What You Need to Know about Negotiating Compensation
Andie Kramer Selected to Serve on Illinois Supreme Court Commission on Professionalism, Diversity and Inclusion Board
The Illinois Supreme Court Commission on Professionalism (the Commission”) appointed Andie Kramer to serve as a member of its state-wide Diversity and Inclusion Advisory Board (the “Board”). The Board was formed to advise the Commission with respect to its goal of fostering a commitment to the elimination of bias and divisiveness in the legal profession. As a member of the Board, Ms. Kramer will be working on a newly launched project “to stem the disproportionate departure of women, minorities and LGBT, as compared to majority male, lawyers from law firms.” Read more about her appointment here.
Taking Control: Women, Gender Stereotypes and Impression Management
By Andrea S. Kramer and Alton B. Harris
Click here to view an edited version of a chapter from this forthcoming
book, Getting There: Career Success for Women in a Gender-Biased
Presented by the ABA Presidential Task Force on Gender Equity and the Commission on Women in the Profession
Study after study has long shown that women lawyers are not paid at the same level as their male counterparts. In August 2012, American Bar Association President Laurel G. Bellows appointed a blue-ribbon Task Force on Gender Equity to recommend solutions for eliminating gender bias in the legal profession, with a principal focus on the disparity in compensation between male and female partners. Andrea Kramer, WLMA's President, has co-authored this guide which is one in a series of projects the Task Force has implemented to promote gender equity.
Progress Report: The Equal Pay Act a Half-Century Later
By Pat Sturdevant
Los Angeles Daily Journal: March 2013
This year marks a half century since the passage of the Equal Pay Act, which outlawed wage discrimination between men and women in the same establishment who perform jobs requiring substantially equal skill, effort and responsibility under similar working conditions. This guarantee of equal pay for equal work for America's women was signed by John F. Kennedy in 1963 and codified as part of the Fair Labor Standards Act of 1938.
Andie Kramer, a partner at McDermott, Will & Emery, was the subject of an article in February'sChicago Lawyer Magazine. The article is part of a yearlong series that profiles people who are thinking outside the box and inspiring their colleagues. The article on Andie describes her as an “inspiring innovator” and emphasizes her ideas and leadership on gender equality and communication in the workplace.
Westlaw Business Currents: Over the last decade plus, you have become a key advisor to clients on the derivative markets. How did that interest develop? And how did you develop that practice?
AK: Derivatives are not new; they just did not used to be called derivatives. When I got out of law school, we would call them financial products, futures, options, and funky weird things. We didn’t have a single word that incorporated the concept of value derived from the value of something else. It wasn’t until 1994 when the WSJ and other publications started to write about “derivatives” but they were often defined as “anything you lose money at!”
Obviously, this was not an accurate definition, but “derivatives” became the phrase that was used in the popular press. “Financial products” had been the name used in the generation before “derivatives.” And, their trading has gone from only or mostly on exchanges to full blown OTC activity. And now we are seeing, with Dodd-Frank, pressure to move products back on to exchanges with central clearing. So I have seen the markets change dramatically in my career.
Westlaw Business Currents: You mentioned Dodd-Frank, and we have a lot of activity around that legislation. Post Dodd-Frank, what is your sense of trends within the derivatives markets as they relate to taxation, trading and documentation?
AK: Trends in taxation: one of the big issues that has come up in the context of Dodd-Frank is the tax treatment of OTC products that get moved on to exchanges and central clearing. Title XVI of Dodd-Frank has in it an amendment to Internal Revenue Code section 1256, which basically says that “if you have a swap product that is listed in the Code provision, you are not going to be in Code section 1256.” Now that is a very important exception, but it is not as broad as the general definition of a “swap” in Dodd-Frank. So it raises all sorts of questions around “intent” and “what does this cover” and “what does it mean”? The different clearing systems that are currently being debated with the regulators could give us very different tax results. So the tax trends we are seeing now are basically following the ways in which the markets are moving and how they are being regulated. That will shape how the tax rules ultimately apply.
Westlaw Business Currents: How fast is it moving?
AK: The CFTC has jurisdiction over all products other than security products. The SEC has jurisdiction over security-based swaps. And, the CFTC and the SEC have joint jurisdiction over mixed swaps, which have elements of security-based swaps and other swaps. The CFTC is moving faster than the speed of sound with proposed regulations and rules, while the SEC is moving with much more caution.
Westlaw Business Currents: Is the market more active in the sense that it is getting ahead of the regulators, CFTC versus the SEC and what is going on within that area or rule making?
AK: That is a really good question. The reason for the pacing differences between the CFTC and the SEC is that if we just look at the definition of what a “security swap” is, it is half a page, and if we look at the definition of a “swap,” which is what the CFTC has jurisdiction over, it runs on for multiple pages. So the products that the CFTC is expected to address have such a broad reach that I would think the CFTC is staying up at night and working around the clock.
Westlaw Business Currents: Now, you have given us some trends and some reasons behind them, but one thing you talked about earlier is the special concerns for over-the-counter derivatives. Will the structure of some of these derivatives become more complicated as a way to bypass certain regulations or regulators?
AK: That is another good question; the way that Dodd-Frank works is that you have mandatory clearing of OTC transactions, unless you are eligible for an exception. And the exemptions are basically limited to hedging by end users or if no clearing organization accepts the trades for clearing. And of course the more complicated that a product is, and the more customized it is, the less likely it will be that product will be suitable for clearing.
Westlaw Business Currents: Can you give me an example of “clearing” for those in our audience who may not be familiar with the markets?
AK: If I enter into a trade with you “over the counter,” we have a bilateral contract. I need to rely on you to meet your obligations, and you need to rely on me to meet my obligations. If we interpose a clearing organization, which is the way that exchange traded options and futures have operated since the beginning, what happens is that once you and I enter into a trade and we acknowledge that the trade is legitimate and its terms are correct, the clearing house steps in and becomes the counterparty for you and the counterparty for me. Exchange and OTC clearing would involve the exact same concept. The reason the clearing organization wants to standardize swaps is that it can be on the hook if one party defaults. Now, if it is a customized contract, it is going to be very difficult for anyone else to figure out if they want to step in the middle of the trade and take the credit risk off the counterparties’ hands.
Westlaw Business Currents: You mentioned something very interesting, the standardized swap versus the customized swap. Is there going to be a movement for customization for some of these products?
AK: I think that for products that are plain vanilla, you don’t really care and standardization is just fine. You care very much, however, about products that are customized, highly structured and that have a special business purpose.
Westlaw Business Currents: What are some issues with respect to customized products? AK: Let me give you an example. I was talking to a friend of mine recently about weather derivatives. Well, one of the Dodd-Frank requirements is that dealers are going to have to disclose the value they place on the OTC contracts for purposes of calculating collateral values. Basically the dealers will have to tell their customers how they price their trades, which obviously has always been proprietary information. Now in something like a weather derivative, that pricing becomes extraordinarily complicated because you don’t have an underlying asset that can be used as (or value to) collateral. So how are you going to figure out what your collateral requirements are?
Westlaw Business Currents: You are a prolific writer and recently published the book Energy and Environmental Project Finance Law and Taxation: New Investment Techniques. One topic you write about in your book is the concept of hedging on and using derivatives as a way to finance large construction projects. You demonstrate that hedging has had a big impact on project financing, especially when used as a tool to minimize the exposure or risk involved in large finance projects. How will the Dodd-Frank rules affect such hedging transactions for minimizing risk exposure?
AK: Of course in the old days projects were “hedged” in a very different way. What the developer would do was it would put together a facility and it would enter into long term (often 30-year) sales contracts that would ensure a stream of income to the project to give the lenders confidence that they would get their money back. The concept of project finance is that each project is a stand-alone project. In other words, it could meet all of its obligations, debt service, expenses or other costs out of the income the project will generate once the project is completed. That is historically how large projects were -- and in many cases still are -- financed. But what we have been seeing more and more are shorter term sales contracts to ensure a stream of income to the project. Instead of 30-year sales contracts, we now see a short-term sales contract with a hedge layered on top of it. So it is now the hedge provider that is assuming some of the risk as to the project’s ability to self-finance. This has been a dramatic change in project finance structure in recent years.
Westlaw Business Currents: Is this “layer” of protection in jeopardy with Dodd-Frank?
AK: One of the issues that is being hotly debated and watched is the implications of capital and margin requirements for dealers and possible capital and margin requirements for end users, who carefully enter into trades with dealers. Even if the trade is not cleared, end users may find themselves faced with capital, margin or collateral requirements for hedges in project finance deals.
Westlaw Business Currents: That is a good point, but who is going to be regulating that group of hedge providers?
AK: Most likely the CFTC, not the SEC, will have jurisdiction, because the hedges are typically on interest rates and commodity prices. Bank regulators will also have jurisdiction over those hedge providers that are regulated by them. We might see that foreign currencies will raise questions as to who is in charge. We are not looking at narrow-based stock indexes or single stock products in the project finance world.
Westlaw Business Currents: As we end this interview, one of the things that has most impressed me is our leadership in gender equality. You are a major partner in a global law firm, and that says a lot about your career. But looking at other major firms, you don’t really see the other Andie Kramers out there. Can you talk about some of the gender equality issues out there and how can we work to get more gender equality in the boardrooms and in law firm management committees?
AK: When I got out of law school I started at a law firm where they didn’t care what your gender was, what color your skin was or whatever. If you were doing a good job, everyone wanted you on their projects. And so that was for me the way I developed my practice. What I have found over the years is that not all law firms operate that way. Of course, we have seen changes over the years, but not as many changes as we should have seen. Women now graduate more than 50 percent of most law school classes. But we don’t see women in the senior ranks of law firms in anywhere near the percentages that we should see them. One of the issues at McDermott that we have worked hard on to address these discrepancies, is that if a lawyer has a mentor, that lawyer can deal with just about anything. So we started McDermott University, which has two primary functions. One is on the educational side and the other is a departmental mentoring program. Now what has come out of McDermott University is something that has been very helpful for women and people of color. For example, what now happens is if a young lawyer wants to go from 1st year litigator, to a 2nd year litigator, there are guidelines as to what that lawyer must accomplish. In the old days, when it came time for performance reviews, all the men had done all the depositions they needed to do to advance but the women and people of color might not have. To move all of our young lawyers up a year, we now provide them more equal experiences. Here at McDermott we now have women heading up practice groups and offices. We are seeing some changes. I am very pleased about those developments. Men very often get mentors. They get sponsors: Someone who is going to grab them and drag them along on their career paths. Statistically women just don’t get those sponsors. So what we need to do is to support organizations like WLMA -- the Women’s Leadership and Mentoring Alliance, a nonprofit organization that I formed with two women here in Chicago. WLMA’s goal is to give women more opportunities to take on leadership roles and to feel comfortable seeking and asking for sponsorship. And I think once we see more women in leadership positions, the more sponsorship opportunities will happen for women.
Andrea S. Kramer is a partner in the international law firm of McDermott Will & Emery LLP, resident in its Chicago office. She is the author of Financial Products: Taxation, Regulation, and Design (CCH 2006); editor and contributing author to Energy and Environmental Trading: US Law and Taxation (Cameron & May 2007); and editor and contributing author to Energy and Environmental Project Finance Law and Taxation: New Investment Techniques (Oxford University Press 2010). Ms. Kramer teaches derivatives law and taxation at Northwestern University School of Law. She can be reached at akramer@mwe.com.
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