ProfessorBainbridge.com

Gaming Papal Elections

CatholicPages.com offers a good article on how a new Pope is elected (link via Relapsed Catholic). There's been a key change in the rules since John Paul II was elected:

To be elected Pope, one Cardinal must receive more than two-thirds of the votes. Except that if 30 elections have taken place without any one Cardinal being elected Pope, then the Cardinals may then elect by simple majority.

Perhaps in response, the Cardinals will no longer have to "stay in uncomfortable, makeshift quarters in the Papal Palace," but instead "will stay in the Domus Sanctae Marthae, hotel-style accommodation in Vatican City." Under the old system, when countless ballots were theoretically possible, the lousy accomodations presumably encouraged the Cardinals to reach consensus. (I remember stories about how LBJ used to lock employers and union leaders into a room to settle strikes.) Volokh Conspirator (and Marginal Revolutionist) Tyler Cowen brings a little game theory to the task of analyzing the electoral process:

Assume that each cardinal wishes to back the winning candidate, all other things being equal. You have more leverage if you are part of the winning coalition. So you may support your favored candidate at the beginning, but drop that support if it becomes clear your favorite has no chance. You will then switch to the next best alternative, which is some weighted average of how much you like the candidate and how strong a contender the candidate is. Of course you might never back a candidate you abhor, or a candidate whose chances are hopeless.

The first round of voting reveals information, namely who has how much support. ... You don't have to be the leader in the first round to become Pope. You might be the second or third choice of the voters who supported non-viable candidates, they will switch to you as their candidates drop out. You might then pull into the lead, thereby picking up yet additional support. Still, you have to become established as a leading alternative candidate, pretty early on in the game.

The voting method encourages conservatism of choice, and that indeed is my prediction for the day. Radical challengers have a hard time appearing inevitable or focal. ... Oddly, it can be worse for a candidate to appear "too inevitable." That forces many second-tier candidates to lose their supporters, which can coalesce support around somebody else, too quickly. There is an old saying: "He who enters a conclave as Pope comes out a Cardinal."

He concludes by showing his cards:

When the choice is announced, Andrew Sullivan will be disappointed. But Andrew should have heart, and remember the old political saying, "Only Nixon Can Go To China."

Let's hope not, as Right Coaster Tom Smith explains:

[Today's NYT includes an essay by Andrew Sullivan on his] conscience as a gay man in the Catholic Church. I wonder what the odds would be of getting one's struggles of conscience published on the op-ed page of the times if the chase was, "you know, I should go back to the Church," or "I guess conventional morality was right about X after all." Remote, I should think. We find out Mr. Sullivan was unable to bring himself to go to Mass this Sunday because a gay couple he knows was kicked out of their parish choir for getting civilly unionized in Canada. ... I guess the gist is that Mr. Sullivan is threatening to quit the Church if it doesn't shape up on gay issues. But he's not quite fed up yet, I guess. Maybe the Church can have one last chance. Me, I think the corruption at Vatican I that Acton complained about is embarassing, the whole Spanish Inquistion thing was bad, persecuting Protestants generally no better, priests taking part in recent genocides in Africa even worse, pedophile priests awful, etc., etc. Being a Catholic is like being an American. There is a lot you have to put up with. But the best of it is pretty good, and we have good enemies.

Yep.

Smoking bans and private property rights

Smoking bans continue to proliferate. Montgomery County, Maryland, for example, just adopted one of the toughest laws in the country. The debate over smoking bans typically is viewed as a clash between the rights of smokers and those of non-smokers, with the latter’s rights routinely prevailing. In my view, however, the issue really is one of property rights. The secondhand smoke problem usually is the principal justification for banning smoking in public places. Fair enough. I will concede that smoking has negative externalities. Externalities sometimes justify government intervention. If I run a factory that spews pollution into the air, the damage to my neighbors and the environment is part of the overall social cost of running my factory. Because I don't bear those costs, however, I have no incentive to reduce the pollution my factory generates. By adopting appropriate regulations, the government can force me to internalize the cost of pollution, which is a fancy way of saying that the government can force me to take those costs into account when I make decisions. The mere existence of an externality does not justify legislation, however. In a free society, with limited government and respect for private property rights, at least two conditions must be satisfied before government intervention is warranted. First, my actions must in fact produce external costs. Second, there must be a market failure -- that is, people must be unable to solve the problem without government help. Because I’ve conceded the first prong of the test, the merits of public smoking bans comes down to the question of whether the problem can be solved private ordering. In other words, if we let the owners of private property decide whether people will be allowed to smoke on their premises, will non-smokers be exposed to unreasonable costs? An affirmative answer is clearly appropriate in some situations. There are some public places in which non-smokers may find themselves a "captive audience" -- that is, situations in which the non-smoker cannot avoid exposure to secondhand smoke. Government offices that serve the public are a good example. If a non-smoker gets a traffic ticket, he may have no choice but to go down to the courthouse. A smoking ban thus might be reasonable in the court building. These sorts of situations are quite limited, however. Let's start with the most basic example: my backyard. Should I have the right to smoke a cigar on my back porch, where the only person who smells it is my dog? Presumably so, since I'm not imposing on anyone (my dog seems to like the smell). If you admit that a ban on smoking in my backyard is not appropriate, let's turn to restaurants. Smoking bans routinely apply to restaurants, but restaurants are clearly places in which private ordering can work and in which government intervention is unnecessary. Consider the following case: The 21 Club restaurant had a long history of being a cigar-friendly environment. Non-smokers who ate there did so knowing that they may be exposed to cigar smoke. On what basis can such people complain? Do they not assume the risk of being exposed to secondhand smoke by visiting an establishment that allows patrons to smoke cigars? Conversely, other restaurants -- say, those wishing to attract a family clientele -- may forbid smoking in whole or in part. If I choose to patronize these establishments, I have no right to expect to be able to smoke there. This is what I mean by a system of private ordering: If the place is one that nonsmokers can readily choose to avoid, then they have no right to insist on imposing their preference for a smoke-free environment on me or (and this is the key point) the owner of the establishment. Absent a showing that private ordering can't work, the owner of private property has a right to decide what conduct will take place on his property even if that property is open to the public. So long as non-smokers are free to decide not to enter an establishment in which smoking is allowed, the necessary prerequisite for regulating private property simply doesn't exist. The same sort of analysis could be extended to a host of contexts. Many argue for a ban on smoking in the workplace. And if, for example, an employer concludes that it is cheaper to hire non-smokers, who could object to his banning smoking on his premises? But if another employer concludes that it is cheaper to hire smokers -- perhaps because they'll take lower pay in order to be able to smoke at work -- why should we object to that choice'? So long as non-smokers have other employment options, if they choose to work for an employer that allows smoking, they have no basis to complain. Indeed, there is no externality, because the employer's decision imposes no costs on the non-smokers to which they have not consented. Many restaurants and workplaces have voluntarily banned smoking. In view of this evidence that private ordering can work, I see no justification for overriding private property rights by banning smoking in private establishments.

Does state law permit corporations to forbid shareholders from nominating directors?

By Corp Law Blog's count, the SEC's shareholder access rule proposal poses over 320 questions for commenters. I will not be answering all of them. As I work up my comment letter to submit to the SEC, however, I will post my answers to those I find interesting. 

Today's question:

[A]s proposed, a company would become subject to the security holder nomination procedure in Exchange Act Rule 14a-11 only where the company's security holders have an existing, applicable state law right to nominate a candidate or candidates for election as a director. To eliminate any uncertainties in this regard, the proposed rule would state that the security holder nomination procedure would be available unless applicable state law prohibits the company's security holders from nominating a candidate or candidates for election as a director. If state law permits companies incorporated in that state to prohibit security holder nominations through provisions in companies' articles of incorporation or bylaws, the proposed procedure would not be available to security holders of a company that had included validly such a provision in its governing instruments.

Does state law permit this? A recent Delaware decision suggests an affirmative answer, albeit with qualifications. In Harrah's Entertainment, Inc. v. JCC Holding Co., 802 A.2d 294 (Del.Ch. 2002), the Honorable (and estimable) Leo Strine noted that:

Because of the obvious importance of the nomination right in our system of corporate governance, Delaware courts have been reluctant to approve measures that impede the ability of stockholders to nominate candidates. Put simply, Delaware law recognizes that the "right of shareholders to participate in the voting process includes the right to nominate an opposing slate." And, "the unadorned right to cast a ballot in a contest for [corporate] office ... is meaningless without the right to participate in selecting the contestants. As the nominating process circumscribes the range of choice to be made, it is a fundamental and outcome-determinative step in the election of officeholders. To allow for voting while maintaining a closed selection process thus renders the former an empty exercise." (310-11)

On the other hand, Delaware law also has a fairly strong streak of freedom of contract. A corporation thus may opt out of the default voting -- and nominating -- rules, provided it does so clearly and unambiguously:

When a corporate charter is alleged to contain a restriction on the fundamental electoral rights of stockholders under default provisions of law - such as the right of a majority of the shares to elect new directors or enact a charter amendment - it has been said that the restriction must be "clear and unambiguous" to be enforceable. (310)

Because restrictions on shareholder voting rights, such as a departure from the one share-one vote norm, must be in the articles of incorporation (DGCL § 212), it would be advisable to include a restriction on shareholder nominations in the articles rather than the bylaws. Not only would a bylaw provision be of dubious enforceability, under DGCL § 109(a) the shareholders always retain the right to initiate amendments to the bylaws. For existing companies, getting the shareholders to approve a charter amendment banning stockholder nominations likely will be tough -- probably few would even try to buck the inevitable bad press and institutional investor complaints. Assuming the rule goes through in present form, however, it will be interesting to see how many IPOs include such a provision.

Chander's "Minorities: Shareholders and Otherwise" (revised)

Yesterday's faculty collquium speaker was Anupam Chander, of the UC Davis School of Law (visiting Cornell), who presented his paper "Minorities, Shareholder and Otherwise," which is forthcoming in the Yale Law Journal. You can download a copy of this very interesting paper here; the abstract follows:

Corporate law understands what constitutional law does not. Being a minority matters to law. While constitutional law moves towards colorblindness, shunning knowledge of minority status, corporate law places minorities at the heart of its endeavor. This Essay seeks to reconcile the "minorities" in corporate and constitutional law, developing a larger theory of minority status and its relevance to legal decision. I begin by rereading the corporate canon. I show that body's concern not just for wealth maximization, but also its distribution. I reveal corporate law's deep commitment to protecting minority shareholders, operationalized through an elaborate common law and statutory framework. Ironically, it is corporate law, not constitutional law, that is obsessed with issues such as fairness, oppression, and power. My Essay highlights this and then applies corporate law's theory of minority/majority relations to three hot button debates in the constitutional law realm: affirmative action (currently before the Supreme Court), California's Racial Privacy Initiative (on the ballot for 2004), and the demographic shift to a majority minority polity (already a reality in California).

Chander is very smart and interesting, and so is his paper. It's a very clever idea, which is quite well-executed. Most important, it's quite novel, which is what really counts in the academic reward system. Yet, as explained below, I think I must respectfully dissent.

Corporate law permits discrimination among shareholders. Probably the best known examples are the discriminatory self-tender offer Unocal used to fend off Boone Pickens and the poison pill. Instructively, however, those devices involve discrimination directed against someone who is trying to become a majority shareholder. As Chander correctly observes, corporate law has many doctrines intended to protect minority shareholders and to ensure fair treatment of such shareholders. Chander then claims that constitutional law is much less concerned with protecting racial minorities. Obviously, this will strike many as a controversial claim, especially after last term's Supreme Court decisions in Grutter and Lawrence. Indeed, Chander's analysis seems far more persuasive as a critique of Scalia's color blindess-based dissent in Grutter than of the majority opinion.

Turning to the corporate law analogy, an initial question is whether the appropriate analogy is to the close or public corporation. It’s an important question because fairness is much more of a concern in the law of close corporations than in that of public firms. Close corporations are like the body politic because exit is costly in both, while secondary capital markets make exit from public corporations quite easy. Yet, it is very doubtful one would want to export the law of close corporations to the constitutional context.^{1 Close corporations are often described as “incorporated partnerships,” which explains why fairness is such a big issue in the close corporation context. Query, however, whether partnership is a useful way of thinking about the body politic. Partnerships make decisions by consensus, which they can do because partners typically have comparable interests (profit maximization) and equal access to information. In a pluralistic body politic, those conditions do not hold, and decisionmaking must be effected through the exercise of authority. As such, the body politic most closely resembles the public corporation, where fairness concerns – while still present – are more attenuated.}

Consider, for example, former Delaware Chancellor William Allen’s opinion in Mendel v. Carroll. The Carroll family collectively controlled Katy Industries, Inc., owning at various times 48 to 52% of the stock. Even when they did not have an outright majority, their status as the largest shareholder ensured that they had effective control. The Carroll family had proposed a freeze-out merger that would have involved cashing out the minority shareholders at about $26 per share. A competing offer was made by a group organized by a fellow named Sanford Pensler at about $28 per share. The Carroll Family withdrew their merger proposal, but also announced that they had no interest in selling their shares. Their opposition to the Pensler proposal effectively precluded it from going forward. Minority shareholders sued, alleging that the Carroll Family violated its fiduciary duties and that the board of directors violated its fiduciary duties. Specifically, the minority wanted the board to issue more stock to dilute the Carroll family’s holdings to the point at which they no longer have control. Chancellor Allen held: “The board's fiduciary obligation to the corporation and its shareholders, in this setting, requires it to be a protective guardian of the rightful interest of the public shareholders. But while that obligation may authorize the board to take extraordinary steps to protect the minority from plain overreaching, it does not authorize the board to deploy corporate power against the majority stockholders, in the absence of a threatened serious breach of fiduciary duty by the controlling stock.” [651 A.2d 297, 306 (Del. Ch. 1994).] Mendel thus illustrates the extent to which corporate law is far more tolerant of hegemony than constitutional law.^{2 As the Massachusetts court observed in Wilkes v. Springside Nursing Home, 353 N.E.2d 657 (Mass. 1976), there must be a balance between the fiduciary duty of the majority and its right to selfish ownership, which gives the controlling group “some room to maneuver” in setting policy. Hence, it is not clear to me that corporate law provides a useful lens through which to view constitutional law problems like affirmative action. Nothing I saw in Grutter suggests that racial majorities are entitled to “selfish ownership” of the body politic.}

Another way of getting at my problem with the paper might be to examine the corporate law doctrine that permits a controlling shareholder to freeze-out the minority, so long as the controlling shareholder pays a fair price. If we export both corporate law's solicitude for minority shareholders and corporate law's tolerance of hegemony to the constitutional context, Plessey was correct and Brown was not. The racial majority would be permitted to freeze-out the minority from their schools, for example, so long as they gave the minorities fair treatment, which leads directly to separate but equal schools. For a while post-Plessey the Supreme Court actually tried to enforce separate but equal by monitoring whether the separate schools really were equal. The Court gave that project up in Brown, however; and rightly so, because it never worked. Separate but equal was inherently unequal and properly was struck down. Accordingly, I am left unpersuaded that exporting corporate law principles to the constitutional context does very much to advance the analysis in the latter, unless one is prepared to be very selective about which corporate law principles one is prepared to export and which one intends to leave behind. But that seems to defeat the purpose of the exercise.

In sum, it is a very interesting paper that is well-worth reading. The idea is clever and the execution is impressive. In my view, however, it would have been even more impressive if Chander had been willing to make the move of advocating that con law adopt corporate law’s more tolerant view of hegemony. That would have been a really radical and daring step. But go download the paper and decide for yourself.

^{1 Chander denies any agenda of exporting the fairness technologies, which tends to make the normative payoff kind of anticlimactic.}

^{2 Chander forthrightly acknowledges this difference between corporate and constitutional law; indeed, the differing ways in which the two bodies of law view power is a motivation for the paper.}

Is Delaware corporate law predictable or indeterminate: Corp Law Blog votes for predictability

The race to the top versus race to the bottom debate usually focuses on the quality of Delaware law. As part of their case, proponents of the race to the bottom thesis have embraced USC law professor Ehud Kamar's claim that Delaware law is indeterminate. I have never bought that argument. Granted, Delaware corporate law consists mainly of standards rather than rules, but it is still highly predictable.

The quantity -- and thus the predictability -- of Delaware corporate law is the subject of Mike O'Sullivan's response to my earlier post Why doesn't California retain incorporations:

Delaware's strength is its wealth of published judicial decisions applying its corporate law to real world factual situations. Even the clearest statute is of limited use to a practitioner, as the real world is infinitely more varied than any statute. It's only by applying a statute to the real world over time that the statute takes on a life, assumes certain habits, develops a personality and, in a word, becomes predictable.

Comparatively few corporate law issues ever make it to litigation, let alone to a published court decision. So often, when trying to figure out how a particular corporate statute works, we simply don't have any history showing how the statute worked in similar situations. Sometimes, we don't have any history of the statute operating in any situation. This void is the enemy of predictability.

Delaware, by dint of its efficient court system, its huge pool of corporations and its long record showing, through reported court decisions, how these issues have been applied and resolved, simply has the deepest well of corporate law experience out there. This deep well gives Delaware the most predictable corporate law. For example, Delaware's highly developed body of fiduciary duty case law is both unique and invaluable. When I get questions regarding fiduciary duties for directors of Delaware corporations, chances are very good that I'll find an very similar factual situation dealt with in a prior case. Even when I don't find a similar factual situation, I know enough about how Delaware courts have applied these principles in other situations to make a well-educated guess as to how they would apply it to my situation.

So much for the indeterminacy claim.

Why doesn't California retain incorporations

Next week I'll be speaking at a Vanderbilt law school conference on corporation law, where I'll be commenting on Firm's Decisions Where to Incorporate, by Lucian Bebchuk and Alma Cohen. I'll be posting my remarks after the conference, but in the meanwhile I thought this finding was particularly blogworthy: Bebchuk and Cohen examine whether firms located in a given state (say, California) choose to incorporate in that state or to incorporate elsewhere (say, Delaware).¹ They find that California does especially poorly at retaining local business incorporations: California retains the incorporations of only 22% of businesses located within it. What explains California's lag? (2)

Bebchuk and Cohen's paper contains a variety of possible explanations, but the one I found most telling was this observation:

It is interesting to note that, in all three regressions, states that are strongly Democratic are less successful (at 99% confidence) in retaining local firms. For any given set of statutory corporate provisions, judges in states that are strongly Democratic might be expected to be more willing to intervene, which might be unattractive to those making incorporation decisions.(24)

To be sure, Bebchuk and Cohen lay more stress on the fact that California has no antitakeover statute, which is consistent with their larger thesis that the presence or absence of a takeover statute is what drives management decisions as to where to incorporate. Yet, my guess is that the absence of a takeover statute in California itself can be explained by the state's liberal legal culture. California gets a very small share of state revenues from incorporation-related taxes. (I don't have the exact figures, because franchise taxes -- as opposed to the corporate income tax -- are such a small share of the state's receipts that they don't even show up on the state's cash flow analysis.) A key tenet of the race to the top hypothesis is that states compete to attract incorporations so as to collect the franchise taxes firms pay for the privilege of incorporating within that state. Delaware profits hugely from this competition, as Bebchuk and Cohen elsewhere observe: "Delaware's annual revenues from franchise taxes are on the order of $3,000 for each household of four in the state, and they constitute about 30% of the state's budget." This gives Delaware a strong incentive to offer corporation laws that attract entrepreneurs looking for a place to incorporate their business. In contrast, California generates such a small percentage of its revenues from incorporation-related fees, that California has very little incentive to draft corporation laws attractive to entrepreneurs and managers. Instead, California can indulge the luxury of allowing its corporation laws to reflect the overall anti-business/anti-capitalist leanings of the state's dominant left-liberal political elites. In other words, California doesn't retain so few incorporations because it has no antitakeover statute; California has no antitakeover statute because it retains so few incorporations ... and doesn't care.²

UPDATE: Larry Ribstein (of the UIUC law school and the BusFilm blog) sends the following email:

See my Lawyers as Lawmakers paper. My theory in that paper predicts that states where transactional lawyers are powerful (e.g., Delaware) are likely to have efficient laws in areas where ex ante choice of law is viable, as with corporate governance. So maybe the problem in California is that the trial lawyers are more powerful than the transactional lawyers. Obviously the message that lawyers can be good is not one that is likely to captivate public opinion

UPDATE 2: The Corp Law Blog weighs in with an encomium of Delaware's judiciary and its well-established body of precedent. It's sufficiently important that I will be blogging on it separately. Stay tuned.

Notes

¹ Note that this is a different question than the one that got so much play during the recall. In the debate over California's business climate, the question was whether businesses were moving their physical location out of the state. Bebchuk and Cohen are looking at business that remain physically within, say, California but pick another state in which to incorporate the business. Hence, issues like worker's compensation costs that drive businesses to physically leave California are irrelevant to this issue, because incorporating outside California doesn't eliminate those costs.

² In other words, California is neither racing to the top nor racing to the bottom. It is doing its own quirky thing. In contrast, the states that lean Democratic but have adopted antitakeover statutes are participating in the race (whether it is to the top or the bottom).

And, in response to a reader's query, I'm not intending to suggest that California is shareholder-friendly -- although the political significance of CalPers and other state pension funds may incline the state in that direction -- so much as saying that it is anti-management.

Joseph Phelps Merlot (Napa Valley) 2000

We had this wine tonight at one of Helen's favorite LA bistros. As is all too often the case in restaurants, the wine was served too warm and in glasses that were too small. Note to restaurant managers: The idea that red wines should be served at "room temperature" evolved in upper class British homes that had real wine cellars and dining rooms lacking central heating. Room temperature as applied to red wines means low 60s, not the 70+ typical of US restaurants and homes. At 70 degrees, red wines tend to taste flabby. They also tend to smell and taste hot, in the high alcohol rather than temperature sense of the word, because that temperature emphasizes the alcohol in the nose and on the palate.

Anyway, on to the wine. Deep purple all the way to the rim. Modest nose, although given the serving temperature and the small glasses, it was not a fair test. Tasty mix of the usual supects: red currants and dried cherries, mocha, oriental spices, especially anise, with a hint of earth. Good finish, with a fairly tannic grip. Recommended. Grade: B+

Robert Mondavi Cabernet Sauvignon (Napa Valley) 1996

Very fine, maturing nicely, but still improving. Great color. Still a relatively deep, very pretty purple at the core but shading to brick at the rim. Relatively modest nose, but very typical. Dark fruit, leather, and cigar box. Black cherries, dried currants. lead pencil shavings, sage and oriental spices, tar and tobacco on the palate. Finishes with a fairly strong tannic grip, suggesting it can improve for several more years.

The endowment effect

Greg Goelzhauser of the Law and Economics blog has a very interesting post on the endowment effect, which I think is generally regarded as the best-established example of behavioral economics. On reading his post, however, I was left with a question, arising out of the example he chose:

It's Good vs. Evil, #5 vs. #2, Law and Economics Blog vs. Discourse.net (in terms of institutional affiliation), it's the biggest game of the year: Florida State vs. Miami in Tallahassee this Saturday. Thankfully, I will be in attendance to cheer on the Seminoles. What I'm equally thankful for is that I didn't have to pay much for the tickets (about the price of a nice dinner), despite the selling of tickets from anywhere between 200 and 600 dollars. I certainly was not willing to pay this price for a ticket, but now that I have one I am also not willing to sell it at those prices.

I gather Florida State is his alma mater and that he's pumped for the game. If so, his unwillingness to part with the ticket might be an example of Arrow's observation "that interpersonal comparison of utilities has no meaning and, in fact, that there is no meaning relevant to welfare comparisons in the measurability of individual utility." Kenneth Arrow, Social Choice and Individual Values 9 (1963). My sense of the endowment effect literature is that it usually focuses on low cost objects of no particular value to the holder (coffee mugs in the classic experiment), so as to eliminate the problem of interpersonal comparisons of utility. In contrast, Greg may simply subjectively value the ticket at a price higher than the market equlibrium. The lesson may be that there are multiple reasons why subjective WTA and WTP valuations may differ in a given setting, of which the endowment effect is only one possibility. Having said that, the post is well-worth reading as an introduction to the endowment effect.

UPDATE: Greg continues the discussion with a very helpful response. I was particularly stuck by his citation of endowment effect studies where the subjects in fact placed a high personal value on the asset in question. (Query, however, why are the WTA and WTP values placed on hunting rights so much higher for duck hunters than goose hunters? Does duck hunting provide that much more utility?) The studies he cites also raise a further question about endowment effect research, which is the reliability of survey data. Asking people what their WTA and WTP prices are may not be as reliable as observing actual transactions. On the other hand, it may well be useful to survey people who are actually in the business in question rather than staging experiments using undergraduates. The best evidence would come from transactions in actual markets, of course, but that's probably the hardest data to get. Interestingly, the Economist reported a while back on work by U of Md. economist John List:

Instead of using callow students, he went to a real market with traders of varying degrees of experience: a sports-card exchange, one of many such, where Americans trade pictures of their favourite athletes. There, traders dealing in hundreds of cards mix with browsers who might buy only one.

List's paper is available here. In it, he finds:

[W]ithin the group of subjects who have intense trading experience (dealers and experienced nondealers), I find that the endowment effect becomes negligible. ... I find that market experience significantly attenuates the endowment effect. ... These results provide initial evidence consistent with the notion that market experience eliminates market anomalies.

(See also the discussion at Marginal Revolution.)

As Artie Johnson used to say, "very interesting." The take-home policymaking lesson would seem to be that the endowment effect could cause a market failure justifying regulatory intervention, but that some care is necessary before reaching that conclusion. The regulator ought to be confident that (a) the endowment effect is really present; (b) as a result of the endowment effect, an inefficient outcome is proving sticky; (c) that market experience cannot remove the anomaly; and (d) there is a superior regulatory solution.

The Economist on Comp

The Economist's lead editorial this week blasts executive compensation and urges increased shareholder activism:

This one-way trend in top executives' pay has rightly raised eyebrows, on both sides of the Atlantic. The supply of good bosses may be short, but can it be that short, even during an economic slowdown and stockmarket slump?

This is the right question.

How much you get paid depends in large part on the thickness of the market for your services. In a thick market, wages tend to be low because there are many potential employees – all more or less fungible – competing for jobs. In a thin market, however, wages tend to be high because many employers are competing to hire a small number of eligible workers. The market for burger flippers is very thick. The market for law professors is relatively thick. The market for CEOs of Fortune 500 companies is thin. I’d guess the number of people who have what it takes to run a Fortune 500 company isn’t much larger than the number of people who can run a NBA fast break. Hence, its not surprising that corporate CEOs make Shaq-like dollars. Its just supply and demand, folks.

Having said that, however, the Economist does have a point. Although I don't have the citations at the tip of my fingers, I have seen a couple of recent studies to suggest that boards erroneously believe the CEO market is thinner than it actually is, which tends to artificially inflate CEO salaries. Boards tend to want proven track records (picking an unproven CEO who tanks is bad for the board’s reputation), which limits the pool through the “Experience Required” phenomenon. Boards also tend to pick CEO candidates who resemble the prevailing demographics of the directors, which further artificially limits the pool. Hence, the Economist doubtless is right -- the supply of potential good bosses is not as short as directors believe.

The problem is that neither solution the Economist considers is desirable. The Economist is surely right that we don't want to direct government regulation of executive comp -- in particular, as I've said before, we definitely don't want to imitate Germany by criminalizing excess compensation. On the other hand, as I've also argued before, shareholder activism is hardly a panacea for the ills of corporate governance. Shareholder activism is not a solution but a problem. The only solution I can come up with is the imperfect one of independent directors incentivized to monitor executive compensation. It's not perfect, but its better than the alternatives.

Also noteworthy is the following huge whopper in the Economist's editorial: "Few public companies today in either America or Europe have a majority of independent directors." I don't know about Eurpose, but as to the US the statement is flat wrong. According to the NACD's latest survey of public corporations, 61% of US corporations had a majority of independent directors (29% had a board that was more than 75% comprised of independent directors). These are 2001 figures. Given the emphasis on director independence in the NYSE's listing standards and Sarbanes-Oxley, moreover, the figure is almost certainly higher now than it was in 2001. Once the new NYSE and NASDAQ listing standards kick in, moreover, almost all listed companies will have to have a majority of independent directors.

Pine Ridge Merlot Crimson Creek (Napa Valley) 2000

Very good. Deep purple with strong legs. Strong cabernet-like nose of currants, cedar and tar. Approachable with smooth tannins. Complex flavors of red currants, berries, mocha, lead pencil and leather. Medium-long finish. Great steak wine. Grade: B+

Coors reincorporates in Delaware

According to the The Denver Business Journal Coors has reincorporated in Delaware (moving from Colorado) via a downstream merger with a wholly owned subsidiary:

"This change will be beneficial to the company and its shareholders through obtaining the benefits of Delaware's comprehensive, widely used and extensively interpreted corporate law," said Peter Coors, chairman, in a statement.

The proposal received strong (80%) shareholder support. The proxy statement listed three reasons for the move:

Through its General Corporation Law of the State of Delaware (DGCL), the state has especially flexible and comprehensive corporate laws. Because of those laws, 60 percent of Fortune 500 companies are incorporated in the state.

Delaware has a special court, the Court of Chancery, that deals exclusively with corporate legal cases. Most states, including Colorado, don't have such a business-oriented court.

Reincorporating from Colorado to Delaware also may make it easier to attract future board members since such candidates should already be familiar with Delaware corporate law.

In other words, the company perceives Delaware law as racing (or, at least, rising) to the top. Next week I'm off to a conference at Vanderbilt law school to comment on a paper attacking the race to the top hypothesis. I'll be posting more on this topic then. In the meanwhile, my article The Creeping Federalization of Corporate Law has my most recent defense of the race to the top hypothesis.

Stock options versus restricted stock

In a Washington Post op-ed, Intel's Andrew Grove and Reed Hundt explain why Intel is not going to follow Microsoft's lead and switch from stock options to restricted stock grants:

What about restricted stock? Would it not be a better deal for investors? Not at all. With restricted stock it's possible for employees to gain while stockholders lose. Here's an example. An employee may be granted a share of restricted stock when the stock is publicly traded for $10 per share. When the vesting period ends, usually after one to five years, the employee will make money no matter what has happened to the stock price. For example, if during that time, the stock price drops to $9 per share, the employee is ahead by that same $9, but anyone else who bought stock on the open market would have lost $1 per share in value. This is why critics have called restricted stock "pay for pulse." The granting of restricted stock puts greater emphasis on longevity and tenure than on owner-like motivations.

I have seen this argument before, but have never understood it. It seems to assume that the employee got got the restricted stock for free. As one otherwise useful article on the choice between stock options and restricted stock grants put it: "employees granted stock have not paid for it, while shareholders have." This is clearly wrong. The employee and employer exchanged value -- labor for compensation. The total compensation paid logically should not depend on the form of the consideration (ignoring transaction costs and taxes). Assume the employee's labor is fairly compensated at a rate of $100 per day. The employee could elect to work for a company that pays only cash salaries and receive $100 cash. Or the employee could go to work for a company that pays compensation in the form of both cash and restricted stock. This company is not going to pay the employee $100 cash per day. Instead, it will pay the employee $90 cash and give the employee the $10 share of restricted stock. If the employee takes the second job, the employee has an incentive to do whatever is possible to keep the stock price abpve $10. Otherwise, the employee would have been better off working for the all cash employer. Or am I missing something?

Mike O'Sullivan @ Corp Law Blog also weighs in with criticism of Grove and Hundt:

I also think [their] characterization of restricted stock as "pay for pulse" is unfair. By requiring an employee to stay at the company during the vesting period, restricted stock helps the company retain employees. As such, it can have the same beneficial effect as long-term incentive plans, deferred compensation plans and, yes, stock options. Restricted stock vesting doesn't have to be tied just to retention -- Microsoft's new restricted stock program, for instance, requires its top 600 or so executives to meet certain performance goals before their restricted stock vests. Hardly "pay for pulse." At the same time, options can offer "reward for pulse," as macro events such as interest rates, currency values and GDP growth can increase (or decrease) stock prices independent of any improvement (or failures) at an individual company. In other words, a rising tide can lift all boats, even the ones that are about to sink.

My sense is that one size does not fit all. At some firms and in some economic conditions, options may make more sense. At others, especially in the recent market, grants make more sense.

Martha Stewart

The WSJ (sub. req'd) is reporting that Martha Stewart is trying to get some of the counts of her indictment dismissed. Here's the part that caught my eye:

Ms. Stewart wasn't indicted on insider trading charges but was charged with interfering with the inquiry that sought to determine if she sold the stock based on a tip that ImClone founder Sam Waksal and his family were unloading their holdings. ... Prosecutors say Ms. Stewart defrauded investors in her own company through a series of false statements that they allege were designed to curb the losses in her company's stock. ... The charge "seeks to criminalize Ms. Stewart's public declarations that she had not engaged in insider trading in making a personal stock sale," her lawyers said in the summary.

I've come to think that's exactly right. Granted, back in June 2003, I wrote an op-ed for the LA Times, in which I suggested:

Stewart apparently didn't pay much attention to the Watergate scandal. It wasn't the break-in that brought down Nixon's presidency; it was the cover-up. It won't be insider trading that brings down Martha Stewart. It will be the cover-up.

To the extent the obstruction charges are based on Stewart's denials, as opposed to the alleged alteration of documents, however, I've concluded that the alleged cover-up shouldn't bring Stewart down.

Stewart's indictment does not allege insider trading. Only the SEC's civil complaint contains insider trading allegations. In my June op-ed, I explained that the SEC's charges were so outlandish that "the Justice Department did not charge Stewart with insider trading. ... Instead, the Justice Department went after Stewart for conspiring to obstruct justice by engaging in the great American pastime of lying to the cops."

The SEC’s charges against Stewart are based on a bizzare interpretation of insider trading law. Suppose Jane is the CEO of a big mining corporation. Jane learns the company has struck gold. Before the discovery is announced, Jane buys some more stock. That is classic insider trading. Now suppose Jane tells her friend Don the good news. Don buys stock, also pre-announcement. That is known as tipping. According to the U.S. Supreme Court, the tip will be illegal if Jane got a personal benefit from making the tip and Don knew (or should have known) that Jane’s tip violated her fiduciary duty to the company. A third kind of insider trading is called misappropriation. Suppose Jane’s company plans a hostile takeover of a second company. She tells her attorney Anne about the plan. Anne then buys stock in the target company. Anne has committed illegal insider trading based on misappropriated information. If Anne tips her friend Dave, that would be illegal too. The charges against Stewart don’t look anything like these examples. It is as though Jane’s broker thought her trade was unusual and told another client about it. (Doubtless you'll want to read all about insider trading in my book.)

Martha Stewart pretty clearly didn’t know about the FDA’s Erbitux action. In fact, according to the SEC itself, after selling her ImClone stock, Stewart called Waksal and left the following message: “Martha Stewart—something is going on with ImClone and she wants to know what….” Although the SEC’s complaint makes much of the Stewart-Waksal friendship, the SEC nowhere alleges that Stewart had any advance knowledge of the problem with Erbitux.

In other words, Martha Stewart got a hot tip and she acted on it. So what? As a society, we care about insider trading because it is a form of theft. Information about the gold discovery belonged to Jane’s company, not to Jane. Information about the takeover bid belonged to the company, not to Anna. They stole that information from its owner and used it for personal gain. If the information leaked as a result, the company would be injured. But what information did Stewart steal and from whom? The SEC tells us she stole it not from ImClone but from Merrill Lynch, but does this look like theft as you know it? To be sure, the SEC may be able to make out the requisite theft in some hyper-technical sense but Stewart’s misconduct has very little to do with the historic reasons for policing insider trading.

According to published reports, the U.S. Attorney decided going after Stewart would be an “unprecedented” expansion of insider trading law. Instead, the Feds indicted her, inter alia, over her denials that she committed insider trading. At worst, however, Martha lied about doing something that isn't illegal. I still don't get why that should be criminal.

Update: An astute reader emails to ask whether I'm talking about the "infamous Count 9 of the criminal complaint instead of to the overall obstruction charges that form the basis for the rest of the complaint"? I'm only talking about count 9. I agree with the reader's assessment of that count. He writes:

If you were thinking only of Count 9's charge that by publicly proclaiming her innocence, she was engaging in criminal securities fraud, I agree with you. In fact, even if she is, indeed, guilty, something bothers me if the government is allowed to publicly make allegations against her but she is not allowed to publicly deny them.

Meanwhile, Tung Yin of the Yin Blog has a very interesting post providing a good deal of detail on the legal merits of the obstruction of justice charge. I don't dispute his assessment that what Martha did could be criminal (in a hyper-technical sense, IMHO), but I still don't get why it is criminal as a matter of sound public policy or, especially, why as a prudential matter a prosectutor should have brought Count 9. I agree entirely with the first reader's assessment that it is unfair to let the government fling allegations, which they end up deciding not to charge somebody with, and then let the government prosecute that person for having denied the allegations the government decided it couldn't prove. Why isn't that just whacked?

Turning to the obstruction counts, however, I'm also skeptical of them as a prudential matter. It also seems to me that aggressive prosecutorial use of 18 U.S.C. sec. 1001 undercuts the requirement that the government prove guilt beyond a reasonable doubt. Granted the 5th amendment only gives you a right to remain silent, but shouldn't you be allowed to tell the cops "I didn't do it" without getting hauled up on charges later -- especially if they end up deciding not to charge you with the underlying crime? I mean, I can't tell you the number of times I've told a cop I didn't see the stop sign. [Ed: After reading Prof. Yin's helpful follow-up post, I added the underlined sentence for further clarification.]

I should note that Prof. Yin, to say the least, seems receptive to the prudential component of my argument:

Now, all that's left is to wonder, should the alleged lie in the actual case with the actual circumstances be a crime? And if so, is it really worth prosecuting? That's a totally different question, and certainly I can see arguments to be made that Stewart's alleged false statement really isn't worth the government's attention and time -- but for her celebrity status.

Exactly, if the defendant wasn't Martha Stewart (and if we hadn't already had Enron and so on), this case never happens. My friend Tom Smith makes this point quite pithily:

Steve Bainbridge is right on about Martha Stewart. He is perhaps too polite to add, however, that the ill-defined insider trading laws are perfect tools for ambitious prosecutors who want to go on scalp-hunting expeditions. Is Martha the most egregious insider trader in Manhattan these days? Hardly. But she is a high profile celeb with a reportedly obnoxious personality that the press would love to see fall. The Bonfire of the Vanities with the feds roasting their marshmellows on the flames.

Harsh, but true. (Download my overview of insider trading law here.)

My Remarks on Catholic Social Thought and the Corporation

Saturday morning I spoke at Villanova University School of Law’s symposium on Catholic Social Thought and Law. My panel was entitled “The Corporation through the Lens of Catholic Social Thought.” My remarks focused on the need to preserve the economic liberty of corporate actors as a means of preserving the freedom of the men and women who make up the corporation.

If a concern for human freedom is not at the center of Catholic social teaching, human freedom is at least very near it. As the current Pope has observed, “the good of the individual [cannot] be realized without reference to his free choice, to the unique and exclusive responsibility which he exercises in the face of good or evil.” (Centesimus Annus, 13) Hence, Catholic social thought purports to reject socialism or other forms of command economies.

At the same time, however, Catholic social teaching scarcely can be described as rabidly pro-capitalism. John Paul, for example, describes corporate profits as a mere “indicator that a business is functioning well.” (Centesimus Annus, 43) As the Catechism explains, moreover: “Those responsible for business enterprises are responsible to society for the economic and ecological effects of their operations. They have an obligation to consider the good of persons and not only the increase of profits.” (Catechism, 2432)

Contrast that conception of the corporation’s profit-making function with the Michigan supreme court’s famous command in Dodge v. Ford Motor Co., 170 N.W. 668 (Mich. 1919), that: “A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end.” (684) Or, as Milton Friedman (1970) even more famously put it, “the social responsibility of business is to increase its profits.”

How then do those us who are vocationally concerned with the governance of U.S. corporations reconcile the laws of Man and God? At the outset, it is critical to remember that the Church especially encourages lay initiative “when the matter involves discovering or inventing the means for permeating social, political, and economic realities with the demands of Christian doctrine and life.” (Catechism, 899) Indeed, at least insofar as prudential judgments are concerned, John Paul has emphasized that the “church has no models to present.” (Centesimus Annus, 43) In pondering the implications of Catholic social teaching for corporate governance, I therefore think it especially appropriate to draw not only on the primary documents but also on certain lay thinkers. Hence, my interest in this project.

I begin with Michael Novak, the preeminent Catholic neoconservative. Novak, of course, has sometimes been a harsh critic of the Church’s prudential pronouncements on the economy. In Toward a Theology of the Corporation (1990), for example, Novak asserted that Christian theologians tend to be poorly trained in economics and inexperienced with the business world: They “are likely to inherit either a pre-capitalist or a frankly socialist set of ideals about political economy.” (59) Consequently, theologians “are more likely to err in this territory than in most others.” (12)

A persistent error “in this territory” is the tendency towards what Milton Friedman (1987) called “the collectivist moral strain” in Catholic social thought. Indeed, it is fair to assert that some documents in the social teaching more closely resemble “the platforms of European social democratic parties” than Biblical exegesis. (Benne, 1987, at 79) Even some of John Paul’s encyclicals have a statist flavor. In Laborem Exercens, for example, his sharp criticism of Marxism is strikingly offset by the statement that “one cannot exclude the socialization, in suitable circumstances, of certain means of production.” (14)

Importantly, however, Novak’s critiques are widely acknowledged as having substantially influenced the current Pope’s encyclicals on the economy. Hence, for example, some Catholic intellectuals contend that Centesimus Annus calls into question “the controlling assumptions” of the U.S. Bishops’ controversial pastoral letter on economic justice and even that the encyclical allows us to reject the pastoral letter “as unrepresentative of the Church’s authoritative teaching.” (Neuhaus, 1992, at 124)

One of the core ideas in Novak’s work is the claim that corporations function as intermediating institutions that (a) develop citizens holding a shared set of values – virtue, trust, responsibility, and the like – and (b) stand between the individual and the state. Candidly, the former claim deserves some skepticism. When we think of how virtue and other communal values are inculcated, don’t we tend to think of entities like churches, schools, and fraternal organizations? Most of us probably find it highly unrealistic to think of a large multinational corporation as constituting such a community. Indeed, “Communitarian models of the corporation … strain credulity past the breaking point.” (Bainbridge, 2002)

To his credit, Novak does not press the point too far. Instead, he argues that such a corporation harbors within it sub-groups that evolve into communities of shared values, observing: “Some persons today are closer to their colleagues in the workplace than to their family.” (Novak, 1990, at 29)

If so, these communities – and the corporations that harbor them – must be protected from the Leviathan state. The core Catholic principle of subsidiarity derives from the Church’s understanding that Leviathan and community are incompatible. “Communities … cannot be created from without; they must be built from within.” But they easily “can be destroyed from without.” (Epstein, 1995 at 324) Subsidiarity thus teaches that to “empower higher authorities as anything but second-best solutions or even last resorts endangers the rights and liberties of those who are most affected.” (Sirico, 1997) Put another way, subsidiarity logically implies that subordination of economic institutions to the state poses a grave threat to both communal and personal liberty.

Assume, however, that neither the corporation nor any sub-groups it harbors have the power to inculcate virtue and community. Even so, it remains perfectly plausible to think of the corporation as an intermediary institution standing between the individual and Leviathan. In other words, even if virtuous citizens are developed solely by smaller institutions with roots in the local community, the corporation still can act as a vital counterweight against the state – an alternative island of power within society.

Novak argues the corporation has proven to be a powerful engine for focusing the efforts of individuals to maintain the requisite sphere of economic liberty. (Novak, 1990) Those whose livelihood depends on corporate enterprise cannot be neutral about political systems. Only democratic capitalist societies permit voluntary formation of private corporations and allot them a sphere of economic liberty within which to function, which gives those who value such enterprises a powerful incentive to resist both statism and socialism. Because tyranny is far more likely to come from the public sector than the private, those who for selfish reasons strive to maintain both a democratic capitalist society and, of particular relevance to the present argument, a substantial sphere of economic liberty therein serve the public interest. Or, as Novak put it, private property and freedom of contract were “indispensable if private business corporations were to come into existence.” In turn, the corporation gives “liberty economic substance over and against the state.” (45)

Yet, perhaps not all corporations are created equally. Here, I turn from Novak to another American Catholic intellectual – Russell Kirk. Kirk was no great fan of modern corporations. He once wrote: “All my life I have known the city of Detroit …. In the shocking decay of that great city nowadays, we behold the consequences of an inhumane economy-bent upon maximum productive efficiency, but heedless of personal order and public order.” Kirk laid the blame for that decay squarely at the feet of Henry Ford and his fellow corporate giants: “Indeed, they seem still to be ignorant of such unhappy consequences,” he wrote, “or else indifferent to the consequences, so long as profits continue to be made.”

How can we reconcile Kirk and Novak? The task is fraught with difficulties, not least because Kirk had some very nasty things to say about neoconservatives like Novak. Yet, Kirk himself demonstrated a remarkable ability “consistently to favor free markets, private property, competition, and at the same time to champion virtue” (Campbell, 1994, 69), a view arguably not too different from the direction taken by our present Pope.

Hence, the argument here is not one for the libertarian’s night watchman state. As Edmund Burke observed, albeit in a rather different context, there is “a limit at which forbearance ceases to be a virtue.” At that limit, the state properly steps in. The prudential question is when forbearance becomes a vice. While it may be true that the state must provide a coercive backstop, remember that a good backstop leaves the catcher lots of room within to work – and even allows for the odd wild pitch or two.

Unfortunately, we have seen a lot of wild pitches lately. Indeed, to speak of virtue and corporations in the same breath seems hopelessly naïve these days. Consider the high profile corporate scandals of recent years. Not since the Levine-Boesky-Milken insider trading scandal in the mid-1980s, have so many leading corporate figure taken the “perp walk” as have those implicated in the recent wave of corporate governance scandals. Anyone with more than a passing familiarity with the business news of the new millennium can rattle off the relevant names: Enron, WorldCom, ImClone, Adelphia, Tyco, and so on.

How did this happen? Here, I turn to the late Christopher Lasch. In The Revolt of the Elites, Lasch observed of the modern professional elites – from whom most corporate directors and managers are drawn – that their “attitude to religion ranges from indifference to active hostility.” Rather than faith, “[a] skeptical, iconoclastic state of mind is one of the distinguishing characteristics of the knowledge classes.” (215)

The problem is that true virtue is an adaptive response to the instinctive human recognition of (and need for) a transcendent moral order codified in a body of natural law. People are most likely to act virtuously when they believe in an external power, higher and more permanent than the state, who is aware of their shortcomings and will punish them in the next life even if they escape retribution in this life.

Hence, economic actors do not function in a vacuum. To the contrary, modern corporate capitalism necessarily rests on a moral foundation. Morality's primary purpose, said Kirk, is "to order the soul and to order the human community, not to produce wealth.” As faith eroded among our corporate elites, however, the capitalists of our day lost this essential moral foundation. And with it, the instinct for honor that virtue inculcates.

Here then is a role for the institutional church in setting right both the state and the modern corporation. In response to the scandals of the day, civil society has relied on a system of principle-based ethics. Principle ethics, of course, always relies on rules to solve ethical problems. In a principle-dominated ethical system, the moral life thus consists mainly of complying with society’s mandated code of conduct. Hence, for example, the adoption of Sarbanes-Oxley section 307 as a solution (so-called) to the scandals I have mentioned.

Principle ethics pose a double threat to ordered liberty: principle ethics displace not just private ordering of economic relationships, but also personal virtue. In principle-based ethical systems, individuals are not allowed to define for themselves what constitutes trustworthy or honorable behavior, but instead must comply with some judge’s or some bureaucrat’s definition of honor. Yet, I put it to you that none of the thinkers to whom I have referred – Novak, Kirk, or Lasch – would believe that the state can make people virtuous. Nor, do I believe, does the Church.

Instead, I understand Catholic social teaching to espouse a system of virtue ethics. The primacy of virtue ethics in the Church’s moral teachings is illustrated by its great tradition of natural law. Natural law, of course, is a way of thinking about how things ought to be, using rational arguments about how people ought to behave. As suggested by the standard of natural lawmaking that John Finnis calls “the test of practical reasonableness,” the Church properly is concerned less with rigid codes of conduct that with promoting sound context-based judgment. It trains us to a moral life emphasizing the habitual private exercise of truthfulness, courage, justice, mercy, and the other virtues.

The Church’s response to crises of corporate governance therefore should not be support for the statism of principle ethics. The nanny state is a poor substitute, at best, for the virtue inculcating power of faith and voluntary community. We may fear the faceless bureaucrat, but he does not inspire us to virtue. Conduct that rises above the lowest common moral denominator thus cannot be created by state action. But while the state cannot make its citizens virtuous, it can destroy the intermediary institutions that do inculcate virtue. Instead, the Church should concern itself with re-establishing virtue ethics in the public square. Like the social justice Prophets of the Old Testament, the Church must call our professional elites back to what Lincoln called the angels of their better nature.

And so we come back to the beginning. As I noted at the outset, human dignity and freedom are central principles of Catholic social thought. John Paul unabashedly affirms “the transcendent dignity of the human person who, as the visible image of the invisible God, is therefore by his very nature the subject of rights which no one may violate....” (Centesimus Annus, 44.1) I have argued herein that preserving the economic freedom of corporations to pursue wealth is an essential part of effective means for achieving human freedom. To the extent prudential judgments are required, the Church and the laity should strive the duplicate Russell Kirk’s nuanced balancing of freedom and virtue.

References

Stephen M. Bainbridge, The Bishops and the Corporate Stakeholder Debate, 4 Villanova J. L. & Inv. Mgmt 3 (2002).

Robert Benne, The Bishops’ Letter—A Protestant Reading, in The Catholic Challenge to the American Economy 76 (Thomas M. Gannon ed. 1987).

William F. Campbell, An Economist’s Tribute to Russell Kirk, Intercollegiate Rev., Fall 1994, at 68.

Richard A. Epstein, Simple Rules for a Complex World (1995).

Milton Friedman, Good Ends, Bad Means, in The Catholic Challenge to the American Economy 99 (Thomas M. Gannon ed. 1987).

Milton Friedman, The Social Responsibility of Business is to Increase its Profits, N.Y. Times Magazine, Sept. 13, 1970, at 32.

John Paul II, Centesimus Annus, reprinted in Proclaiming Justice & Peace: Papal Documents from Rerum Novarum through Centesimus Annus 432 (Michael Walsh & Brian Davies eds. 1991).

Christopher Lasch, The Revolt of the Elites and the Betrayal of Democracy (1995).

Richard John Neuhaus, An Argument About Human Nature, in A New Worldly Order: John Paul II and Human Freedom 123 (George Weigel ed. 1992).

Michael Novak, Toward a Theology of the Corporation (rev. ed.1990).

Robert A. Sirico, Subsidiarity, Society, and Entitlements: Understanding and Application, 11 Notre Dame J. L. Ethics & Pub Pol’y 549 (1997).

United States Catholic Conference, Catechism of the Catholic Church (2d ed. 1997).

George Weigel, Capitalism for Humans, Commentary, Oct. 1995, at 34.