl Sandberg left Google to join Facebook, the social networking site, as COO.  She immediately instituted new management and operations processes.  These included guidelines for identifying and recruiting new employees, management training initiatives, and employee performance review procedures.

Fast-growing, entrepreneurial companies like Facebook are so busy that formalizing HR processes often are on the back-burner.  In fact, even larger companies (and some public companies I know) neglect setting up appropriate HR processes.  This not only can lead to liability, but to potential employee performance and satisfaction issues.

In the early part of my career, as an attorney at Day, Berry & Howard, we had only top down performance reviews that came from the partners with whom one worked.  With my own subordinates, I went further and instituted a more in-depth review of my own performance.  I regularly asked my assistants and occasionally, junior attorneys with whom I worked, questions like “How am I doing?”, “How can I do better to make us more efficient?” and “How can I help you to help me?”  To do this, you need to be open to criticism, which is something many hard-charging attorneys with Type A personalities have difficulty with.

For me, it paid great dividends.  I established excellent relationships that, for example, allowed me to delegate more of the mundane work to my assistants, which freed up my time for substantial work and allowed them to feel they were really contributing to our team.

360 performance review, which I understand that Ms. Sandberg initiated, incorporates more than just getting feedback from one’s superiors and subordinates.  It also can include getting feedback from departmental coworkers, those in other departments, suppliers and sometimes, customers.  Supposedly, it provides a more accurate picture of one’s strengths and weaknesses and ways to improve them (although there are some concerns about 360 performance appraisals).

At E-Solutions Integrator, we grew very rapidly from the outset.  We did not use 360 performance review during my tenure, but developed this performance evaluation form for both the reviewed employee and his or her manager to complete.  Each company needs to develop performance evaluation metrics that fit the needs of that particular organization, taking into account the job position, the requirements of that position, the type and size of the business, and the company’s stage of growth.  This form worked well for us in the early stages of our existence.

Securities Class Actions

June 18th, 2008

I once read that 1/3 of all publicly-traded U.S. technology companies had been involved in securities class action litigation. This has trended down this decade, but such cases still are being filed.

Stanford Law School, in cooperation with Cornerstone Research, a firm that consults to attorneys involved in complex business litigation, maintains a securities class action clearinghouse. It provides a wealth of information regarding individual federal class action cases alleging or involving securities fraud. This includes copies of litigation documentation as well as the prosecution, settlement and defense of cases, as well as statistical information.

Immigration Classifications and Visa Categories . . . and the H1-B Visa

June 11th, 2008

Those of us who’ve worked in the tech industry in Massachusetts constantly hear about H-1B visas. Right now, as during the Internet buildup in the late 1990s, we can’t get enough software engineers, so we hire qualified foreign nationals if we can, often via H1-B visas. An H1-B is a type of nonimmigrant visa that allows for temporary residence in the U.S. to work.

In fact, an H1-B is one of numerous immigration classifications and visa categories for nonimmigrants, beginning with A-1 (Ambassador; public minister; career, diplomatic or consular officer, and members of immediate family) and ending with V-3 and TPS (Temporary Protected Status). H1-Bs are used for hiring foreign nationals who will be employed in a specialty occupation or as fashion models of distinguished merit and ability. Specialty occupation means one has at least a bachelor’s degree in an area of specialized knowledge, such as law, mathematics, theology or the arts, among others. The number of H1-B visas is subject to an annual cap established by Congress.

More details on H1-Bs and how to apply are available at the U.S. Citizenship and Immigration Services (UCIS) website. Tara L. Vance at Holland & Knight has written an article, Hiring Foreign Nationals Without the Benefit of H1-B Visas, that discusses them in further detail, along with B-1, C, D, E and L-1 visas.

By the way, UCIS has a considerable number of forms available on its website, including Form I-9, which lists the documents that establish identity and employment eligibility to work in the U.S. Technical tip for HR departments: Keep your Form I-9s in a separate folder, so only they-and not the other employment documents-are accessible during a search to determine employment eligibility.

The Emergence of China and India

June 5th, 2008

We try hard to determine the future, but it is difficult to predict because so many variables exist. Who could imagine in 1908 the scientific advances of the 20th century, the two world wars, the rise and fall of communism, and the emergence of a wealthy western economic system after a dark depression in the 1930s?

That said, from the perspective of 2008, it appears that this will be the century of the human genome and the re-emergence of China and India (“Chindia”) as economic giants (In 1500, they accounted for about 49% of the world’s gross domestic product.). They will soon account for 40% of the world’s population and have been exhibiting rapid economic growth this century.

Global capital has and will continue to pour into Chindia. E-Solutions Integrator, the company I joined the day after it was incorporated in 1999, went public (as Cambridge Technology Enterprises) on the National and Bombay Exchanges in India. We originally outsourced software development in India and later had development and support offices there.

Political and social systems have yet to catch up. For example, in China, attorney/client privilege is not recognized except regarding trade secrets. In India, under the Evidence Act of 1972, privileged communications are protected, but in-house counsel are not considered to be attorneys, so as a general rule, communications between lawyers working for a company and officers, directors and employees are not subject to protection.

The China Law Blog focuses on law for those doing business in China. It includes a list of the authors’ favorite China-oriented law blogs, such as IP Dragon, which discusses intellectual property law in China, and the China Business Law Blog.

South Korea will prosper greatly from Chinese economic development. The Korean Law Blog provides updates on Korean law, and the Korean IP Law Blog more narrowly focuses on intellectual property issues.

Indian Corporate Law reviews business law topics that impact India. Law and Other Things is a blog about Indian law, its courts and Constitution.