Fareed Zakaria on Canadian Banks

Fareed Zakaria is known for his political commentary, but this article shows why I like the Canadian dollar (FXC). Canada's banks don't have the problems American banks are experiencing, making the country's currency attractive. Canada's currency may also rebound as demand for its natural resources increases, and in the meantime, investors can collect a 2.5% yield.

Dolby Laboratories Shareholder Meeting (2009)

Dolby's S.F. brick building

CEO Jasper, me, and Mr. Dolby

I attended Dolby Laboratories Inc.'s (DLB) annual shareholder meeting in San Francisco on February 10, 2009. Shareholders were invited to the third floor, where Dolby had coffee and tea available prior to the meeting. Full size bars of Ghirardelli chocolate were also available to shareholders. I split some white chocolate with two other shareholders, who were initially reluctant to break the bars until I decided to dive in.

The meeting itself took place in a small auditorium and lasted around fifty minutes. President and CEO N. William Jasper, Jr. aka Bill Jasper, ran most of the meeting. Mr. Jasper efficiently completed the formal portion of the meeting, which included an election of directors. The informal portion of the meeting consisted of two presentations. The first one was Dolby's Las Vegas CES presentation, and the second one consisted of charts and financial numbers. It was a good combination--serious, dry numbers alongside highly entertaining visuals. I would have switched the order and done the numbers presentation first and ended with the CES presentation, but that's just a stylistic preference.

The CES presentation was a lot of fun--not surprising for a company whose motto is "every bit amazing." Dolby strutted its product lines clearly and powerfully, showing clips from major films that had used Dolby products. Shareholders saw clips from Iron Man and Spiderman to illustrate how Dolby boosts sound quality. The narrator of Dolby's CES presentation showed what a scene in Spiderman sounded like without "Dolby mobile"--basically, flat and lifeless--and with "Dolby mobile," which produced superior sound. At this point, I should probably point out that I'm hearing-impaired--and even I could tell the difference. Now that's darn good technology.

The next part showed how "Dolby volume" allows users to get consistent levels of sound across all media players. In short, "Dolby volume" minimizes sound distortions. To demonstrate, Dolby showed shareholders other movie clips without Dolby, then with Dolby--and again, the difference was highly noticeable.

The next product was Dolby Axon. Gamers can use Dolby Axon to create a more realistic gaming experience. Rather than have one constant sound level for gaming characters, Dolby Axon modulates a character's voice based on his/her/its surroundings. The video narrator demonstrated the technology by playing a video game where Dolby Axon modulated a character's voice in real-time. For example, if the character went behind a wall, his voice was muffled. If the character moved closer to the screen, his voice increased in volume and sharpness. Gamers can also adjust their character's voice, making it deeper or higher. Of all the Dolby products shown, this one seemed most poised for growth.

The CES video ended with a rousing rendition of the song "Human," by The Killers.

In the next presentation, Mr. Jasper continued to explain Dolby's different customers and product lines. Dolby sells its products to content creators (movie studios); broadcasters (BBC, PBS); gaming companies (Electronic Arts); cinemas; and PC-related companies. It receives most of its revenue--around 85%--from licensing and royalties. Mr. Jasper proudly talked about the fact that Dolby had been around for 44 years, and 3 billion products had been sold using Dolby technology. (A side note: Dolby has only been public since 2005, and apparently went public to assist the founder, Ray Dolby, with estate planning purposes; in other words, Dolby had a healthy balance sheet and didn't go public because it needed a cash infusion.)

Mr. Jasper then said something that endeared himself to any investor who appreciates honesty. He said that although Dolby's recent results had met expectations, Dolby's licensees report results/sales on a lagging basis. As a result, the recently released numbers compiled sales information up to September 2008--before the worldwide financial meltdown. Mr. Jasper said that Dolby's March results would be "more revealing." How refreshing is that? Mr. Jasper didn't have to downplay his company's numbers, but chose to do so to be more transparent. (Bank CEOs could learn a thing or two from Mr. Jasper.)

The most interesting slide related to Dolby's shift in product sales. In 2004, personal computers were only 25% of Dolby's business, while consumer electronics were 60%. In 2008, PCs were 40% of Dolby's business, while consumer electronics were 25%.

In the ensuing Q&A session, I asked the CEO to specify Dolby's top five sources of licensing revenue. The CEO listed the top three: PCs (software), DVDs, and TVs. What this tells me is that if more consumers adopt the Blu-ray DVD format and buy new DVD players, Dolby will benefit.

I didn't hear the next question properly, but I believe another shareholder asked about the locations of Dolby employees and Dolby R&D facilities. Mr. Jasper listed several locations, both domestic and worldwide. Later, in response to another question, he added that in terms of numbers, Dolby was not downsizing employees and planned to add 100 jobs net.

I asked how Dolby was dealing with IP issues in China. ( Given the size of China's consumer market, if Dolby fails to protect its IP, its growth may stall.) Mr. Jasper said that Dolby was "attacking" the IP problem in several ways. He said Dolby performed license audits; had persons monitoring trade shows to discover unauthorized sellers; and had agents in the field monitoring sales of consumer electronics. I liked the specifics, and to be quite frank, there's no magic bullet that will solve the international IP theft problem. It seems like Dolby is taking the problem seriously and is being pro-active.

I asked about the top three countries in terms of revenue sources. The CEO listed 1) United States; 2) Japan; and 3) China and Greater China (including Taiwan and Hong Kong). This was interesting, because Dolby's 10K indicates it receives the majority of its revenue from abroad. I realize the numbers could be 40% U.S., 30% Japan, 20% China, and 10% EU, but investors may want more disclosure in terms of sales per specific country. Such a breakdown, if released every year, would show more transparently how Dolby is doing in terms of international expansion.

Another shareholder asked how Dolby was dealing with the economic downturn. Mr. Jasper confidently answered the question by saying that Dolby's shareholders focused on a long term strategy and were long-term shareholders. Basically, Mr. Jasper was saying that Dolby had been around 44 years and its diversified product line and balance sheet placed the company in a favorable long term position. For a minute, it felt like Mr. Jasper was channeling Warren Buffett and Mr. Buffett's preference for the long term view.

I asked the final question. I asked what Mr. Jasper would do to fix the economy if he were President for a day. Mr. Jasper first joked that he would first sign an executive order mandating use of Dolby Sound in all consumer electronic products. He then became more serious and said that R&D tax credits, especially for small businesses and consumer electronics manufacturers, would be helpful.

Overall, Mr. Jasper presented his company with confidence and clarity. After the meeting, he was open enough to allow me a picture with himself and Mr. Ray Dolby, the founder. To give you an idea of Mr. Jasper's kindness, he patiently waited outside until Mr. Dolby came down so we could all take a picture. (Readers may go to the very top of this post to see two pictures, one of Dolby's S.F. building, and another of the CEO and founder.)

I have only two remaining remarks, both of which are tangential to the company's overall outlook: one, I couldn't find Mr. Jasper's full name anywhere, and I'm still curious what the "N" in his name stands for; and two, all the directors, except for one person, appeared to be Caucasian men. A company doesn't necessarily need diversity to do well; however, with Dolby expanding in China, it makes sense to add at least one director who has experience with Chinese laws and Chinese culture.

In any case, investors who want to open new positions in Dolby stock may want to wait until after its next earnings report, when numbers may not be as sanguine. Long term, however, assuming that it aggressively protects its IP, Dolby seems well-positioned for future growth. After all, even in a recession, most consumers won't stop going to movies, replacing computers, or listening to music.

Disclosure: I own an insignificant number of Dolby (DLB) shares.

Update: an astute friend tells me that Mr. Jasper's first name is "Norval." See

http://www.haas.berkeley.edu/groups/pubs/calbusiness/summer2005/alumni04.html

Libertarian Stimulus Package

From Harvard, the libertarian stimulus package:

http://www.cnn.com/2009/POLITICS/02/05/miron.libertarian.stimulus/index.html

I like the pro-legal-immigration and anti-bailout stance.

Jury Trials in the Bay Area

The SJ Mercury News (2/05/09, 3B, Leigh Potinger) recently compiled the number of Bay Area jury trials for the fiscal year 2006-2007.

San Francisco County had 509 jury trials.
Contra Costa County had 305 jury trials.
Santa Clara County had 291 jury trials.
Alameda County had 223 jury trials.
San Mateo County had 139 jury trials.
Santa Cruz County had 59 jury trials.

Out of the thousands of cases filed, only a few make it to a jury. The most commonly cited statistic is that only 5% to 10% of cases go to trial, which I presume includes both bench and jury trials. I just completed my first jury trial where I represented an employee alleging retaliation and gender/age discrimination. Here are my thoughts:

1. If you want to win, the jury must like your client. No matter how good your case is legally, if the jury doesn't like your client, you will lose. In employment cases, performance evaluations and peer reviews can be used by either side to show that a plaintiff was either well-liked or unpopular. Although I find a lot of these reviews irrelevant, the Court will probably admit them if one of the performance factors the employer evaluates is "teamwork."

2. Even if you catch the employer/defendant in a lie, it's not over. Jurors told me that yes, I made some people look bad or shifty, but the particular misrepresentations I caught weren't big enough to deliver a slam dunk. Jurors are looking for a major lie and will disregard non-major lies. In general, making your client's supervisors look like morons isn't good enough (though it may make your client very, very happy). Lawyers should try to show that the company came up with special rules or something new or unusual to harass or retaliate against an employee. Plaintiffs' employment lawyers should also try to show their clients were doing one type of work before the discriminatory/retaliatory time period, but after a new supervisor came, they started doing another type of work.

3. Not all corporations are alike. Some corporations have good reputations. If the defendant is a used car dealership or big pharma, you'll probably have an easier time as the plaintiff. But most jurors see technology companies as non-evil. Post-trial, I heard one juror tell the defendant, "Keep making those [semiconductor] chips." I could only sigh to myself.

Big corporations also have advantages because of their pre-determined performance processes, such as giving an employee 90 days to improve performance before termination. Almost every juror mentioned that the employer went through a pre-determined termination process, which, to them, meant my client's termination was probably justified. I was surprised to see jurors acting like the company's disciplinary process was some kind of holy grail. Once again, I could only sigh. Couldn't these people see that the company might have used its internal process to exaggerate minor complaints against my client? Didn't they hear me get an employee handling the process to say he actively solicited negative information about my client? Apparently not. The corporation had involved different people at different stages, making it hard for jurors to believe there was a corporate conspiracy against my client to fire her. The jury didn't buy the idea that general corporate inertia or an poorly done investigation could result in a discriminatory termination.

4. Not even the best lawyering can save "difficult" facts. Jurors told me I did the best I could with the facts I had. It still wasn't good enough. I don't know if they were being polite, but only two jurors were willing to give me criticism. (I specifically asked jurors to tell me what I could have done better.) Overall, however, no juror seemed to think I could have done any better. They believed the semiconductor company complied with its internal procedure and, as far as they were concerned, that was the alpha and the omega.

5. Lawyers should suck up to the judge. (Or, as my friend says, "As far as you're concerned, the judge is G-d.") I know most lawyers defer to judges anyway, but as a matter of principle, I only suck up to people I genuinely like. I've learned I need to suck up to everyone during trial. Any trial, even a jury trial, isn't the best time to let out your inner George "Anti-Establishment" Carlin. Once a judge decides he dislikes your case, he can make the trial as difficult as possible for you.

For example, the defense deemed some of my questions too vague, even though the witnesses probably understood what I was asking. The judge would usually sustain the defense's objection or demand more specificity. The defense's objections caused me to add many details to my questions, making them more difficult to follow. I never anticipated a situation where my questions would be less ambiguous but more confusing. At one point, even after I specified the time period, the location, and the persons involved, the defense and judge only backed off when I looked directly at the jury and asked, "How can I possibly make the question more specific?" Some judges might disregard objections to the form of the question, but only if the attorney is moving his/her case along quickly and being very respectful to the Court. The lesson? Don't count on having your pre-drafted questions automatically accepted, even if you think a witness will understand them.

Behind the scenes, it wasn't much better. The judge wouldn't accommodate my request to take one of my witnesses out of order. Earlier, he said it was okay to take one witness out of order because of her child care responsibilities, but around two days later, he said it was my problem, not his (he's right--it is the lawyer's responsibility to have his/her witnesses available). Still, that's a major problem when the judge also tells you if you don't get done with the witness on Friday, and she can't come back on Monday, he's going to strike her entire testimony.

You haven't even heard the best part. The defense, on the day this witness was going to testify, knew about my witness availability problem and asked for an earlier lunch time. The judge granted their request and the defense got a 2 hour lunch instead of the normal 1.5 or 1.75 hours--the only time during the whole trial I remember having such a long lunch. That's about 30 minutes of precious time taken away from me. Does the jury know anything about this? Nope. So when I finally get my witness on the stand, and the judge tells me to slow down because I'm speaking too fast, I look stupid. Score one for the defense, zero for transparency. (Thankfully, the witness got done in time.)

What was really unexpected, though, was how the judge kept telling me what not to do or say. For example, my client had a male coworker who was much younger than her. I referred to this coworker as a younger male (after all, my case involved age and gender discrimination claims). Later, in chambers, the judge told me that I could no longer use the terms, "younger" and "male" when mentioning this younger male coworker in my questions. The defense hadn't requested this particular instruction--the judge, on his own, felt it was prejudicial to the defense.

Perhaps another judge would not have told me in chambers what I couldn't do (e.g., you can't read from the deposition transcript anymore--you're being too dramatic); or would not have added objections for the other side (Defense: Objection: vague, ambiguous. Judge: it's also argumentative. Sustained. Me: silently, to myself--I can't believe I actually thought I was going to get a decent shot against this major corporation and its army of lawyers.")

For the record, I do not think the judge was biased. I've had two other bench trials before him, and he ruled against my client in one case, and in favor of my client in the other case. In this (jury) trial, he was a little too involved for my liking, but that's his call.

6. Know the hearsay rule and its exceptions by heart. I was surprised at what the judge wouldn't let in. Even when I said the documents were not being offered for the truth of the matter asserted or just to show the defendant received notice of a complaint on a particular date, the judge wouldn't let in my documents. He said my witness could testify orally about the content of the emails, and the emails themselves appeared redundant. You have to be willing to get the evidence in through oral testimony, or to redact documents before asking the court to admit them. Always have a backup plan.

Remember: even if your document isn't admitted, your witness still has it in front of him because you gave him a copy that was marked for identification. Not having it admitted just means the jury can't look at it--your witness can still see the document. So don't get discouraged if a document isn't admitted--just ask a question using the information in the document, like, "On January 2, 2007, did you discuss your workload with Peter, your supervisor? A: Yes. Q: What did you discuss? A: (witness may glance at the email before answering.)"

Doing it this way, I was able to get what I wanted published to a jury, except it came through direct testimony rather than documents. Did this unorthodox method endear me to the judge? No. See paragraph 5, above.

7. The judge may disregard the CACI jury instructions. Despite CRC 2.11050(a) and (e), this judge didn't have much respect for the CACI instructions. He modified them and also accepted most of the defense's special jury instructions, which I thought diluted the impact of the more neutral CACI instructions. By the time he was done, I thought the combination of special and CACI jury instructions bore little resemblance to what the judicial council had issued. When I said the whole point of having pre-drafted jury instructions was to create uniformity and predictability, the judge muttered that I wasn't there when the Judicial Council drafted the CACI instructions.

In addition, this judge wanted us in chambers every morning before trial to discuss the jury instructions. That is ordinarily a really good idea. I just didn't expect to get up at 7:00AM every morning instead of 7:30AM. That extra 30 minutes means a lot when you need as much rest as possible.

When discussing jury instructions, you have to argue that the modified instructions mis-state the law or are prejudicial somehow. Make sure you put your objections on the record to each one. Otherwise, when the judge reads the instructions to the jury, s/he'll probably tell them all the lawyers agreed that the instructions properly state the law.

8. The evidence code stacks the deck against individual plaintiffs. The business records exception to the hearsay rule allows corporations to let in almost any document. A company can offer performance evaluations written by Person X, without ever needing to call Person X to the stand for cross-examination. Sound unfair? You're darn right it's unfair, but that's the way the code is written. To counter this defense tactic, if you're the plaintiff, you may want to subpoena people you think will criticize your client.

In addition, if plaintiff sent an email that referred to other pieces of evidence, like charts or data, the judge may demand those sections be redacted. As this judge told me, your client can't vouch for the accuracy of any of these charts or data she is referring to, so it's inadmissible hearsay. No matter what I said--state of mind, just offering it to show my client's understanding, offering it only to show that words were said on this particular date, we're not saying it's true, etc.--it didn't work. Some judges treat jurors like Pavlovian dogs who, if exposed to certain statements or words, will suddenly rule in favor of Plaintiff based on pure emotion. I find this attitude distasteful and patronizing. I see it as reducing the power of jurors to hear the full facts of a case and to decide themselves whether those facts are accurate. But I'm not a judge. My opinions don't matter.

The lesson? Don't assume you'll get any of your emails or documents in if those documents refer to anything that isn't within your client's personal knowledge. Did your client write to Human Resources that her boss made her watch porn with a coworker on the Sabbath? With some judges, you better make sure your client can identify the pornstars in the movie, the exact brand of the DVD player, and the particular way the boss was waxing his carrot before you try to get that document in. I am kidding--sort of. When in doubt, subpoena all persons who have the most direct personal knowledge on a particular point you want published to the jury.

In my case, the judge said that the charts my client sent to her boss about her workload relative to her peers were inadmissible. He said that even though my client's direct supervisor required monthly reports about the workload of my client and her coworkers; the supervisor received these reports on a regular basis; and the supervisor hadn't questioned their accuracy, it wasn't good enough. The supervisor himself had no direct personal knowledge of his employees' workload, so it was hearsay. When I said I wasn't offering it for the truth of the charts, only to show my client's good faith belief about her unbalanced workload, the judge said I was offering it for the truth, and that was that. (As you can see, judges have a lot of discretion when it comes to evidence.)

I might not have had a problem in federal court publishing company emails to the jury. According to the Hon. James Rosenbaum, District Judge for Minnesota, FRE 808 automatically allows corporate emails and trumps 403 (relevance), 602 (personal knowledge), 902 (authentication), and 803 and 804 (declarant's availability or unavailability). See 12 Green Bag 2D 165, "In Defense of Rule 808, Federal Rules of Evidence." However, I cannot find any trace of FRE 808 anywhere except in this judge's published article. A rule regulating admission of corporate communications seems long overdue. In terms of reliability, there is much difference between a handwritten note and a corporate email between a supervisor and an employee stored on a company's servers.

To be fair, no judge wants to get overturned on appeal. The way the legal system is set up, it's easier for a judge to leave out a piece of evidence than to admit it if there's even a small doubt that admitting it will prejudice the jury. Unfortunately, it's also more likely that a large corporation will have the resources to appeal, which creates systemic problems with administering justice when corporations and individuals are suing each other.

9. Be careful when putting on hostile witnesses on your own direct examination. In my case, opposing counsel used a hostile witness I called to read performance evaluations written by third parties (business records exception to hearsay rule). The defense got in damaging information about my client as part of my own case in chief. (They would have gotten in the information later on, but the timing helped them.)

10. Jurors don't want to talk to your client if they ruled against him or her. They are usually happy to talk to the lawyers, but not the actual individual who lost the case. I made the mistake of putting some jurors in an awkward position by trying to get them to talk to my client.

That's all I can think of right now. I still wish my client had prevailed. My desire in writing this post is to stimulate an informed dialogue about our legal system. Good night, and good luck.

Bonus: more on jury trials, more specifically, jury verdict forms, HERE.

Bonus: Mark Bennett discusses jury selection. 

Law Firms Freeze Salaries

The NY Times talks about salary freezes at law firms:

http://www.nytimes.com/2009/01/25/jobs/25lawyers.html?_r=1

I found the section on legal salaries illuminating:

According to the National Association for Law Placement, 16 percent of the class of 2007 law school graduates employed full time make $160,000 or more, while 38 percent make $55,000 or less.

If you do the math, 46% of new lawyers make between 55K and 160K. Assuming most mid-sized and small law firms pay around 70K starting, 84% of new lawyers probably make between 25K and 70K. If you're a law school student, remember those salary numbers when you're taking out loans and dining out. Cut back on expenses while in law school, and you'll have an easier time paying off debt if you don't land the big firm position or the big money position right away.

I managed to pay off my loans fairly soon after law school because I practiced self-denial religiously. For example, I ate PB&J almost every day in law school and for a year after law school. I also didn't go to Starbucks or Peet's more than once a month while in law school. Anyway, I haven't had a PB&J sandwich in a long time. Like the 99 cent Jack in the Box chicken sandwich I ate all the time while at UC Davis, it tastes like poverty--disgusting and dry. But these days, I go to Peet's and drop three bucks on coffee almost every day. It doesn't sound like much, but if I hadn't denied myself the good things in life while in law school, I'd still be eating PB&J and drinking fountain water for lunch and dinner.

Banking Consolidation

The Winter 2009 Edition of City Journal has an interesting banking statistic. From Nicole Gelinas' "Can the Feds Uncrunch Credit?" (pps. 22-23)

Because of last year's [2008] flurry of bank mergers, the nation's top four banks now hold 36.2 percent of deposits in the country, up from 24.8 percent in 2007, according to SNL Financial. We thus may be setting up the next bubble-fueled crisis as we speak--and this time, it may be too big to recover from.

I am not sure what the author means. Is she saying that if the top four banks go under, the nation's savings will be toast? Perhaps she is warning that if the top four banks continue to lend recklessly, they will create another bubble. Neither of those scenarios makes much sense to me. The top four banks won't go under--they will be federalized before that happens. Moreover, banks are so scared, if anything, they're not lending enough.

Bonus: in the same issue, on page 58, Roger Scruton does his best impression of Samuel Huntington and writes about how Islamic and Western ideas differ. The problem with such generalizations, of course, is that they're generalizations--and it's nonsensical to apply them to billions of people. Still, Mr. Scruton had one particularly interesting paragraph that made much sense:

By living in a spirit of forgiveness, we not only uphold the core value of citizenship but also find the path of social membership that we need. Happiness does not come from the pursuit of pleasure, nor is it guaranteed by freedom. It comes from sacrifice: that is the great message that all the memorable works of our culture convey.

Unfortunately, Mr. Scruton makes an almost unforgivable mistake when he assumes that only Christianity favors such sacrifice and forgiveness. The idea that any religion has a monopoly on forgiveness is propaganda, pure and simple. If the three dominant religions believe in one G-d, then forgiveness must flow from the same fountain. A clash of civilizations may indeed occur in some form, but it won't be because one particular religion favors forgiveness more than any other religion. By creating false dichotomies, Mr. Scruton helps catalyze a clash of civilizations that need not necessarily occur.

Thomas Frank's What's the Matter with Kansas?

I just finished Thomas Frank's book, What's the Matter with Kansas? Mr. Frank's enthusiasm for his state comes through loud and clear. I also enjoyed reading about how the Republican Party created a false, too-simple divide between "salt of the earth" red-state residents and "latte-drinking liberals." Still, I can't recommend the book, because I did not pick up any major insights. Also, some of the book comes across as elitist pablum. (More here.)

The entire gist of Mr. Frank's book can be summarized in one sentence: using moral polemics, especially abortion, the Republicans have extracted common sense from the people and caused them to vote against their own interests. Of course, Mr. Frank expands on his thesis, but I've just given you 99% of his literary enchilada.

Another point Mr. Frank makes is that political parties have succeeded in pulling the wool over voters' eyes by getting them to view preferences as most relevant to a person's true intentions:

They call them the liberal elite and they talk about their tastes and their preferences all the time. They run these TV commercials that say liberals are supposed to sip Chardonnay and eat fancy cheese and drink lattés—lattés are especially identified with liberals. And Volvos.

See this interview for more of Mr. Frank's ideas. After you read the interview, if you want to read more about the same ideas, check out Mr. Frank's book.

Bonus round: I didn't read all of it yet, but I already feel comfortable recommending Lowenstein's While America Aged. Below are two links relating to Mr. Lowenstein's book:

http://www.nytimes.com/2008/05/04/books/review/Madrick-t.html

http://fora.tv/2008/05/06/Roger_Lowenstein-While_America_Aged#chapter_01