ANNUAL REPORT 2008–2009 We find “islands of conscious power in this ocean of unconscious co-operation like lumps of butter coagulat- ing in a pail of buttermilk.” But in view of the fact that it is usually argued that co-ordination will be done by the price mechanism, why is such organization neces- sary? Why are there these “islands of conscious power”? Outside the firm, price movements direct production, which is coordinated through a series of exchange trans- actions on the market. Within a firm, these markets transactions are eliminated and in place of the com- plicated market structure with exchange transactions is substituted the entrepreneur co-ordinator, who directs production. It is clearinstitute that these for are alternative methods of co-ordinatinglaw production. & economics Yet, having regard to the fact that if production is regulated by price movements, production could be carried on without any organization at all, well might we ask, why is there any organization? A Joint Research Center of the Law School, the Wharton School, and the Department of Economics in the School of Arts and Sciences at the University of Pennsylvania Message from the Co-Chairs for almost three decades, penn’s institute for law and economics has contributed to scholarship, policy, and practice on relevant issues of law and economics that affect our country’s businesses and fi nancial institutions. tHe InstItUte’s programs have become increasingly relevant and important in this challenging economic climate, focusing on the issues that the academic, legal, and business communities care about. today the Institute enjoys an Message from the Co-Chairs 1 deal day 20 outstanding international reputation for the excellence of its programs, where leaders in business, fi nancial management, Board of Advisors 2 Chancery Court programs 20 legal practice, and academic scholarship candidly discuss the intersec- Message from the Dean 4 Lectures 22 tion of theory and practice on a host of signifi cant issues. Message from the Co-Directors 5 Law and entrepreneurship 24 on behalf of the Institute’s Board of advisors, we want to express Roundtable Programs 6 distinguished Jurist 28 our gratitude to everyone who has helped the Institute during this past off the record, spring 2009 8 past Lectures 30 year, whether through fi nancial contributions or by participation in ILe Corporate Finance, spring 2009 10 Academic Events 32 programs. one of the foremost goals of the Institute is to broaden and Corporate Finance, Fall 2008 12 nYU/penn Conference, spring 2009 34 diversify our foundation, and once again we have realized that goal. Corporate Finance, spring 2008 14 penn/nYU Conference, spring 2008 34 We are delighted to report some superb additions to our Board of Corporate Finance, Fall 2007 14 ILe/Wharton Finance seminars 36 advisors during the past year. We are pleased to welcome the following Panel Programs 16 Publications and Papers 38 new members: daniel H. Burch (macKenzie partners, Inc.); stuart m. delaware Chancery program 18 Associate Faculty 40 grant (grant & eisenhofer p.a.); and Heidi stam (vanguard). these Corporate governance Conference 18 Institute Investors 49 accomplished individuals will greatly enhance the work of the Institute and broaden the composition of our Board. all of the members of our Board give graciously to the Institute, not just fi nancially but also of their time and expertise, and we are very grateful for their contributions. very special thanks must be given to ILe Benefactors Bob Friedman, paul Levy, and skadden, arps, slate, meagher & Flom LLp (through eric Friedman). their extraordinary level of fi nancial support FoUnded In 1980, the Institute for Law and economics at the participants from Washington and new York for full-day meetings University of pennsylvania has an ambitious agenda that is and still get everyone home in time for dinner. We have been able enables the Institute to continue to lead the fi eld, and we want to express our sincere appreciation to each of them. timelier than ever. the study of law and economics remains the to call on the expertise of penn Law school alumni who occupy this year we welcomed Jill Fisch as a co-director of ILe, joining ed rock and michael Wachter. these three distinguished most rapidly growing movement in legal scholarship and key positions in law, business, and government. and, critically, we professors have continued to do a truly outstanding job coordinating the work of the Institute. their tireless dedication jurisprudence. Under the sponsorship of the Law school, the have an extraordinarily distinguished cadre of board members Wharton school, and the department of economics in penn’s and sponsors who are willing to give of their time and expertise to all aspects of the Institute’s work and their ability to come up with timely programs and attract the ideal participants to school of arts and sciences, the Institute has played a leading to make our programming a success. make every program an unqualifi ed success are why ILe is world-renowned as the forum for interesting dialogue on topical role in this expanding fi eld. In each area, from our public lectures and panels through our issues for corporations and their fi nancial and legal advisors. Cross-disciplinary research, the cornerstone of ILe, seeks closed-door roundtables to our more academically-oriented to infl uence the national policy debate by analyzing the impact faculty workshops, we are driven by the same mission: to use of law on the global economy, spotlighting the signifi cant role the tools of economics to understand the law. In a world in that economics plays in fashioning legal policy. our innovative which complex legal rules govern economic relationships, the roundtables and conferences, launched in 1985, complement tools of economics provide a way of asking whether the law these goals by provoking in-depth and frequently groundbreaking creates appropriate incentives to encourage actors to maximize examinations of critical issues. these and other programs social welfare. highlighted in this annual report have helped the Institute to Funding for ILe comes from a diverse group of corporations, stay on the leading edge of this cross-discipline. law fi rms, foundations, and individuals who endorse our work Charles “Casey” Cogut the Institute for Law and economics has unique advantages. each year. over the past decade, the Institute has more than We draw on the research and teaching strengths of the Law tripled its donor base to provide ongoing support for the Simpson Thacher & Bartlett LLP school, the Wharton school, and the department of economics. programs discussed in this annual report. a list of Institute our geographic location is optimal, allowing us to bring together Investors for 2008–2009 appears on page 49. Cover Captions (from left to right) off the record. Hon. e. norman veasey, Weil, gotshal & manges LLp; Lee a. meyerson, simpson thacher & Bartlett LLp; perry golkin, Kohlberg Kravis roberts & Co.; gerald rosenfeld, rothschild north america. Joseph B. Frumkin Sullivan & Cromwell LLP Corporate roundtable, Fall 2008. paul g. Haaga, Jr., Capital research and management Company. University of pennsylvania Law school. september 2009 off the record. marcy engel, eton park Capital management. Cover Text ronald Coase, The Nature of the Firm (1937) institute for law and economics 1 message from the co-chairs Board of advisorsAdvisors JamesBarry M. H. AbelsonAgger EricRobert J. Friedman L. Friedman WilliamRoy J. B.Katzovicz Johnson Alannew Miller York, nY DavidWayne, M. Silkpa Chair,pepper 1994–2001 Hamilton LLp ExecutiveChair, 2001–2007 Partner ChairmanGeneral EmeritusCounsel Co-Chairman Wachtell, Lipton, 1 2 3 Retiredphiladelphia, Senior pa Vice skadden,Senior Managing arps, slate, Director and Whitmanpershing Corporation square Capital InnisfreeJames A.m&a Ounsworth Incorporated rosenDavid & M. Katz Silk President, General meagherChief Legal & OffiFlom cer LLp Chicago,management, IL L.p. newManaging York, nY Director newWachtell, York, nY Lipton, CounselJames H. and Agger Secretary newthe York,Blackstone nY group L.p. new York, nY the musser Consulting group rosen & Katz airChair, products 1994–2001 and new York, nY Cynthia B. Kane G.Wayne, Daniel paO’Donnell Brucenew L. York, Silverstein nY Chemicals,Retired Senior Inc. Vice Robert L. Friedman SpecialBruce Assistant N. Kuhlik to the dechert LLp Young Conaway stargatt allentown,President, General pa Counsel Chair,Joseph 2001–2007 B. Frumkin SecretaryExecutive of ViceState President and philadelphia,Morton A. Pierce pa & Brucetaylor, L. LLp Silverstein and Secretary SeniorCo-Chair, Managing 2008– Director delawareGeneral Counseldepartment dewey & LeBoeuf LLp Wilmington,Young Conaway de stargatt air products and sullivan & Cromwell LLp merck & Co., Inc. new York, nY & taylor, LLp Richard B. Aldridge and Chief Legal Offi cer of state James E. Odell Chemicals, Inc. new York, nY Whitehouse station, nJ Wilmington, de morgan Lewis & the Blackstone group L.p. Wilmington, de General Counsel, A. Gilchrist Sparks III allentown, pa Martha L. Rees Bockius LLp new York, nY The Americas morris, nichols, arsht Joseph D. Gatto Mark Lebovitch Vice President and Assistant A. Gilchrist Sparks III philadelphia, pa Roy J. Katzovicz UBs Investment Bank & tunnell LLp Richard B. Aldridge Vice Chairman Bernstein Litowitz Berger & General Counsel morris, nichols, arsht 4 5 morgan Lewis & Bockius LLp JosephLehman B. Brothers Frumkin Inc. Chiefgrossmann Legal Offi LLp cer newe. I. York,du pont nY de nemours Wilmington,& tunnell LLp de William D. Anderson, Jr. Co-Chair, 2008– pershing square Capital philadelphia, pa new York, nY new York, nY & Company, Inc. Wilmington, de 1 Lee Holt and Jim Agger 6 Bob Friedman Managing Director sullivan & Cromwell LLp management, L.p. JamesWilmington, A. Ounsworth de Heidi Stam 2 Richard Aldridge 7 Joe Gatto goldman,William D. sachs Anderson, & Co. Jr. newJoseph York, Glatt nY newPaul York, S. Levy nY Managing Partner ManagingHon. Leo Director E. Strine, Jr. 3 Marshall Babson 8 Perry Golkin newManaging York, Director nY Principal Counsel Founder theMyron sL Consulting J.