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American Bar Association

ABA Section of Business Law

Volume 13, Number 1 - September/October 2003

Snap Judgments
    By Heather Brewer

  Nothing ventured?

The current lag in venture capital investment has some in the biz learning the real meaning of nothing ventured, nothing gained. With 12 straight quarters of decline in such investments, venture capitalists are pulling on the purse strings to survive these times of nothing gained without accumulating more losses.

According to the Washington Post, hopes of rebound are fading, with 2003 seeing a 12 percent decrease in venture capital investment in the first quarter alone. One member of the National Venture Capital Association said at the group's annual meeting that a recovery could be years away.

"I think it's going to contract rather dramatically," venture capitalist Jim Breyer said. "I think we have two or three years before we actually hit bottom and start to recover."

The Wall Street Journal recently reported that Silicon Valley venture capitalists shared Breyer's pessimism.

According to a recent survey, the tech bust has left previously sunny California investors looking to weather still more rainy days. According to Deloitte & Touche Corporate Finance, who conducted the survey, most investors don't expect a strong market for IPOs to return until at least 2005.

  A dog eat dog world

Yo quiero Taco Bell's dinero. (That would be: I want Taco Bell's money.) While the original creators of the Taco Bell Chihuahua may not have said those exact words as they took on the fast food giant in federal court, they certainly got a chunk of change in the recent $30.1 million award they won.

Joseph Shields and Thomas Rinks filed suit against Taco Bell five years ago for breach of contract and failure to pay after the duo came up with the Chihuahua marketing idea.

"We created the popular Chihuahua that Taco Bell used as its mascot and marketing icon," Rinks said. "After Taco Bell approached us and asked us for our ideas, they just went ahead and used the character we had created without paying for it."

  Slow times in San Francisco

The dot-com bust has meant a boom for nonprofits looking to set up shop in San Francisco, according to the New York Times.

Tough times for tech companies have left prime office space vacant and landlords willing to negotiate.

"We are a piddling nonprofit looking for 1,300 square feet and we were shown 20 places and everybody was willing to negotiate on terms," says Bess Bendet, director of a grant-making foundation.

Such open arms and open doors are a far cry from the reception Bendet and her group received a few years ago. "In 1999, we were essentially evicted from a building and given three months to find a new place."

The change in attitude is entirely because of a changing reality in San Francisco's real estate market. While in 1999 the vacancy rate in the South of Market district barely existed at a mind-boggling fraction of 1 percent, today it's climbed to nearly 50 percent.

  Pity the chieftans

It's a hard-knock life for CEOs, according to the Chicago Tribune. It seems that the power-brokers once feared and revered for their ease at doling out pink slips are now themselves getting the boot.

A study by Booz Allen Hamilton found that 2002 saw 253 CEOs from the world's 2,500 largest public companies leaving their mahogany desks behind. That's a 10 percent increase from 2001.

What's the reason for the exec exodus? For nearly half of those now unemployed CEOs, poor job performance brought down the ax.

"Business leaders are enduring scrutiny and pressure unseen since the Great Depression," says Booz Allen's Charles Lucier. "The CEO mystique has all but evaporated and director activism has replaced crony capitalism in the board room."

Surely the $15,000 shower curtains had nothing to do with it.

  Add a dash of CGO

A new set of initials has joined the already murky waters of the corporate alphabet soup. CGO, or corporate governance officer, has been thrown into the mix as a result of recent corporate scandals that have stirred up American businesses small and large.

According to the New York Law Journal, companies such as Tyco International and Walt Disney have added CGOs to their business recipes in order to keep an eye on the inner workings of the company and to keep them from leaving a bad taste in the public's mouth.

Specifically, a CGO is an executive with a legal background who oversees a company's corporate governance matters and serves as a go-between for the board and investors.

While there are currently only about 60 CGOs, that number is up more than tenfold from a year ago. CGOs are expected to become more common as corporations and Congress continue to tackle business reform.

  Life inside Enron

Hillary's book may only be hot as long as the beaches are this summer, but regardless of what they're reading, Americans are hungry for tell-alls and exposes that give them the skinny on the nation's fat cats.

The collapse of Enron captivated TV audiences as it unfolded and has subsequently yielded several tell-all books for those who find the National Enquirer just doesn't do it for them anymore.

One of the latest tomes to make life inside now-defunct Enron accessible to those on the outside is Frank Partnoy's Infectious Greed: How Deceit and Risk Corrupted the Financial Markets.

While a review of the book in The New York Times cited factual errors within the text, the reviewer believes the book redeems itself in its ability to relate recent scandals to others seemingly forgotten.

More important, the review says that Partnoy's most insightful commentary lies in his disdain for derivatives.

"(Partnoy's) basic point, however, remains true," the reviewer says. "Derivatives . . . have brought vast changes to the financial world, making it much easier to hedge risk — or speculate. But there remains little regulation of that world, a fact that outrages Partnoy, who argues that we have no way to know just where risks have gone thanks to the secret trading of derivatives."

  Fly me to the moon — in my mind

He loves to lie and it shows. While many of the major airlines are struggling to survive, a Pennsylvania man found the secret to flying high in economic downtimes — use your imagination.

The Associated Press reports that Luke Thompson cooked up Mainline Airlines using the Internet and a business address in Boston. Mainline Airlines purported to offer heavily discounted flights between Los Angeles and Honolulu. The only catch is that the so-called airline had no planes, no flight crews and none of the copious paperwork required to operate an airline.

Thompson, however, insists that flights would have started on July 3 as planned, even though he admits to being the only person involved — aside from a consultant and undisclosed investor.

"We had every intention of doing this operation," Thompson said. "We had 15 airlines we had contacted or were in serious negotiations with, regarding the actual providing of the (air) service."

Massachusetts Attorney General Thomas Reilly, however, is not convinced that Thompson's plan would fly. Reilly recently got a restraining order to keep Thompson from getting at Mainline funds, except to refund customers. So far, Mainline has committed to refunding tickets to 120 would-be travelers.

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