Friends and colleagues

Spring has arrived!?!  I know – the ground hog came out on February 2, saw its shadow, and promptly returned to its den thus portending 6 more weeks of winter.  But yesterday and today (Feb 19) it’s been in the mid-50⁰’s in Chicago, kayakers were out in the Lagoon dodging ice flows while wearing short sleeve shirts and shorts, and this morning I spied a paddle boarder out in Lake Michigan sans wet-suit (I shudder to think of the cold if he takes a spill).  For a Chicagoan, that’s the true sign of Spring!

As regular readers of this Newsletter know, each issue I present a summary of recent research reports, legal decisions and news articles that I hope my readers will find of interest and worthy of their time to peruse and perhaps download and read in their entirety.  I focus on two areas:  corporate governance and alternative dispute resolution (“ADR”).  Additionally, I almost always include a matter of general interest in one or more “Interesting Cases/Articles of the Month” section.

This month’s issue of the Newsletter will serve as our issue for the months of February and March, hence its late appearance this month (I’ll be traveling extensively in March and will not have an opportunity to produce our next issue until April).  Thus, I’ve included 3 articles rather than 2 in each of the sections.

Beginning with our Governance section, since we’re in the heart of annual report and proxy prep season, I’ve assiduously avoided articles or cases on those topics since I assume that my governance readers have their in-boxes full of reams of material on those subjects from their advisors.  Instead, I present 3 articles – one addressing short-term thinking by public companies and boards, one discussing the evolution of the China market and companies’ and boards’ need to rethink their strategies and goals in that market, and one discussing Volkswagen’s emission scandal and why companies cheat.

For my arbitrator readers, I also present three items:  2 articles recent reports regarding arbitration statistics, and an article discussing the split in the Federal Court circuits regarding the forum non conveniens defense in foreign arbitration award enforcement actions.

Finally, for my “Interesting Cases/Articles of the Month,” I present two non-political articles and (I just couldn’t help myself) a discussion of how Trump and the Republicans can create an autocracy in the US, and how to prevent that.  The non-political articles:  the first discusses the economic impact of on-line sales on commercial store-front retailing, and the second discusses the economic and social planning impact caused by the growing length of our lives and the aging of the workforce.

This Month’s Articles

Corporate Governance

• What Volkswagen’s Emissions Scandal Can Teach Us About Why Companies Cheat:  Using a data driven analysis, a Northwestern/Kellogg School of Management professor and grad student created a series of mathematical models to understand how competition and changes in emission standards impact cheating.  Their finding:  effective enforcement has a greater impact on the occurrence of cheating than either competition or the difficulty of achieving the required standard.
• How Corporate Executives Can Push Focus on Long-Term Value:  Company managers and boards struggle to balance the tension between short term and long term investor demands.  A research report and article published by McKinsey & Company and reported in a Wall Street Journal piece assert that companies can take a more assertive role in responding to this tension, and present strategies to counter “short-termism.”
• Rethinking China:  The market in China has evolved in many significant ways since Western companies began investing in the country.  Tom Manning, a businessman and board director with deep experience in China and sensitivity to the country’s rapidly changing social and business climates, urges companies to rethink and evolve their strategies and goals for their Chinese investments.  Tom is neither a fear monger nor a salesman for the China market.  Rather, he describes the evolution of the Chinese markets and the resultant need for companies to re-evaluate the goals and risks of their investments.

Alternative Dispute Resolution

• Stockholm Chamber of Commerce’s Report Regarding its Decisions on Challenges to Arbitrators:  The Stockholm Chamber of Commerce, one of the worlds’ oldest and most respected international arbitral organizations, published in January a report describing and summarizing its decisions in cases wherein arbitrators’ appointments have been challenged during the period 2013 – 2015.   While each case turned on its individual facts, as the Report notes, “some general tendencies can be discerned.”  A summary of those “general tendencies” is presented.
• American Arbitration Association Commercial Dispute Statistics:  Also presented is the AAA’s biennial report on the settlement of commercial disputes administered by it.  The data is presented to support AAA’s argument that arbitration is faster and more cost effective than litigation.  While many practitioners will continue to question that claim, the AAA’s data (which is based upon objective facts and not opinion) is compelling and worthy of an objective read.
• Foreign Arbitration Award Enforcement:  Forum Non Conveniens:  The US Supreme Court, in January, denied petitions for certiorari in three cases which would have resolved a split between the DC Court of Appeals and the Second Circuit Court of Appeals regarding application of the forum non conveniens doctrine as a defense to challenge the enforcement of foreign arbitral awards in the United States.  The two appellate courts have reached opposite results.   The piece presented relates the history of the doctrine, the reasoning of the two appellate courts, and discusses the impact and practice points applicable the Supreme Court’s denial of certiorari.

Interesting Articles/Cases of the Month

• Amazon and Empty Storefronts:  Civic Economics and the American Booksellers Association collaborated to study and describe the impact of on-line sales on retail storefronts in America.  The results, at least to this reader, are stunning in the breath and scope of the impact revealed – on lost sales taxes collected by state and local governments, empty retail space, and lost jobs.
• Longevity:  Practical Considerations:  Globally, not just, in the United States, there have been “significant gains in [the] longevity [of peoples’ lives].  This trend will have significant effects on the behaviors of individuals and their families, businesses, and governments, and we should prepare for the likely consequences of these changes.”  The presented article explores these consequences from the perspective of individual estate planning, corporate pension planning, and government programs and their funding.
• How to Build/Stop an Autocracy:  Presented are two related pieces regarding the fear (belief?) that the United States is becoming or will become an autocracy.  The first is a highly publicized piece by David Frum appearing in The Atlantic, “How to Build an Autocracy.”  The second is a corollary piece which, candidly, I found more compelling:  “How to Stop an Autocracy.”   Both are summarized.

I hope you find one or more of the below articles of interest and worthy of your inbox’s space.

Warm regards,

Jim Reiman

Articles / Corporate Governance

What Volkswagen’s Emissions Scandal Can Teach Us About Why Companies Cheat

Most are aware of the Volkswagen cheating scandal.  If not, briefly VW created a software tweak that it used to generate false emissions data and reported false data to the US EPA and other countries’ regulatory agencies regarding the emissions of about 11 million vehicles sold worldwide.  When news of the cheating broke, Volkswagen’s Group CEO resigned, and the head of its brand development, Audi research and development head, and Porsche research and development head were suspended.  Volkswagen later announced plans to spend US$18.32 billion to rectify the emissions issues, and planned to refit the affected vehicles as part of a recall campaign.

Upon learning of the cheating, Northwestern Kellogg professor Sunil Chopra and one of his grad students thought about a data-set that they had created for another project and wondered whether it could be used to “help explain why [VW] made such a seemingly reckless decision.”  More particularly, they wondered “[w]hat would lead a firm like Volkswagen to put its reputation on the line by cheating on nitrogen oxides . . . on 11 million vehicles?” and could their data and model be used to discern a cause.

Their findings:  First, the data “confirmed the authors’ hypothesis that fierce competition leads to more cheating.”  Nothing remarkable here.  However, they also “found that [government tightening of emission] standards played a bigger role [in motivating cheating].  For every 1% the standards . . . tightened, the probability of misconduct increased by 1.72%.”  Emphasizing this point, Chopra stated that “Even if I were to add up model-level competition and market-level competition, the effect of standard-tightening is almost twice that.”

In the aftermath of the scandal, the EU regulatory agency chose to loosen the emissions requirement, doubling the emissions permitted.  Many viewed this “counterintuitive move” “as regulators kowtowing to the industry they were supposed to oversee. (The U.S., whose [emission] limits have been considerably stricter than those of the EU, has not rolled back its standards.)”  Chopra disagrees:  “When [he and his team] ran their model again with the new limits, they found that carmakers are likely to exert more effort toward actually meeting the lower levels, reducing misconduct by 9–11% in the short term.”

Their conclusion:  intense competition combined with poor government detection and enforcement mechanisms lead to a “rational,” albeit unethical, decision to cheat.

While the above is interesting, if anyone is asking “what does this have to do with corporate governance and why is Reiman presenting this article here?”, the answer is that those in senior management or governance positions need to think about the interrelationship between competition and government regulation.  Where there exist circumstances such as those faced by VW (intense competition, challenging and costly government regulation, poor government detection and enforcement capabilities) the motivation to cheat increases significantly, hence the oversight of the board and management should similarly increase.

 “What Volkswagen’s Emissions Scandal Can Teach Us about Why Companies Cheat,” based on the research of Kejia Hu and Sunil Chopra, Kellogg Insight, February 2, 2017

How Corporate Executives Can Push Focus on Long-Term Value

The tension between short and long term returns is a topic often discussed in the boardroom and written about by numerous academics and financial industry authors.  Presented here is piece by Mara Stein appearing in the Wall Street Journal in late January asserting that “[c]orporate executives have a role to play in shifting the focus of performance away from short-term returns and toward long-term sustainable value creation” and a study published in January by McKinsey which the WSJ article relates:  “How To Build An Alliance Against Corporate Short-Termism.”

Rebecca Darr and Tim Koller, authors of the McKinsey article which was the genesis of the WSJ piece, put it bluntly in their opening paragraph:  “Public-company managers are quick to bemoan the pressures they face to emphasize short-term financial performance at the expense of long-term value creation.  Depending on the day, they point the finger at a range of culprits, including market pressure, economic uncertainty, and investors.  But it’s time managers took a harder look at themselves and the tools they have to build alliances against the corrosive effects of corporate short-termism.”

They next look at company stock ownership and suggest strategies that management and boards may employ to fight “short-termism.”

“It is true that short-term investors and their proxies, sell-side analysts, are the most visible participants on quarterly earnings calls and in contacting companies for the insights upon which they trade. The pace and volume of those trades may often dominate a company’s daily trading activity. But it’s worth recalling that short-term investors are usually a minority of a company’s shareholders. Overall, they own only around 25 percent of shares held by US companies. In fact, seven in ten shares of US companies are owned by longer-term investors: individuals, index funds, and more sophisticated long-term investors.”

Per Darr and Koller, long term investors, which McKinsey calls “intrinsic investors” have “an outsize influence on a company’s share price over time.”

[Intrinsic investors, w]ith their deep understanding of a company’s intrinsic value and their willingness to make large investments, . . . often see even bad news, in the short term, as an opportunity to increase their holdings of a company whose strategy and management they support. That gives companies more room than many managers realize to make decisions that create long-term value—even at the risk of short-term volatility. This also benefits all long-term shareholders by keeping share prices in line with a company’s intrinsic value and preventing prices from falling too far out of line, relative to the company’s peers. 

Darr and Koller (and the Mara Stein in her WSJ piece) assert that companies should develop strategies to fight short-termism, and Darr/Koller identify four initiatives that their research has shown to “resonate with intrinsic investors and could prove useful for managers eager to achieve this goal.”  These are:

• pursuing long-term value creation even at the expense of short-term earnings,
• proactively structuring investor communications,
• resisting artificial efforts to meet earnings targets, and
• rethinking management’s approach to quarterly earnings calls.

For those thinking about these issues, the McKinsey article and Stein WSJ summary are worthy reads.

Rebecca Darr and Tim Koller, “How To Build An Alliance Against Corporate Short-Termism,” McKinsey & Company Strategy & Corporate Finance, January, 2017

 Mara Lemos Stein, “How Corporate Executives Can Push Focus on Long-Term Value,” Wall Street Journal, January 30, 2017

Rethinking China:

Tom Manning, a “China hand” with deep experience in the country as a businessman, consultant, and a former director of one of China’s largest domestic retailers listed on the Hong Kong Stock Exchange, writes a compelling piece appearing in the National Association of Corporate Directors Directorship urging boards and businesses to rethink and “evolve” their China strategies’

“Twenty years ago, most of us considered China a compelling opportunity. . . . Today. . . investment in China is still growing in total—and for most Fortune 500 companies—but caution is on the rise given new difficulties. The market is no longer as easily accessible. Competition has grown along with demand, and Chinese government rules and regulations have made the terrain less friendly. The original thesis—enter China, capture a fractional share, and wait for the market to come around to the company’s full product line—simply does not apply anymore.”

As a “China hand” myself, I can’t agree more with Tom’s thesis.  China is still a country that presents extraordinary opportunity, but the risks and challenges have evolved hence companies’ strategies and investments must evolve as well.

“For Fortune 500 boards, there are at least three risks on the China front.  First, there is the strategic risk of misallocation of capital by the company to China business opportunities—either they will invest too much in the wrong areas or in the wrong ways, or they will invest too little to make much of a difference in the end.

Second, there is the risk that the company is making assumptions about China and Chinese competition that are conventional, dated, and naïve.  For example, simply believing that products will continue to do well in China given current brand positioning will lead to complacency—particularly considering the pace of change in Chinese industries.  Similarly, the top of the market, the once-exclusive preserve of multinationals, is now accessible to local players and has become the new focus of domestic companies intending to capitalize on the potent combination of good-enough quality and national branding.

Third, there is growing anecdotal evidence that many companies underestimate their Chinese competitors, associating them with low-quality or copycat products.  However, it turns out that the best Chinese companies are now innovating ahead of the multinationals and in ways that are closely tied to Chinese customer needs.  For example, Chinese phone makers brought several iPhone improvements to the market well ahead of Apple.

Tom’s analysis is both thoughtful and reflective of his deep understanding of the country, its business practices, and the rapidly growing consumer markets.  It is worth a read for those reasons alone.  One additional incentive to read the piece:  he includes a list of questions boards should be asking their CEO’s:

1. Do we understand how China will affect our industry and our business model? 
2. If we witness wholesale change in our industry as a result, what will we need to do to survive? 
3. What can we do to bolster our business before the situation dramatically changes? 
4. What alliances might be required to offset private Chinese companies operating in concert with even larger state-owned enterprises and government ministries? 
5. Should we monetize our existing China-based business before the valuation declines? 

Tom makes one point that I’ve heard discussed among those with deep knowledge of China, but not seen in print before – the growing affection of the Chinese consumer market for local products:

Chinese customers are becoming loyal to national brands and increasingly support local names when the trade-off [between foreign and local brands] is not substantial.  The government is also prone to assisting its own by purchasing national products and encouraging consumers to support local products and services, such as for example, open-source software that is vendor-agnostic, i.e., unaffiliated with American companies such as Microsoft.

For those engaged in commerce in the country, or contemplating entering the market or expanding their presence there, I urge you to read it.

 Tom Manning, “Rethinking China,” NACD Directorship, January/February, 2017

Articles / Alternative Dispute Resolution

Enforcement of Foreign Arbitral Awards and Forum Non Conveniens: 

This is technical, so those who don’t practice in the area may wish to skip this piece.

Presented here is an excellent article by three Paul Hastings lawyers analyzing the recent US Supreme Court’s decision not to grant certiorari thereby permitting a split to continue between the D.C. and Second Circuits regarding the application of the forum non conveniens doctrine as a defense to challenge the enforcement of foreign arbitral awards in the United States.

Briefly, the D.C. and Second Circuits have adopted opposite positions on the issue, thus practitioners need to make a critical strategic decision when deciding where to bring an enforcement action.  The case whose petition for certiorari the Supreme Court denied arose out of three separate actions all filed in the District Court for the District of Columbia by parties who prevailed in their arbitration actions against the country of Belize.

“The district court, in separate decisions, confirmed the three awards.  On each occasion, the court rejected Belize’s challenges to enforcement, including its invocation of the forum non conveniens defense, reasoning that the doctrine’s application was foreclosed by the D.C. Circuit’s precedent in TMR Energy Ltd. v. State Property Fund of Ukraine. Specifically, the district court concluded that, under TMR Energy, there is no alternative forum to the United States where a petitioner may seek to “‘attach the commercial property of a foreign nation located in the United States.’” The D.C. Circuit subsequently affirmed the district court’s confirmation of the three underlying awards and endorsed its rejection of the forum non conveniens defense under TMR Energy.”

A bit of background:  a party seeking to defeat an action on forum non conviens grounds must prove two elements:  a) “an adequate alternative forum for the dispute is available” and, if such an alternative forum is available, b) that a balance “of private and public interest factors strongly favors dismissal.”  Per the Paul Hastings authors of the article presented:

“As the Supreme Court explained, although the first requirement would ordinarily be satisfied “when the defendant is ‘amenable to process’ in the other jurisdiction,” the other forum may not be an adequate alternative if, for example, “the alternative forum does not permit litigation of the subject matter of the dispute.”

The TMR Energy case relied upon by the DC Circuit held:

[N]o adequate alternative forum is available to a petitioner seeking enforcement of a foreign arbitral award against assets located in the United States, because “only a court of the United States (or of one of them) may attach the commercial property of a foreign nation located in the United States.” The D.C. Circuit emphasized that even if a defendant did not currently have any attachable property in the United States, dismissal on forum non conveniens grounds would still be inappropriate because that defendant may acquire such property in the future, and “having a judgment in hand will expedite the process of attachment.

The Second Circuit, in a split 2-1 decision, followed a different analysis and expressly rejected the DC Circuit’s analysis in Figueiredo Ferraz E Engenharia de Projeto Ltda. v. Republic of Peru.

The Second Circuit reasoned that the adequacy of an alternate forum depends on whether there are some of the defendant’s assets in the foreign forum—and not whether the precise assets located in the United States could be executed upon in the foreign forum. The court noted that, to the extent TMR Energy “considered a foreign forum inadequate because the foreign defendant’s precise asset in this country can be attached only here,” it disagreed with the D.C. Circuit.

Moving to the second step of the forum non conveniens analysis—a balancing of public and private factors—the Second Circuit majority observed that the proposed alternative forum, Peru, limited by statute the amount of money that a Peruvian government entity could pay annually to satisfy a judgment. The court described that statute as “a highly significant public factor warranting FNC [forum non conveniens] dismissal, and held that this factor “tips the FNC balance decisively against the exercise of jurisdiction in the United States.”

The country of Belize filed three separate petitions for certiorari (one for each case) asserting the same reasoning in support of its petition.  Of note, the US Solicitor General filed an amicus brief arguing that certiorari be denied.  The US Supreme Court, in the same hearing, denied all three of Belize’s petitions and per custom gave no reason for its denial.

The Paul Hastings authors conclude, and I agree:

“Unless and until the Supreme Court addresses this divergence—or whether the forum non conveniens defense is available at all under the New York Convention—the D.C. Circuit will offer a comparative advantage to a party seeking to enforce an international arbitral award where that party expects the assertion of an otherwise viable foreign non conveniens defense.”

 Igor Timofeyev, Adam Weiss and Joseph Profaizer, “U.S. Supreme Court Leaves Unresolved Circuit Split on Forum Non Conveniens Defense in Foreign Arbitration Award Enforcement Actions,” Paul Hastings Insights, January 19, 2017

Stockolm Chamber of Commerce:  SCC Board Decisions on Challenges to Arbitrators 2013-2015:

The Stockholm Chamber of Commerce, one of the world’s leading arbitral institutions, published a summary of its decisions regarding challenges to arbitrators during the period 2013 – 2015.  Each decision is summarized in the Report, and general conclusions and themes are presented in the Report’s Conclusion.

In total, 13 cases are reported:  in 9 the challenge was dismissed; in 4 it was sustained.  The descriptions of the decisions are concise (usually just a paragraph) and succinct.  While each case turned on its individual facts, as the Report notes “some general tendencies can be discerned.”

• “When deciding whether a challenge should be sustained – that is, whether circumstances give rise to justifiable doubts as to an arbitrator’s impartiality or independence – the SCC Board considers applicable law, jurisprudence, and best practices in international arbitration. The IBA Guidelines on Conflicts of Interest influence the Board’s analysis, but are not conclusive in the Board’s decision-making.
• “[I]t is the appearance of bias that may trigger removal of the arbitrator; not the existence of actual bias in the dispute at hand.”
• “During the relevant period, the SCC Board considered several challenges where the party alleged that the arbitrator was biased because of an opposing-counsel relationship in a separate but parallel proceeding. This circumstance, on its own, is rarely grounds for justifiable doubts as to the arbitrator’s impartiality.”
• “A challenge will generally not be sustained if it is based on circumstances or relationships that ceased to exist several years ago.”
• “It may be that several relationships or circumstances, when viewed in combination, are sufficient to sustain a challenge, even where, seen separately, they would not warrant release of the arbitrator.”

 Anja Havedal Ipp, Elena Burova, “SCC Board Decisions on Challenges to Arbitrators 2013-2015” 

American Arbitration Association Commercial Dispute Statistics

Arbitration has historically been promoted as faster, cheaper, and more efficient than court litigation.  For the past several years, however, practitioners have disputed those claims asserting that arbitration is neither faster nor cheaper than court litigation, and its open to debate as to whether its more efficient.

The American Arbitration Association looked to the data to get real facts as opposed to – dare I say – “alternate facts.”  They examined 4,312 cases administered by the AAA concluded in 2013 through 2015 and across five U.S. business sectors:  energy, financial services, healthcare, technology and telecom. The cases studied involved billions of dollars in claims.   One-third of the cases were over $500,000 and involved complex disputes.

The findings:

• parties settle prior to hearings at a rate of 67%
• median forum costs (AAA Fees + Arbitrator Fees) on the settled cases were just $4,228

These findings are consistent with those of a study of 4,400 cases administered by the AAA concluded in 2009 through 2011.  The results of that study:

• parties settle prior to hearings at a rate of 71%
• median forum costs (AAA Fees + Arbitrator Fees) on the settled cases were just $3,250

While the data reported addresses only a part of the story regarding litigation efficiency, the time and cost to settlement are important elements of the equation.  Certainly, the belief that the cost of arbitration (at least to settlement) is high is thoroughly de-bunked by the AAA’s data.

 American Arbitration Association Settlement Facts 2013 – 2015

 American Arbitration Association Settlement Facts 2009 – 2011

Articles / Interesting Case of the Month

Amazon and Empty Storefronts:  

Civic Economics and the American Booksellers Association studied the impact of Amazon on the American economy, focusing on just two classes of impact:  land use and public revenue.  The report’s findings, to this author at least, while not surprising with respect to its high-level conclusions, were stunning in terms of the breath and scope of the impact revealed.

“Headline” revelations of the study:  During calendar year 2015 –

• “Nearly half of all states still collect no sales tax revenue from Amazon sales and others collect only partial sales taxes, producing a nationwide sales tax gap of $704 million, up from $625 million in 2014”
• “[T]he shift to online sales has resulted in a national reduction in demand for retail space totaling 133 million square feet in 2015, the equivalent of over 39,000 traditional storefronts employing 222,000 workers. These land use changes result in uncollected property taxes of $528 million dollars.”

The Report’s essential findings:

• In 2015, Amazon sold $55.6 billion worth of retail goods nationwide (an increase of 26 percent from 2014), all while avoiding $704 million in sales taxes (an increase of 13 percent). The cost of lost sales taxes falls equally on state and local governments.  
• These sales are the equivalent of 39,000 retail storefronts (an increase of 26 percent) or 133 million square feet of commercial space (an increase of 24 percent), which might have paid $528 million in property taxes (an increase of 26 percent).  
• A total of more than $1.2 billion in revenue (an increase of 18 percent) is lost to state and local governments. 
• Amazon also operated 75 million square feet (an increase of 15 percent) of distribution space, employing roughly 111,000 workers (an increase of 15 percent). 
• Even counting all the jobs in Amazon distribution centers, Amazon sales produced a net loss of 222,000 retail jobs (an increase of 29 percent) nationwide

For anyone thinking about job creation and the re-energizing of American towns, this study should be mandatory reading.  I’ve presented articles and reports in prior issues of theNewsletter discussing job losses due to robotics and mechanization, but prior to this report I had not seen studies showing the impact on land use.  History may well write that Jeff Bezos has had a greater impact on changing the world than Henry Ford or perhaps any other business leader.

Civic Economics and American Booksellers Association, “Amazon and Empty Storefronts, 2015 Update,” September, 2016

 Full Report:

 The 2014 Study:

Longevity: Practical Considerations:

The article’s authors, all benefits professionals (a lawyer, an actuarial, and a pension consultant), take an objective look at the economic and planning consequences of the increasing lengths of peoples’ lives.  As they state in one of the opening paragraphs of the article, “the longer we live the more assets we need to support us.”

In analyzing the consequences of increasing longevity we should bear in mind an equation:  

Retirement Plan Benefits + Public Programs (for example Social Security Benefits and Medicare Benefits) + Personal Savings and Investments – Taxes = Assets Available upon Retirement.  

[A]ny change in one factor might have an effect on the other ones.  Each of the stakeholders – workers, employers, and governments – can be expected to have significant responses to changes in any one of the factors. 

The article explores the interrelationships between these and other factors, and how people change their conduct with respect to each.

“For example, if workers are anxious about the value of their investments they will seek to remain in the workforce for increased periods of time beyond the normal” retirement age of 65 and they may well demand increases in governmental programs.”

Explored are impacts on workers, employers, and federal, state and municipal governments.

Concluding the authors write:

Longevity risk needs to be considered by all the constituent elements of society.  Various alternative strategies should be examined to determine how they will affect future courses of conduct.  No one size fits all.  Moreover, the best strategy may well change over rime and advice from various key professionals should be obtained to increase the likelihood that individuals, their families, and their employers will satisfy their objectives.

The financial impact of people living longer is like the iceberg, the biggest problems are those hidden from view.  

 Thomas M. White, Timothy R. Leier, And Corwin Zass, “Longevity: Practical Considerations,” Employee Benefit Plan Review, August, 2015

How To Build/Stop An Autocracy:

I know – I said a couple of months ago that I’d avoid political articles and I will continue to try.   But we’re in such an extraordinary time and there’s too much “good stuff” being written that we should all think about that on occasion I’ll break from my practice and present a political piece.

Presented here is an essay by David Frum appearing in the March issue of The Atlantic – “How to Build an Autocracy” – which has stimulated great discussion, and a corollary piece by Ezra Klein appearing in VOX titled “How to Stop an Autocracy.”  

Both are worthy reads and worthy of thought.

First, the Frum piece:  “How to Build an Autocracy.”  Frum opens with an imagined 2021 reelection of Donald Trump and the state of the Union at that time – not a pretty picture.  He then returns to reality and states:

Over the past generation, we have seen ominous indicators of a breakdown of the American political system: the willingness of congressional Republicans to push the United States to the brink of a default on its national obligations in 2013 in order to score a point in budget negotiations; Barack Obama’s assertion of a unilateral executive power to confer legal status upon millions of people illegally present in the United States—despite his own prior acknowledgment that no such power existed.

Donald Trump, however, represents something much more radical. A president who plausibly owes his office at least in part to a clandestine intervention by a hostile foreign intelligence service? Who uses the bully pulpit to target individual critics? Who creates blind trusts that are not blind, invites his children to commingle private and public business, and somehow gets the unhappy members of his own political party either to endorse his choices or shrug them off? If this were happening in Honduras, we’d know what to call it. It’s happening here instead, and so we are baffled.

*     *     *

If the president uses his office to grab billions for himself and his family, his supporters will feel empowered to take millions. If he successfully exerts power to punish enemies, his successors will emulate his methods.

If citizens learn that success in business or in public service depends on the favor of the president and his ruling clique, then it’s not only American politics that will change. The economy will be corrupted too, and with it the larger culture. A culture that has accepted that graft is the norm, that rules don’t matter as much as relationships with those in power, and that people can be punished for speech and acts that remain theoretically legal—such a culture is not easily reoriented back to constitutionalism, freedom, and public integrity.

*     *     *

Those citizens who fantasize about defying tyranny from within fortified compounds have never understood how liberty is actually threatened in a modern bureaucratic state: not by diktat and violence, but by the slow, demoralizing process of corruption and deceit. And the way that liberty must be defended is not with amateur firearms, but with an unwearying insistence upon the honesty, integrity, and professionalism of American institutions and those who lead them. We are living through the most dangerous challenge to the free government of the United States that anyone alive has encountered. What happens next is up to you and me. Don’t be afraid. This moment of danger can also be your finest hour as a citizen and an American.

And now the Klein piece:  “How To Stop An Autocracy.”  Klein opens what may seem a shocking statement:  “There is nothing about the Trump administration that should threaten America’s system of government.”  Explaining, he states:

The Founding Fathers were realistic about the presence and popularity of demagogues. The tendency of political systems to slip into autocracy weighed heavily on their minds. That power corrupts, and that power can be leveraged to amass more power, was a familiar idea. The political system the founders built is designed to withstand these pressures, and to a large extent, it has.

So why, then, are we surrounded by articles worrying over America’s descent into fascism or autocracy? There are two reasons, and Trump is, by far, the less dangerous of them. . .  . [T]he danger of a demagogic, aspirational autocrat winning the White House is one problem the Madisonian constitutional order is exquisitely designed to handle. The founders feared charismatic populists, they worried over would-be monarchs, and so they designed a system of government meant to frustrate them.

So, what then keeps Mr. Klein awake at night?

[The Framers’] vision of American government — a vision children are still taught in civics classes — was that it would be balanced by competition among branches.  The president, the courts, and the Congress would compete for power and prestige.  They would check each other naturally, as a byproduct of exerting and protecting their authority.

The reality of American government today is quite different.  American politics is balanced by organized political parties competing across branches of government. The president is checked not by Congress, but by the opposition party in Congress.  The courts remain more independent. . . but they are by no means untouched by partisan competition. Federal judges are selected through a political process driven by organized ideological groups that vet candidates with the goal of ensuring predictable, friendly rulings in the future.

In normal times, this works well enough. These are not normal times.  Congressional Republicans find themselves, or at least feel themselves, yoked to Donald Trump — an abnormal president who hijacked their primary system and mounted a hostile takeover of their party. Trump now holds them hostage:  Their legislation requires his signature, their reelection requires his popularity, and he is willing to withhold both.  

And so the institution meant to check the president now finds itself protecting him.

*     *     *

In the end, it is as simple as this: The way to stop an autocracy is to have Congress do its damn job.

 David Frum, “How to Build an Autocracy,” The Atlantic, March, 2017

 Ezra Klein, “How to Stop an Autocracy,” Vox.com, February 7, 2017