By Daniel Hervig '11
Staff Writer

The Law and Business Conference took place last week on an unseasonably pleasant Friday the 13th. Inside, though, were the same thunderous rumbles that have plagued dinner tables and boardrooms worldwide for the past year. The focus of this year’s conference was the “U.S. Role in Global Credit Crisis,” and the distinguished panel of legal and business authorities spared no criticism of the many entities that played a role in the recent global economic upheaval.

There was a noticeable feeling of doom, and a rather high level of gloom among the conference presenters. Several expressed anxiety about the government’s handling of the combined challenges faced by the financial, commercial, and manufacturing industries.

Charles Elson ’85, a professor at the University of Delaware, covered the “Impact of the Current Crises on the Future of Corporate Governance.” He cited as most important his concern that the current crises will undermine the financial system on a fundamental level. “The priority has got to be protecting those investors in banks,” he said. “[Because] their boards let them down; their government let them down; their employees let them down.” His fear is that if people are cleaned out in a regulated business such as banks, they will be exponentially more afraid of providing capital for ‘riskier’ enterprises.

Mark Giles ’80, Chairman of the Board of the Virginia National Bank, recognized a strong cultural resemblance between contemporary attitudes toward world problems and his experience in the 1980s in Houston, when oil devaluations sent the town into an economic funk. However, he emphasized that the current situation is different because, this time, financial sector distress preceded the general recession. He spoke of an earlier summit at the Miller Center where foreign nations’ economic ministers emphasized that they are “all looking at the U.S.” He also spoke of how the culture in the business world had become fearless in the run-up to the bust. “The risk of loss or wipeout had been taken off the table,” he noted, something he found similar to the attitude of Enron executives prior to the firm’s fall. More hopeful than some of the other panelists, Mr. Giles commented that President Obama seems to understand the current “moral hazard,” and that his message seems to be, “The only thing we have to fear is not having enough fear.”

The next presenter, Arnold Evans J.D./M.B.A. ’97, runs an equity capital markets firm. He spoke about the increasing difficulty in accessing the capital markets, and how it has deepened the global crises. Specifically, Evans addressed the impact on Initial Public Offerings (IPOs), his chosen field. IPOs have traditionally been the primary source of capital for companies looking to fund growth, but the once robust IPO market has come to a virtual standstill. From September of last year to the present, only two companies have completed IPOs. By comparison, 159 companies went public in 2007.

Evans credited the drought in large part to the market’s general apprehension about companies’ growth prospects. Investors, protective of what meager funds they have, are unlikely to risk them in a venture speculating on potential growth. While Evans is cautiously optimistic and doesn’t believe that the markets are as abominable as many believe, he still thinks it will be a while before things return to normal. Naturally, this is disheartening news for law students; IPOs “come with extensive legal documentation” and are normally a large source of work for firms.

Peter Kaufman ’78, President and Head of Restructuring and Distressed M&A for the Gordian Group, turned to more highly publicized matters, arguing that the federal government’s bailout of the auto industry was doomed from the start. Kaufman believes that the terms of the deal make it unlikely, for example, that General Motors will be forced to revamp its outmoded business model. Skeptical of Congress’s threat to pull the funds if proper progress isn’t made, Kaufman quipped, “This is the Hotel California. The money has checked in and it’s never coming out.” In contrast to how decisions are made in the “real world” of private equity, he said, the government made the error of giving car companies the money before they actually solved any of the problems that precipitated the request for public funds. Kaufman also argued that most of the “solutions” being bandied about are largely fictitious. “Nobody wants to buy a green and clean car,” he said. This is largely because when energy prices are lower, “the dialogue disappears.” As his final point, Kaufman disagreed strongly with Professor Elson as to the measures the government should take to protect shareholders, whose equity value he believes should be wiped out before excessive burdens are placed on the taxpayers.

The day concluded with a panel composed of Robert F. Bruner, Dean of the Darden School of Business, Ned Kelly ’81, and Chip MacDonald ’79, moderated by Dean Mahoney. The members of the panel agreed on oneconclusion: There is no panacea.