ProfessorBainbridge.com

Neuhaus on Graglia

I love First Things, the mostly Catholic opinion journal, not least for Father Richard Neuhaus' monthly Public Square column. Neuhaus has been banging the End of Democracy drum for over a decade, including this December 2003 column. I particularly liked Neuhaus' summary of Texas law professor Lino Graglia's take on the problem:

In instance after instance, [Lino A. Graglia] writes, the Court is addressing not constitutional law but “policy choices,” and, in instance after instance, the Court decides that it knows best. Here is Graglia at cruising speed: “Virtually every one of the Court’s rulings of unconstitutionality over the past fifty years—on abortion, capital punishment, criminal procedure, busing for school racial balance, prayer in the schools, government aid to religious schools, public display of religious symbols, pornography, libel, legislative reapportionment, term limits, discrimination on the basis of sex, illegitimacy, alien status, street demonstrations, the employment of Communist-party members in schools and defense plants, vagrancy control, flag burning, and so on—have reflected the views of this same elite. In every case, the Court has invalidated the policy choice made in the ordinary political process, substituting a choice further to the political left. Appointments to the Supreme Court and even to lower courts are now more contentious than appointments to an administrative agency or even to the Cabinet—matters of political life or death for the cultural elite—because maintaining a liberal activist judiciary is the only means of keeping policymaking out of the control of the American people.”

Graglia notes that in some of its most controversial decisions, the Court appeals to an “emerging democratic consensus.” But, by preempting the role of the legislature, it prevents that putative consensus from being put to the test of democratic debate and vote. Surveying the ways proposed for countering the imperial judiciary, Graglia thinks it comes down to political will: “The system of checks and balances set up by the Constitution has broken down where the Supreme Court is concerned; that institution now checks but is not checked by the other branches. President Lincoln dealt with the abuse of judicial power by announcing that although he would not defy the Court’s Dred Scott decision, neither would he accept it as settling the slavery issue. Congress and the President could similarly make clear that contemporary Supreme Court rulings of unconstitutionality without basis in the Constitution deserve not respect but censure. If the political will were there, means could be found to return the country to the experiment in popular self-government in a federalist system with which we began.”

Yep. I just wish I thought it would be that easy, even if we could find the requisite political will.

Can Shareholders use the Bylaws to Limit Director Compensation

A friend called to my attention a shareholder proposal pending at Post Properties, which would amend the firm's bylaws so as to require annual shareholder approval of director compensation:

The Board shall recommend to shareholders at each annual meeting the amount and form of compensation proposed to be paid to Directors for service on the Board and its committees for the year commencing at that meeting, which recommendation shall be approved by the Corporation’s shareholders holding a majority of shares entitled to vote in the election of Directors. Directors also shall be reimbursed for reasonable expenses to attend Board and committee meetings. This provision may not be altered, amended or repealed by the Board.

Interestingly, the proponent is the firm's founder, former CEO, and largest shareholder, which suggests that there might be a very interesting backstory. Anyway, the legal question of the day is whether this is a proper amendment to the bylaws. Although Post is incorporated in Georgia, I'm going to look at the problem from a Delaware law perspective, since the latter will have greater general applicability.

I quote from pages 44-48 of my Corporation Law and Economics text, omitting footnotes citations: A critical issue here is whether shareholder adopted bylaws may limit the board of directors' discretionary power to manage the corporation. There is an odd circularity in the Delaware code with respect to this issue. On the one hand, DGCL § 141(a) provides that "[t]he business and affairs of every corporation organized under this chapter shall be managed by or under the direction of a board of directors." A bylaw that restricts the board's managerial authority thus seems to run afoul of DGCL § 109(b)'s prohibition of bylaws that are "inconsistent with law." On the other hand, DGCL § 141(a) also provides that the board's management powers are plenary "except as may be otherwise provided in this chapter." Does an otherwise valid bylaw adopted pursuant to § 109 squeeze through that loophole?

In Teamsters v. Fleming Companies, the Oklahoma supreme court upheld a bylaw limiting the board of directors' power to adopt a poison pill (a type of corporate takeover defense). The bylaw provided:

The Corporation shall not adopt or maintain a poison pill, shareholder rights plan, rights agreement or any other form of 'poison pill' which is designed to or has the effect of making acquisition of large holdings of the Corporation's shares of stock more difficult or expensive ... unless such plan is first approved by a majority shareholder vote. The Company shall redeem any such rights now in effect.

The board argued that shareholders could not adopt a bylaw imposing such mandatory limitations on the board's discretion. The court rejected that argument. Absent a contrary provision in the articles of incorporation, shareholders therefore may use the bylaws to limit the board's managerial discretion.

Although the relevant Oklahoma and Delaware statutes are quite similar, dicta in at least one Delaware chancery court opinion is inconsistent with Fleming. In General DataComm Industries, Inc. v. State of Wisconsin Investment Board, Vice Chancellor Strine observed:

[W]hile stockholders have unquestioned power to adopt bylaws covering a broad range of subjects, it is also well established in corporate law that stockholders may not directly manage the business and affairs of the corporation, at least without specific authorization either by statute or in the certificate or articles of incorporation. There is an obvious zone of conflict between these precepts: in at least some respects, attempts by stockholders to adopt bylaws limiting or influencing director authority inevitably offend the notion of management by the board of directors. However, neither the courts, the legislators, the SEC, nor legal scholars have clearly articulated the means of resolving this conflict and determining whether a stockholder adopted bylaw provision that constrains director managerial authority is legally effective.

The Vice Chancellor is doubtless correct that there is no clear doctrinal answer under Delaware law. Yet, the relevant policy considerations are quite straightforward. Complete exposition of those policies would anticipate material to be covered in subsequent chapters, but a brief summary here seems useful.

Analysis must begin with the basic precepts of the contractarian model. Shareholders do not own the corporation. Instead, they are merely one of many corporate constituencies bound together by a complex web of explicit and implicit contracts. ... In this model, the directors thus are not agents of the shareholders subject to the control of the shareholders. To be sure, shareholders elect the board and exercise certain other control rights through the franchise. Yet, shareholder voting is not an integral part of the corporate decisionmaking apparatus. Although corporate law grants shareholders exclusive electoral rights, those rights are quite limited. Instead, shareholder voting is merely one accountability mechanism among many--and one to be used sparingly at that. Put another way, the board of directors functions as a sort of Platonic guardian--a sui generis body that serves as the nexus for the various contracts making up the corporation. The board's powers flow from that set of contracts in its totality and not just from shareholders. The board's exercise of its discretionary authority therefore may not be unilaterally limited by any corporate constituency, including the shareholders.

This model is not inconsistent with the spirit of Delaware corporate law. As the Delaware supreme court recently opined:

One of the most basic tenets of Delaware corporate law is that the board of directors has the ultimate responsibility for managing the business and affairs of a corporation. Section 141(a) requires that any limitation on the board's authority be set out in the certificate of incorporation.

Note that, read literally, this dictum clearly precludes the result reached in Fleming.

The board's primacy has a compelling economic justification. The separation of ownership and control mandated by corporate law is a highly efficient solution to the decisionmaking problems faced by large corporations. Recall that because collective decisionmaking is impracticable in such firms, they are characterized by authority‑based decisionmaking structures in which a central agency (the board) is empowered to make decisions binding on the firm as a whole.

To be sure, this separation of "ownership" and control results in agency costs. Those costs, however, are the inevitable consequence of vesting discretion in someone other than the residual claimant. We could substantially reduce, if not eliminate, agency costs by eliminating discretion; that we do not do so confirms that discretion has substantial virtues. Given those virtues, one ought not lightly interfere with management or the board's decisionmaking authority in the name of accountability. Preservation of managerial discretion should always be the null hypothesis.

This line of argument explains much of corporate law. It is the principle behind such diverse doctrines as the business judgment rule, the limits on shareholder derivative litigation, the limits on shareholder voting rights, and the board's power to resist unsolicited corporate takeovers. Here it justifies strong skepticism as to the validity of shareholder‑adopted bylaws that restrict management discretion. Indeed, absent an express statutory command to the contrary, courts should invalidate such bylaws.

All of these problems would go away if state corporation codes treated bylaws the same way as articles of incorporation or, for that matter, virtually every other corporate action. The shareholder power to initiate bylaw amendments without prior board action is unique. It is also a historical anachronism states unthinkingly codified from old common law principles lacking either rhyme or reason. There simply is no good reason to treat bylaws differently than articles of incorporation.

Letting Solum have the Last Word

Larry Solum and I have been having an extended debate over judicial activism and the feasability of a neoformalist approach to constitutional interpretation. We agreed by email that he would get the last word, which he has set out in a typically generous and thoughtful post that usefully contains links to the main posts in the series. What have I learned from this debate? (1) Larry Solum is a very smart and interesting guy, whose brain works in a very different way than mine (compare, e.g., our respective positions on the role of informed intuition in evalusating the scope of the feasabile set). (2) To come clean, I have been playing somewhat of a devil's advocate with respect to the question of whether we could undo decades of judicial supremacy absent a major constitutional moment. Larry's cogent feasability arguments, however, have made it even clearer that we likely would need such a moment. Until then, however, my function as a judicial conservative is to stand athwart the tracks of legal history yelling "stop." (3) Getting into an argument with Larry Solum is actually sort of pleasant; you learn something, but get treated fairly and with respect. Cool.

Cramer replies to Barnett

Clayton Cramer chimes in on my latest go-round with Randy Barnett:

Barnett just doesn't get it. As much as Bainbridge considers abortion evil, he believes that the states should be left free to pass laws, including laws allowing abortion. Bainbridge is showing a lot more restraint than Barnett gives him credit for.

Thanks! Go read the whole thing.

WSJ on CalPers

Regular readers know that I am a frequent critic of CalPers' approach to corporate governance (see, e.g., my TCS column Directors Cut?). So I applaud the WSJ ($) for jumping in with a scathing critique of CalPers:

[CalPers] declared last month that it will withhold support for the re-election of certain directors at no fewer than 2,700 companies, or 90% of its U.S. investments. It's hard to find a company that Calpers isn't upset with -- from Coca-Cola to Sprint to Citigroup. The ostensible reason is a campaign against "conflicts of interest" regarding directors and auditors. This certainly sounds virtuous, and rooting out genuine conflicts is a good thing.

My TCS column pointed out that CalPers is taking this campaign to an absurd length, a point the Journal alsmo makes. Yet, the Journal goes on to emphasize the much more serious conflicts of interest on CalPers board:

More troubling still is the Calpers jihad against Safeway, which last week bounced three of its board members in response. Ostensibly Calpers is upset about underperformance, but the real problem seems to be the tough stance the grocery chain took against labor during a recent strike.

Eleven of the 13 Calpers board members are either union members, union officials or politicians who take union money. And last year amid the strike, Calpers board member Rob Feckner blasted Safeway (in a letter written on Calpers stationery) for its "blatant disregard for quality of life issues for your long term employees." Mr. Feckner sits on the board of California's school employees' union.

As long as we're talking about "conflicts," let's not forget that Calpers Chairman Sean Harrigan is also the executive director of the union that battled Safeway, the United Food and Commercial Workers. Mr. Harrigan was involved in union rallies against Safeway even as Calpers attacked the company's board.

Those who like classical references will want to ask "Quis cusotdiet ipsos custodes?" Those who lean towards Biblical references will invoke Matthew 7:3-5. I am indifferent as between the two, so long as we all recognize the gross hypocrisy in what CalPers is doing.

Do Gooders Doing Bad with My Money

Front page article in today's WSJ ($) on how a coalition of disgruntled pensioners, university students, and newspapers have used state FOIA requests to force the University of California to reveal financial performance data on the venture capital funds in which it invests. The VCs, of course, resent this - and rightfully so:

Venture capitalists argue that it's only fair to judge results after the full life of the fund, typically 10 years. Interim results are likely to look bad because they reflect the fund's fees, the quick failure of some start-ups and the immaturity of others. As those early numbers are made public, institutions like the University of California may feel pressure to nit-pick every decision. That would make it hard to invest for the long term, venture capitalists complain. Besides, they say, people might figure out how badly some of their start-up companies are doing, which would discourage potential business partners of those companies.

We have done remarkably well here at the UC by investing in VC funds:

Data released by UC show just how lucrative venture-capital investments can be. For the 10 years ended June 2003, the university earned an average annualized return of 41% from venture-capital funds. That was largely thanks to windfalls from funds that started life in the mid-1990s, just before the Internet boom. In the case of one Kleiner Perkins fund, UC put in $15 million starting in 1994 and earned $483 million as of March 31, 2003. The fund's remaining investments had an estimated value of $4.7 million on the date, giving UC a total return of 32.5 times its original investment. The UC system has assets of $58 billion under management. UC's more recent funds mostly show negative returns so far, partly due to the collapse of the Internet bubble. But the university predicts that performance will turn upward in the next few years as some of the venture-capital-backed start-ups mature and either go public or are sold.

Indeed, presumably due at least in part to these VC investments, the University's equity retirement fund has outperformed the S&P 500 over the last 5 years and did reasonably well relative to the index over the last 10.

As a result of a suit by Woodward & Bernstein wannabes in the press, wet-behind-the-ears students who probably can't even spell investment let alone read a financial statement, and grumpy old fart pensioners, however, the university has been required to disclose a host of financial data on its VC fund investments. The predictable result?

[Big VC] Sequoia sent [a] letter severing relations with UC. "It is not in the interests of Sequoia Capital's other clients that we be hounded, badgered, and stalked by entities wishing to either profit from or publicize our private and confidential information," wrote Mr. Moritz, the Sequoia partner. He called it "the saddest business letter ever dispatched on Sequoia Capital stationery."

FYI: Sequoia put the UC into a fund that made a major early investment in Google that is about to pay off to the tune of zillions. And it's not just Sequoia or, for that matter, the UC:

Since [the adverse lawsuit, UC investment manager] Russ says, calls by his office to some of the leading firms go unreturned. As venture capitalists reduce the size of their funds, public institutions are often the first to be left out. Charles River Ventures, a leading venture-capital firm, has rejected new investments from public institutions, as reported by Private Equity Week. The University of Michigan and the state pension funds of Massachusetts, Pennsylvania and Virginia are among those who have gotten the snub from venture capitalists.

These do gooders are messing with my retirement money. If I had my way, they'd all get a swift kick in the pants.

Update: Gordon Smith has more, concluding:

Given that most public institutions invest only a small portion of their funds in venture capital, the drive to disclose venture capital results seems motivated more by politics than principle. This seems like a pyrrhic victory for the public.

Yep.

Bainbridge v. Solum

Larry Solum's got a very long entry in our ongoing discussion of judicial activism. At the outset, it's worth noting that there's a substantial amount of commonality in our positions. We agree that judges sometimes use their power to effect personal policy preferences. We agree that's a bad thing. We even agree that the root problem is a crisis of constitutional faith. Where we depart, it seems, is that I've lost what little faith I ever had in judges to refrain from effecting personal policy prefernces in the guise of constitutional interpretation, while Prof. Solum retains his faith that the system can be fixed. In turn, this leads us to different recommendations for fixing a system we both agree are broken. Go read Prof. Solum's fascinating post and then come back and read my comments.

Solum	Bainbridge
This is the heart of the issue. How does Bainbridgean Legislative Supremacy stack up against Aretaic Judicial Selection with respect to the criterion of feasibility?	Agreed
I must admit that these are trying times for those who place their faith in the rule of law. The rule of law is threatened. Important political actors have openly abandoned even the pretence that constitutional adjudication is law application and not law making.	This is an important concession on Prof. Solum's part. It essentially concedes that the system is broken, leaving open for debate only the question of how to fix it.
Bainbridge’s argument relies in a crucial way on our intuitive sense of what is feasible and what is utopian. But feasibility isn’t really an intuitable quality!	What else do we have to rely on? Solum and I agree that the system is broken. Solum says: Let's try "Aretaic Judicial Selection." I say "It won't work." We're both making predictions. We both must make our best guess as to what the future would hold under specified conditions. If politics is the art of the possible, we have to use our informed intuition as to what is possible.
[Bainbridge] fails to provide a warrant for his implicit assumptions that (1) we cannot fix the judicial nomination process, and (2) we cannot make radical changes to legal education.	As for #2, I concede that 16 years of attending faculty meetings in which even minor tweaks to the first year law school curriculum went unadopted leave me dubious as to the likelihood of making such a foundational change as substituting formalism for the various forms of realism that currently dominate legal education. (Note, by the way, that Solum nowhere denies my claim that realism and its variants (which include much of law & economics, critical legal studies, feminist jurisprudence, etc....) dominate legal education. If realism is the status quo, isn't the burden of proof on Solum to show how we could revive formalism as the dominant principle by which lawyers are educated.) Fixing legal education is critical because it is where the opinions of future judges are forged. Would Solum deny that the vast majority of modern legal elites have been inculcated with realism? As for #1, use your own intuition. Do you think we could count on Presidents to make disinterested and fully informed decisions about judicial nominations - that they will in fact nominate judges who can be predicted with confidence to hold to the formalist approach? Do you think the incredibly broken Senate process of advice and consent can be reformed? Do you trust judges to be disinterested decisionmakers who can apply the formalist approach with perfect information and foresight? I'm not sure what proof we could offer Solum that he would accept, but I think I can show that he has not proven the converse.
None of this is to say that I have demonstrated that there is no route from the status quo to a Bainbridgean quasi-parliamentary system. Rather, my claim is simply that Bainbridge owes us an explanation as to how these obstacles could be overcome!	The post to which Solum is responding actually conceded that it would be tough to get where I would like us to go. As I see it, there are two mechanisms available. (1) Shots across the judiciary's bow. I've justified the FMA, for example, on this ground. It would send a signal to courts to stop intervening in the culture wars. (2) The nuclear option. Section 2 of Article III of the Constitution provides: "In all cases affecting ambassadors, other public ministers and consuls, and those in which a state shall be party, the Supreme Court shall have original jurisdiction. In all the other cases before mentioned, the Supreme Court shall have appellate jurisdiction, both as to law and fact, with such exceptions, and under such regulations as the Congress shall make." Let Congress exercise that power. Prof. Solum will respond that any such attempt would be subject to Presidential vetoes and/or Senate filibusters. I'll concede in advance that it would be really tough to surmount those obstacles. Yet, I still think it would be easier than reviving formalism
Is the revitalization of formalist constitutional interpretation feasible? ... The second step in my argument is a model of judicial attitudes (or dispositions). That model assumes that judicial attitudes can be measured in two dimensions: (1) political ideology (modeled as a point on a real line from 0 (far left) to 1 (far right), and (2) judicial philosophy (modeled as a point on a real line from 0 (perfectly realist) to 1 (perfectly formalist). A given judge then occupies a position in this two dimensional space ....	Within the legal academy, at least, the choice between formalism and realism is perceived as being driven by ideology. The crits (and some law & econ types) associate formalism with conservative politics. Given that Justices Thomas and Scalia claim to be formalists, it seems likely to me that Senators like Leahy and Schumer would associate formalism and conservatism.
The third step in my argument is a representation of the zone of acceptability of the party of the left and the party of the right in this two dimensional space. The intuitive idea behind the model is simple. If you are the party of the right, you will find judges who are realists acceptable only if you agree with their political ideology. As their ideology moves to the left, you will veto their selection unless the move towards formalism on the judicial philosophy line. The preferences of the left are symmetrical and opposite to those of the right. This yields the following model of the confirmation space—the area in the two dimensional judicial attitude plane in which neither party will exercise a veto over the nomination .... The fourth step in my argument is simply to observe that highly formalist judges are in the confirmation zone. This is simply a fancy way of saying that the selection of formalist judges is feasible. If both the left and the right have a veto over judicial selection, then two kinds of judges are confirmable. One kind consists of realist political moderates. The other kind consists of legal formalists.	(A) If I'm right that formalism will be perceived as having an ideological component, then Solum's feasibility argument collapses because formalists will be perceived (often wrongly) by the left as being unconfirmable rightwingers. (B) I'd like Prof. Solum to point us to evidence that the set of legal formalists is sufficiently large to provide an adequate pool of potential judicial appointees. Prof. Solum quoted a passage from my post: "I believe it was Judge Richard Posner who claimed: we are all realists now." Solum even highlighted it. Yet, he never responded to it. [Update: My thanks to CE Petit who implicitly supports my point by weighing in with an argument, inter alia, that law is the continuation of politics by other means.] Here then is where Prof. Solum seems to be operating on faith - belief in things unseen. Specifically, faith that there is a pool of formalists who would be appointable and acceptable to both sides of the partisan divide. I trust Prof. Solum will forgive me for regarding that pool as a thing unseen whose existence remains unproven.

Bainbridge v. Solum

Larry Solum's got a very long entry in our ongoing discussion of judicial activism. At the outset, it's worth noting that there's a substantial amount of commonality in our positions. We agree that judges sometimes use their power to effect personal policy preferences. We agree that's a bad thing. We even agree that the root problem is a crisis of constitutional faith. Where we depart, it seems, is that I've lost what little faith I ever had in judges to refrain from effecting personal policy prefernces in the guise of constitutional interpretation, while Prof. Solum retains his faith that the system can be fixed. In turn, this leads us to different recommendations for fixing a system we both agree are broken. Go read Prof. Solum's fascinating post and then come back and read my comments.

Solum	Bainbridge
This is the heart of the issue. How does Bainbridgean Legislative Supremacy stack up against Aretaic Judicial Selection with respect to the criterion of feasibility?	Agreed
I must admit that these are trying times for those who place their faith in the rule of law. The rule of law is threatened. Important political actors have openly abandoned even the pretence that constitutional adjudication is law application and not law making.	This is an important concession on Prof. Solum's part. It essentially concedes that the system is broken, leaving open for debate only the question of how to fix it.
Bainbridge’s argument relies in a crucial way on our intuitive sense of what is feasible and what is utopian. But feasibility isn’t really an intuitable quality!	What else do we have to rely on? Solum and I agree that the system is broken. Solum says: Let's try "Aretaic Judicial Selection." I say "It won't work." We're both making predictions. We both must make our best guess as to what the future would hold under specified conditions. If politics is the art of the possible, we have to use our informed intuition as to what is possible.
[Bainbridge] fails to provide a warrant for his implicit assumptions that (1) we cannot fix the judicial nomination process, and (2) we cannot make radical changes to legal education.	As for #2, I concede that 16 years of attending faculty meetings in which even minor tweaks to the first year law school curriculum went unadopted leave me dubious as to the likelihood of making such a foundational change as substituting formalism for the various forms of realism that currently dominate legal education. (Note, by the way, that Solum nowhere denies my claim that realism and its variants (which include much of law & economics, critical legal studies, feminist jurisprudence, etc....) dominate legal education. If realism is the status quo, isn't the burden of proof on Solum to show how we could revive formalism as the dominant principle by which lawyers are educated.) Fixing legal education is critical because it is where the opinions of future judges are forged. Would Solum deny that the vast majority of modern legal elites have been inculcated with realism? As for #1, use your own intuition. Do you think we could count on Presidents to make disinterested and fully informed decisions about judicial nominations - that they will in fact nominate judges who can be predicted with confidence to hold to the formalist approach? Do you think the incredibly broken Senate process of advice and consent can be reformed? Do you trust judges to be disinterested decisionmakers who can apply the formalist approach with perfect information and foresight? I'm not sure what proof we could offer Solum that he would accept, but I think I can show that he has not proven the converse.
None of this is to say that I have demonstrated that there is no route from the status quo to a Bainbridgean quasi-parliamentary system. Rather, my claim is simply that Bainbridge owes us an explanation as to how these obstacles could be overcome!	The post to which Solum is responding actually conceded that it would be tough to get where I would like us to go. As I see it, there are two mechanisms available. (1) Shots across the judiciary's bow. I've justified the FMA, for example, on this ground. It would send a signal to courts to stop intervening in the culture wars. (2) The nuclear option. Section 2 of Article III of the Constitution provides: "In all cases affecting ambassadors, other public ministers and consuls, and those in which a state shall be party, the Supreme Court shall have original jurisdiction. In all the other cases before mentioned, the Supreme Court shall have appellate jurisdiction, both as to law and fact, with such exceptions, and under such regulations as the Congress shall make." Let Congress exercise that power. Prof. Solum will respond that any such attempt would be subject to Presidential vetoes and/or Senate filibusters. I'll concede in advance that it would be really tough to surmount those obstacles. Yet, I still think it would be easier than reviving formalism
Is the revitalization of formalist constitutional interpretation feasible? ... The second step in my argument is a model of judicial attitudes (or dispositions). That model assumes that judicial attitudes can be measured in two dimensions: (1) political ideology (modeled as a point on a real line from 0 (far left) to 1 (far right), and (2) judicial philosophy (modeled as a point on a real line from 0 (perfectly realist) to 1 (perfectly formalist). A given judge then occupies a position in this two dimensional space ....	Within the legal academy, at least, the choice between formalism and realism is perceived as being driven by ideology. The crits (and some law & econ types) associate formalism with conservative politics. Given that Justices Thomas and Scalia claim to be formalists, it seems likely to me that Senators like Leahy and Schumer would associate formalism and conservatism.
The third step in my argument is a representation of the zone of acceptability of the party of the left and the party of the right in this two dimensional space. The intuitive idea behind the model is simple. If you are the party of the right, you will find judges who are realists acceptable only if you agree with their political ideology. As their ideology moves to the left, you will veto their selection unless the move towards formalism on the judicial philosophy line. The preferences of the left are symmetrical and opposite to those of the right. This yields the following model of the confirmation space—the area in the two dimensional judicial attitude plane in which neither party will exercise a veto over the nomination .... The fourth step in my argument is simply to observe that highly formalist judges are in the confirmation zone. This is simply a fancy way of saying that the selection of formalist judges is feasible. If both the left and the right have a veto over judicial selection, then two kinds of judges are confirmable. One kind consists of realist political moderates. The other kind consists of legal formalists.	(A) If I'm right that formalism will be perceived as having an ideological component, then Solum's feasibility argument collapses because formalists will be perceived (often wrongly) by the left as being unconfirmable rightwingers. (B) I'd like Prof. Solum to point us to evidence that the set of legal formalists is sufficiently large to provide an adequate pool of potential judicial appointees. Prof. Solum quoted a passage from my post: "I believe it was Judge Richard Posner who claimed: we are all realists now." Solum even highlighted it. Yet, he never responded to it. [Update: My thanks to CE Petit who implicitly supports my point by weighing in with an argument, inter alia, that law is the continuation of politics by other means.] Here then is where Prof. Solum seems to be operating on faith - belief in things unseen. Specifically, faith that there is a pool of formalists who would be appointable and acceptable to both sides of the partisan divide. I trust Prof. Solum will forgive me for regarding that pool as a thing unseen whose existence remains unproven.

I have absolutely no comment

The German magazine “Men’s Car” found in a survey of 2,253 motorists aged 20 to 50 published in its inaugural May issue that male BMW drivers say they have sex on average 2.2 times each week while Porsche drivers have sex 1.4 times per week. Following BMW drivers were Audi (2.1), Volkswagen (1.9), Ford (1.7) and Mercedes (1.6). Drivers of foreign car makes were also behind BMW with Italian cars (2.0), French (1.9), Japanese (1.8), Swedish (1.6) and Korean cars (1.5) trailing after.

Diversity and Participation

Kevin Drum writes:

Do Americans hate welfare because they think all the money goes to blacks? Alberto Alesina and Edward Glaeser don't put it quite that baldly, but that's their basic thesis. Robert Tagorda says this argument is "a bit hard to swallow" but quotes a couple of other economists who say there's something to it:

Over the last five years, at least 15 different empirical economic papers have studied the consequences of community heterogeneity, and all of these studies have the same punch line: heterogeneity reduces civic engagement. In more diverse communities, people participate less as measured by how they allocate their time, their money, their voting, and their willingness to take risks to help others.

I looked at a similar question when I was doing my research on employee involvement in corporate governance. In my articles, Privately Ordered Participatory Management: An Organizational Failures Analysis and Participatory Management within a Theory of the Firm, I discussed studies finding that workforce demographics are correlated with the effectiveness of participatory management - the more homogeneous the workplace, the more successful such programs proved. One important study found that activist employees, defined as those most likely to seek an active role in participatory management, tended to be white males who were younger, more politically active, and better educated than their peers. They also tended to be far more ambitious than their peers, while simultaneously being less tractable to supervision. On the other hand, I also identified studies finding that management demographics are relevant, finding that female managers tend to provide more frequent opportunities for employee involvement than male managers.

Why might diversity and participation be at odds? At least in the workplace, participation seems to be correlated with trust among workers and between workers and managers. I explored this link in my article Corporate Decisionmaking and the Moral Rights of Employees: Participatory Management and Natural Law, which recounted evidence that:

Trust is essentially social and normative, rather than individual and calculative. It arises out of a set of shared background assumptions and norms. As Fukuyama himself acknowledges, trust thus derives from shared values and, accordingly, is most likely to arise in homogeneous groups. ... According to Donald McCloskey, for example, the importance of trust to market exchange explains why members of the same ethnic group can deal so profitably with one another.

I then explained that:

Under modern working conditions, workers and senior managers can hardly be described as close knit. In particular, two factors seem especially significant with respect to the erosion of trust in U.S. workplaces: diversity and the loss of shared values formerly held by both managers and workers. As to the former, U.S. workers are required to function in increasingly diverse work forces. Without intending to get into the current public policy debate over diversity, I note that the importance of ethnic and similar ties to the development of trust within a group has demonstrable consequences for the viability of participatory management in a diverse workplace. Even within communitarian societies, egalitarian relationships are often limited to homogeneous cultural groups. In heterogeneous groups, mandated due process rights tend to substitute for spontaneous and genuine trust. This conclusion is supported by empirical evidence that worker participation in corporate decisionmaking is most effective in homogeneous work forces. The success of the well-known worker cooperatives at Mondragon in Spain, for example, is attributed to the ethnic and cultural homogeneity of the Basque workforce. Consider also the observation that many Japanese-owned U.S. manufacturing firms, “particularly in electronics, have adopted very few Japanese production methods. Rather, they utilize paternalistic and low-wage employment strategies with little evidence if any sophisticated work practices.” Practices found in the homogenous Japanese society apparently have not been transplanted to the more diverse U.S. workplace.

Reasonable people can disagree as to the relative merits of diversity and participation, but there is a lot of evidence that one must choose between them. As Robert Tagorda concludes, we need to debate these issues honestly. Perhaps there are ways of promoting participation in a diverse society, but we won't know if we continue to sweep these issues under the rug. One avenue of exploration, for example, is whether the one-time American ideal of cultural assimilation promotes participation by allowing cultural homogeneity to trump ethnic heterogeneity.

Judicial activism: It's about the culture wars

Randy Barnett weighs in again with quotes from various founders that collectively add up to the following:

These men did not care for unchecked democracy, having experienced it first hand, and they wrote a constitution with multiple checks on majority will includng separation of powers, federalism, limited enumerated powers, express prohibitions on federal and state powers, express protections of rights,and co-equal judiciary with a "judicial power" that included judicial nullification of laws that violated these restrictions.

I wonder what those founders would think of our modern Supreme Court as it happily goes about the business of, as Justice Scalia put it, "Day by day, case by case, ... designing a Constitution for a country I do not recognize." My guess is that many of them would agree with Judge Bork that the courts have taken sides in the "struggle between the cultural or liberal left and the great mass of citizens who, left to their own devices, tend to be traditionalists. The courts are enacting the agenda of the cultural left." And even among those who would take the other side of the culture wars (Jefferson?), there might be some who would recognize that their cherished checks and balances are breaking down as the Court becomes less and less accountable. (Quotes taken from Richard Neuhaus' review of Bork's latest book: Coercing Virtue: The Worldwide Rule of Judges. Those who have been following this debate will scarcely be surprised by my ringing endorsement of that book.)

As I read history, most of the founders were sensible and pragmatic men rather than visionary idealists. In their time, perhaps runaway democracy was the main problem. In our time, the main problem is undemocratic legislation by thin (often 5-4) majorities of the Supreme Court by which the justices impose their personal policy preferences on virtually every aspect of American life. Indeed, even Prof. Solum recognizes that:

The politicization of the judiciary plus the general and abstract language of the individual rights, separation of powers, and federalism provisions of the United States Constitution slowly but surely created a judiciary that sometimes views constitutional interpretation as the appropriate vehicle for enacting personal beliefs about what the law should be into binding constitutional law.

Surely that is a situation of which the founders would have disapproved.

Update: Barnett replies:

And with extremely rare exceptions, courts are not imposing their preferences on individual citizens. They are stopping legislatures from imposing their preferences on individual citizens. When speaking of imposing one's preferences, there is a huge difference between a court mandating gay sex--which no court has--and stopping legislatures from putting adults in prison (where they may well be raped) for engaging in consensual with an adult of the same in the privacy of their own homes, which has now been held unconstitutional.

A couple of observations: (1) It is now clear that Barnett is on the other side of the culture wars from most conservatives. Modern conservatism is not solely about "individual rights," but rather (as Ramesh Ponnuru explained) is premised on "three basic propositions: that American foreign policy should seek to end totalitarian regimes; that the domestic functions of government, and especially of the federal government, should be strictly limited; and that the moral precepts traditionally associated with Christianity (sometimes the formulation includes Judaism as well) should be upheld." Legislative efforts to uphold the third prong evidently constitute legislative tyrrany in Barnett's world.

(2) It's not just about sex. Barnett's expansive theory of the 9th amendment is at least as radical as William O. Douglas' theory of penumbras in terms of its ability for judges to invent reasons to strike down laws. Hence, Barnett's theory apparently validates not just Lawrence but also Roe v. Wade. Any legal theory that would validate the murder of over 40 million innocent unborn children raises serious moral concerns, because it likely constitutes material cooperation with evil. (I'm trying to get a discussion of this issue started over at the Catholic blawg Mirror of Justice.) Update: Barnett replies:

On my theory of the 14th Amendment in which all its limitatations on states are justiciable, IF a fetus is a "person" then laws permitting abortion violate the Due Process Clause, and if a fetus is also a "citizen" (and if the fetus is a person, then why isnt't it also an American citizen too?), it also violates the Privileges or Immunities Clause. On this reasoning, state laws permitting abortion should be held unconstitutional, and under Section 5 of the 14th Amendment, Congress has the power to protect fetus's from murder if a state fails to do so.

While I do not consider a fetus to be a "person"--either theoretically or historically--Bainbridge does. Yet HIS theory of the Constitution in general, and of the 14th Amendment in particular, would allow abortion--which he considers evil and murder--to continue unchecked so long as a mere majority of the legislature so vote. Indeed, the pro-life forces repeatedly say that they this is an issue properly to be left to the states.

The dispute remains - who decides? A judge who agrees with Barnett that a fetus is not a person can effectively take the issue of the table, at the very least until turnover on the court produces a majority prepared to reverse that decision. (And, as Casey demonstrated, even the more conservative members of the legal elites cannot be trusted to do the right thing in this area). When a legislature decides to allow abortion, we can try voting them out of office immediately. In a democracy, there is always a risk that immoral laws will be made. I simply prefer to take my chances on legislators who can be held to account through the electoral process than on unelected judges subject to no meaningful checks and balances. Update: Barnett still thinks its about sex and he's still wrong about that.

Update 2: Clayton Cramer is on the march again, with a post explaining the conservative skepticism of the 9th amendment and a post on the role Barnett's theory plays in the culture wars. Both are must reads.

Update 3: Joel Buckingham at Calblog agrees with Randy Barnett "on the founders view of democratic majoritarianism," but argues that "despite the founders aversion to democratic majoritarism, their device in limiting it, was not an imperial judiciary." Yep.

Martha's Latest Gambit

Send me to jail, watch me fire my employees:

Lawyers for Martha Stewart plan to say a prison sentence for the domestic trendsetter could harm her company and lead to layoffs of some of its 500 employees, according to a published report Monday. ...

Stewart's lawyers will cite a 1995 decision that avoided jail time for a corporate executive because he was considered a crucial figure in his company, the Wall Street Journal reported, citing a person familiar with the matter.

But what about the efforts that the board of MSO reportedly have been making to rebrand MSO so as to be less dependent on Martha's name? Martha's putting the board in an awkward position: Do they try to help Martha stay out of jail or proceed with the rebranding? I don't see how they can do both simultaneously. After all, if they say - "we can't survive without Martha" - they undercut the rebranding process. On the other hand, if Martha goes to jail and the rebranding process fails - as many do - then the firm is really in trouble. Tough call.

Larry Solum on the Barnett Kerfuffle

Larry Solum weighs in on the Barnett kerfuffle, arguing that Barnett's critics' "posts do not provide evidence that they have even read the important secondary sources. They make sweeping statements and exaggerated charges on the basis of a very limited understanding of the issues they are discussing. This is simply irresponsible. Responsible blogging is not the same thing as responsible scholarship or legal advocacy, but we should not confuse standards that are appropriate to the medium with no standards at all. The debate over the meaning of the P or I clause is complex, serious, and highly dependent on the evidence." I think Prof. Solum has a valid point insofar as the discussion in the blogosphere focused on how one should interpret the 9th Amendment and the Privileges and Immunities clause. I think, however, that his chastisement overlooks the broader normative debate that is really going on here.

Should judges actively use the 9th Amendment or the P&I clause to strike down laws passed by Congress or state legislatures? The libertarian case for judicial activism claims that that those provisions incorporate the harm principle (e.g., Kennedy's opinion in Lawrence) or some modified and more modest version thereof (which I take to be Prof. Barnett's position).

As Solum's own post makes clear, however, that position rests on highly contested foundations. First, libertarian judicial activism purports to be based on an originalist approach to Constitutional interpretation. Yet, as Solum points out, there are multiple versions of originalism. And, of course, many critics reject originalism on various grounds. [Personally, I see the principal virtue of originalism as providing some ability to cabin judicial discretion where evidence of original intent is available and uncontestable. The problem with originalism, as I see it, is that evidence rarely meets those standards. Hence, I don't think originalism adequately prevents judges from simply acting on their own personal policy preferences.]

Second, the libertarian case for judicial activism claims to have identified coherent content for the 9th Amendment and the P&I clause. In contrast, Robert Bork famously referred to the 9th Amendment as an "inkblot," into which judges and justices read their own policy preferences. Solum's own post suggests, at least to me, that the P&I clause is just as much of an inkblot as the 9th Amendment. Solum identifies three interpretations of the P&I clause that "can be mixed and matched in various ways."

In sum, the libertarian variant of judicial activism is at least as contestable as the left-liberal variant. Yet, it provides cover from the right for judicial activists of all stripes. As such, it contributes to the current atmosphere in which no area of American life is immune from the personal policy preferences of a bunch of unelected old men and women in robes. And that is why I think it deserves criticism.

Update: Larry Solum offers up a typically nuanced and thoughtful reply to my comments of earlier today. To recap, I have frequently criticized what I call the libertarian variant of judicial activism. (Solum also has some very interesting thoughts on why the term "judicial activism" tends only to obfuscate.) This variant claims that the Ninth Amendment and the Privileges & Immunities clause of the 14th Amendment incorporate some version of classical liberalism's harm principle. Judges should invoke those constitutional provisions to strike down state and federal laws that violate the harm principle. (I associate this position particularly with Randy Barnett, who uses a very modified version of the harm principle.)

I've offered various criticisms of this variant of judicial activism, but ultimately my argument rests on two basic points. First, a strong presumption in favor of the legitimacy of democratic majorities. Second, any variant of judicial activism allows judges to impose their own personal policy preferences on society. As a result, the opinion of 5 legal elites on the Supreme Court - whose opinions and attitudes may well be far out of step with those of ordinary Americans - trumps that of legislative majorities, referenda, etc.

I take it from Prof. Solum's post that he agrees that judges should not be allowed to impose personal policy preferences, but rather should be constrained in some way or another:

I recognize that the ideal of a formalist constitution--a constitution that constrains judges as well as the political branches--has been eroded and degraded by the ascendancy of legal realism and the politicization of the judiciary. The downward spiral of politicization that has characterized both judicial selection and the practice of judging cannot be ignored. We are faced with choices. We can embrace politicization of the judiciary--Levinson and Balkin. We can attempt to confine politicization to the political branches by nullifying the written constitution and going for majoritarian democracy--Bainbridge. Or we can try to reinvigorate the idea of formalist interpretation of the written constitution. ...

And that leads me to the conclusion that our practices of judicial selection must be changed. For our constitutional system to work, judges must be selected for excellence (or judicial virtue) and not on the basis of their political ideology. In particular, judges should be selected for their possession of the virtue of justice--the disposition to decide cases on the basis of the rules laid down and not on the basis of their own theory of what the law should be.

I want to be very careful here, both because I have a lot of respect for Prof. Solum and because I think he presents a very attractive vision of a depoliticized judiciary. Unfortunately, like a lot of attractive visions, I believe his solution suffers from what Harold Demsetz calls the Nirvana fallacy. Economist Demsetz developed the fallacy as a response to those who advocate government intervention whenever there is a perceived market failure. The fallacy assumes that government actors are disinterested, fully informed, and endowed with perfect foresight. Because these assumptions do not hold in the real world one cannot assume government intervention will be superior to imperfect markets.

Believing we can get to Solum's attractive vision of the judiciary requires us to assume that Presidents can be induced to make disinterested and fully informed decisions about judicial nominations - that they will in fact nominate judges who can be predicted with confidence to hold to the formalist approach. Then you have to believe that the incredibly broken Senate process of advice and consent can be reformed so that disinterested Senators will make fully informed decisions to approve only those judges who can be counted on (with perfect foresight) to adhere to the formalist approach. Finally, you have to assume that judges will be disinterested decisionmakers who can apply the formalist approach with perfect information and foresight.

I trust Prof. Solum will forgive me for believing that we cannot get there from here. We would not only have to fix the nomination process, his vision likely would require radical changes not just to politics but also to legal education itself. I believe it was Judge Richard Posner who claimed: we are all realists now. Legal realism is the sworn enemy of Prof. Solum's formalism, which is a problem for him because legal realism is the dominant model of legal thought in the academy and profession.

If we can't get there from here, I would prefer a parliamentary system in which democratic majorities acting through Congress and the President can trump judicial decisions. As imperfect as the political process is in a world of campaign finance abuses and gerrymandering, legislators are still more accountable than unelected judges.

Can we get there from here? I don't know. Congress and Presidents have learned that it is easy to duck hard questions and leave them to courts. Courts have learned that the people and their representatives will simply roll over and play dead no matter how much of American life is swept into the judicial arena. My guess, however, is that it would be easier to get to a quasi-parliamentary system than to a regime of legal formalism.

Mickey Edwards on "The Right's Wrong Turn": Bad History; Bad Law

Mickey Edwards' op-ed The Right's Wrong Turn in today's LA Times purports to summarize the history of modern conservatism and the proper conservative attitude towards the Constitution. According to Edwards:

Forty years ago this November, Lyndon B. Johnson trounced Barry Goldwater in the Arizona senator's bid for the presidency. But far from conceding defeat, Goldwater's supporters saw the election as a mandate to build a reinvigorated national conservative movement aimed at changing America's course. ... On the electoral level, there is no doubt that Goldwater's defeat has been avenged. Conservatives have come out on top and liberals are on the run. But to what end? ...

But on other matters, there are disturbing signs that conservatism has lost its way in the years since Goldwater argued that the most important question to ask of any public policy proposal was whether it maximized freedom. ... That emphasis on individual rights no longer seems to be the principal focus of conservatives.

In other words, modern conservatism is a version of classical liberalism that sprang fully formed from the Goldwater campaign as Athena sprang from Zeus' head. This is, of course, a total crock. It ignores the essential contributions of leaders such as Russell Kirk or Bill Buckley, whose Burkean conservatism provides a sharp counterpoint to the radical claims Goldwaterism makes on behalf of the autonomous individual. It ignores the efforts of fusionists, most notably Frank Meyer, to create a coherent melding of the two strands. (My own position tends to be mildly fusionist, as I self-identify as a social conservative with modest libertarian leanings.) Indeed, it is such a radically revisionist take on the history of modern conservatism as to verge on misrepresentation. Modern conservatism is not solely about "individual rights," but rather (as Ramesh Ponnuru explained) is premised on "three basic propositions: that American foreign policy should seek to end totalitarian regimes; that the domestic functions of government, and especially of the federal government, should be strictly limited; and that the moral precepts traditionally associated with Christianity (sometimes the formulation includes Judaism as well) should be upheld."

Exposing the errors in Edwards' historical treatment is critical because those errors under gird the next step in his project; namely, his claims about the proper conservative attitude towards the Constitution. in Edwards' view, the Constitution is some sort of Holy Writ devoted to protection of a radical conception of individual autonomy:

With little public debate about the fundamental question — what is the role to be assigned to the Constitution in considering issues of public policy? — modern conservatives have come increasingly to treat the Constitution as something far less than America's founders intended.

The most recent, and most egregious, example of this changed perspective is found in the willingness of many conservatives, the president among them, to amend the Constitution to prohibit marriage between people of the same sex. This is not to argue in favor of such marriages; it is simply inappropriate for the Constitution to set rules for the granting of marriage licenses.

And that is not the only example of conservative attempts to undermine the Constitution. A group of Republican legislators is revisiting the possibility of a constitutional prohibition against the burning of the American flag. Such an act is widely and properly disapproved. But the Constitution's purpose is to guarantee individual rights, not to foreclose them.

Again, this is a total crock. Edwards claims conservatives "once worshipped" the Constitution. Maybe the atheists amongst the Goldwaterites did so, but those of us who learned our conservatism at the feet of Russell Kirk know that a core principle of conservative thought is belief in "an enduring moral order." We refuse to bow down before the Constitution; for that way lies the idolatry of civic religion. (Careful readers will note the overlap between this discussion and the recent blogosphere kerfuffle over what I have described as Randy Barnett's libertarian justification of judicial activism.)

Edwards' conception of the Constitution is belied by the document itself. Much of the document is simply organizational. Much of the rest of the document is concerned with the rights of groups, especially states, as with individual liberty. Consider, for example, the Tenth Amendment, which reserves rights "to the states respectively, or to the people," not to the people alone.

Why then is it "simply inappropriate for the Constitution to set rules for the granting of marriage licenses"? The Constitution has been amended, after all, to (XVI) create an income tax. Even more to the point, it was amended (XVIII) to prohibit sale of intoxicating beverages - an amendment repealed not because of some theory of that the Constitution is sacrosanct, but because it didn't work. And to limit compensation of Congress' members (XXVII). If these examples could fly, why not the FMA? Only Goldwaterite fiat stands in the way.

Williamson's The Mechanisms of Governance

Oliver Williamson is one of the seminal figures of New Institutional Economics. The Mechanisms of Governance is the third book in which Williamson has collected his principal writings, while working them into a coherent whole. The earlier volumes, Markets and Hierarchies and The Economic Institutions of Capitalism, are justly regarded as the foundational texts of the transaction costs economics school of institutional economics. The Mechanisms of Governance seems certain to join them as essentials for any legally literate economist or economically literate lawyer.

Transaction cost economics focuses on institutions, in contrast to neoclassical economics' focus on individuals, providing simple models that help us understand how institutions function and how they will respond to regulation. We can analogize transaction costs to friction: they are dead weight losses that reduce efficiency. They make transactions more costly and less likely to occur. Among the most important sources of transaction costs is the limited cognitive power of human decisionmakers. Unlike the Chicago School of law and economics, which posits the traditional concept of rational choice, Williamson asserts that rationality is bounded. Put another way, he assumes that economic actors seek to maximize their expected utility, but also that the limitations of human cognition often result in decisions that fail to maximize utility. Decisionmakers inherently have limited memories, computational skills, and other mental tools, which in turn limit their ability to gather and process information. As he demonstrates, this phenomenon, known as bounded rationality, has pervasive implications for understanding how institutions work.

Accordingly, Williamson's approach provides an analytical framework that is useful not only to economists, but also to lawyers and policymakers. Among other subjects, Williamson tackles such subjects as vertical integration, corporate governance, and industrial organization.

In sum, highly recommended. My only hesitation is Williamson's unfortunate writing style. Although The Mechanisms of Governance is largely free of the recreational mathematics that plagues much modern economic writing, which is useful for those of us who flunked Differential Equations, it is very jargon-intensive. Worse yet, much of the jargon is self-created. All of which makes reading Williamson an effort-intensive project. Usually the cost-benefit analysis nevertheless comes out in his favor, but sometimes one puzzles out the jargon to find a rather obvious point that could have been conveyed far more simply.