ProfessorBainbridge.com

Does the Academy Police Itself?

The brouhaha last week at UCLA over the Bruin Alumni Association prompted the LA Times' to devote most of its editorial section today to the question of whether universities are biased ideologically. Granted, the BAA's UCLAProfs.com site undermined its credibility by mixing apples and oranges, as I pointed out:

If BAA is going to go forward, a question on which I am firmly agnostic, I should think that they want to avoid violating IP law and university policy respecting copyright and so on. I should think they also need to draw a distinction between in-class abuse of position and legitimate political expression outside of class. So far, it would seem, they are falling down on both scores.

Put bluntly, however, the claims by the defenders of the status quo are even more bogus as the BAA's criticisms.

UCLA Professor Saree Makdisi claims that:

A method for assessing how professors treat their students is already built into how universities work. Every course at UCLA gives students the opportunity to anonymously evaluate their professors, and those evaluations are used in hiring, promotion and tenure decisions; abusive professors don't get very far in their careers.

Institute for Advanced Study Professor Joan Scott apparently got the same set of talking points:

... there are abuse-monitoring mechanisms in academia that distinguish between responsible work and polemic, between teaching that aims to unsettle received opinion and teaching that seeks to indoctrinate. Universities have established procedures to adjudicate complaints of indoctrination, charges of unfair grading and other denials of student rights, and, for the most part, they work.

Neither Makdisi nor Scott offers empirical support for their claims, although the latter claims that "study after study," none identified, validates her argument.

In contrast, I offer you some data. First, as explained in the preceding post, university hiring practices have a demonstrable disparate impact on the political and ideological composition of university faculties. Second, as I noted in my TCS column, these disparities clearly have a deleterious effect on the learning environment. A survey of students at 50 top U.S. universities and colleges conducted by the Center for Survey Research & Analysis at the University of Connecticut, for example, found considerable evidence that politics pervaded the classroom:

For instance, nearly half said that their professors frequently comment on politics in class even though it has nothing to do with the course or use the classroom to present their personal political views. In answers to other questions, the majority acknowledged that liberal views predominate. Most troubling, however, were the responses to the survey item On my campus, there are courses in which students feel they have to agree with the professor's political or social views in order to get a good grade -- 29% agreed.

I don't know whether Makdisi and Scott are simply uninformed or are being disingenuous. I do know that the system is broken and that public scrutiny of how universities spend taxpayer dollars is both appropriate and inevitable. The academic left's knee-jerk effort to delegitimize such scrutiny by invoking labels like witch hunt or McCarthyism will be as bootless as they are duplicitous.

Disparate Impact in Academic Hiring

Much of the LA Times' editorial section is devoted today to the question of whether universities discriminate against conservatives. I've argued in the past that there is such discrimination, although much of it is a question of critical mass and network effects rather than intentional discrimination.

Yet, I am reminded of a question Joe Biden put to Samuel Alito during the recent SCOTUS nomination hearings:

... discrimination has become very sophisticated. It's become very, very sophisticated, very much more subtle than it was when I got here 34 years ago or 50 years ago. ... I mean, there's all different ways in which now it's become so much more subtle. And that's why we all, Democrat and Republican, wrote Title VII. ... What we observed in the real world is it's real subtle. And yet it's harder to make a case of discrimination even though there's no doubt that it still exists.

The concept of disparate impact has become one of the chief tools courts use to address such discrimination. The Supreme Court set out the basic principle in Griggs v. Duke Power Co., 401 U.S. 424, 431-32 (1971), holding that Title VII "proscribes not only overt discrimination but also practices that are fair in form, but discriminatory in operation. . . . [G]ood intent or absence of discriminatory intent does not redeem employment procedures or testing mechanisms that operate as 'built-in headwinds' for minority groups and are unrelated to measuring job capability."

To invoke disparate impact, the plaintiff must prove, generally through statistical comparisons, that the challenged practice or selection device has a substantial adverse impact on a protected group.

With that background in mind, consider these data from the Times:

Academics who identified themselves as left or liberal

in 1984: 39%

in 1999: 72%

Academics who identified themselves as right or conservative

in 1984: 34%

in 1999: 15%

Among faculties in 1999, Democrats outnumbered Republicans 5 to 1

The Democratic advantage by department in 1999 English: 35 to 1 History: 17.5 to 1 Biology: 4 to 1 Engineering: 3 to 1 Computer science: 2 to 1 Chemistry: 1.5 to 1 But in agriculture, Republicans held a 1.3-1 edge.

In 2004, employees of the University of California and Harvard University were John Kerry's largest dollar contributors and among Howard Dean's top five.

I'd say that makes out a prima facie case that university hiring practices are having a disparate impact. The burden of proof is therefore on the university to show why this disparity exists.

Spare me tired arguments like "liberals have a social conscience," "conservatives only care about money," and such nonsense. I've heard it before ... and rebutted it before.

Kennedy on Alito

Senator Edward Kennedy issued a statement today explaining why he will vote against confirmation of Supreme Court nominee Samuel Alito. I will leave the task of correcting the many apparent errors and misstatements in Kennedy's remarks for others, at least for now. Instead, I want to focus on Kennedy's peroration:

Judge Alito is a highly intelligent man, but his record does not show a judge who is willing to enforce the constitutional limitations on executive power when government officials intrude on individual rights.

His record does not show a judge who is open to the claims of vulnerable individuals asking only justice against powerful institutions.

His record does not show a judge who upholds the liberty and privacy of citizens seeking to protect their fundamental rights.

His record just does not show a judge who is committed to equal justice under law.

Every federal judge takes the following oath of office:

?I, XXX XXX, do solemnly swear (or affirm) that I will administer justice without respect to persons, and do equal right to the poor and to the rich, and that I will faithfully and impartially discharge and perform all the duties incumbent upon me as XXX under the Constitution and laws of the United States. So help me God.?

In effect, Ted Kennedy is claiming that Alito consistently and willfully violates his oath of office.

We are told that:

Conduct that undermines the integrity of a public office or is in disregard of constitutional duties or involves abuse of power is generally regarded as grounds for impeachment.

Is not a disregard of constitutional duties and abuse of power precisely what Kennedy is charging Alito with? If Kennedy really believes what he's saying, shouldn't he put his money where his mouth is by asking the Senate House to begin impeachment proceedings? Or, to come at it from another angle, where does Judge Alito go to get his reputation back after it has been subjected to these sort of scurrilous charges by a Senator who hides behind the legislative privileges and immunities?

The Purpose of SSRN

SSRN is a repository of scholarly papers from a variety of disciplines, including law. Dan Markel recently complained that SSRN is not being used for its intended purpose:

I had been under the impression that SSRN was developed initially so that scholars could see "tomorrow's research today."  In other words, scholars (and the public) could access drafts of work well before  publication, along with past publications by a particular author.  And indeed, SSRN's homepage indicates that this is the point:

Each of SSRN's networks encourages the early distribution of research results by publishing submitted abstracts and by soliciting abstracts of top quality research papers around the world.

The "problem," as I see it, is that, at least in law, SSRN is being used as a way to generate more information relevant to the evaluation of a potential scholar (should we hire her, well, let's consider how many articles are up on SSRN, or how many downloads the person's scholarship gets, or, how good the article on SSRN is).  If SSRN is being used for evaluative purposes rather than constructive feedback purposes, then it seems likely that people will not post their "shitty first draft" up, but rather their penultimate draft, or potentially, just their final draft that was published. 

Larry Ribstein also seems to think that SSRN can function as a vehicle for attracting feedback on early drafts.

If the purpose of SSRN ever was to elicit feedback on early drafts, a point on which I plead ignorance, that purpose was just silly. Any young scholar who posted a rough draft to a website hoping that some Harvard or Yale big shot would read it and send along comments was, to be blunt, delusional. Put bluntly, nobody whose comments would be worth getting has that much time on their hands.

Apropos of my point, Gordon Smith notes that:

The problem is that SSRN has never been good at producing that sort of feedback, at least for me. As Dan observes in a comment to the original post, "few people I know actually receive comments from strangers on their drafts, which raises questions about whether the vision of SSRN is being realized; I know I haven't. Have you?" No.

The way you get feedback on rough drafts is by giving it to friends in the field, colleagues at your school, presenting it at workshops, and so on. Not by posting it to SSRN.

Instead, I think what the SSRN founders had in mind when they talked about "early distribution of research results" was bypassing the delays inherent in submitting an article to journals and the subsequent editorial process. I've had law review articles spend a year or more at the journal after acceptance. If you plan to submit to peer reviewed journals that do not allow multiple submissions, the process can be even longer. SSRN provided a vehicle for bypassing that process and getting relatively finished and polished work product out to the world much faster than the journal process allows. This is particularly important for time-sensitive work, but is attractive for any work.

SSRN also provides a vehicle for reaching people outside your discipline. To the limited extent I get feedback on articles from SSRN, it usually is a request for additional information from somebody outside the American legal academy. Hence, it seems safe to assume, SSRN is helping my scholarship reach audiences that would not be reached by law journals.

Or, as Smith suggests:

First, it offers direct marketing of scholarship based on subject matter. This is not such an issue in finance or sociology, where the journals provide focus, but in law our most prestigious publication outlets are general law reviews. ... For current work in corporate law, I rely heavily on SSRN to supplement conferences and word-of-mouth.

Second, SSRN introduces new audiences to my work.

All of these functions argue for posting only finished work product to SSRN. Hence, if Markel intended to suggest that SSRN's original, noble purpose has been eroded by the tawdry concerns of hiring and evaluating legal talent, I think that concern is misplaced.

Scalia Scuttles Federalism

The transcript of John Eastman's interview with Hugh Hewitt about the SCOTUS decision in the Oregon assisted suicide case is quite enlightening. In Wickard v. Filburn, 317 U.S. 111 (1942),the Supreme Court basically gave the constitutional green light to the modern national regulatory state by holding that the commerce clause of the Constitution authorized the federal government to regulate a farmer's raising of wheat he had grown on his own land for personal consumption. As Wikipedia explains, "Filburn's wheat competed with wheat sold in interstate commerce, because, had he not used his home-grown wheat, he would have had to buy wheat on the open market. The Court held that Congress could regulate wholly intrastate, non-commercial activity if such activity, viewed in the aggregate, would have a substantial effect on interstate commerce."

This expansive view of the scope of the power granted Congress under the commerce clause is why I have often referred to the continuing validity of Wickard as the most consequential issue of modern constitutional jurisprudence. It is an article of faith for those of who take federalism seriously that Wickard must go. Unfortunately, as Eastman explained to Hewitt, it appears that Scalia has now wholly surrendered to Wickard and, worse yet, has gotten new Chief Justice John Roberts to accept that view:

HH: Now I want to read the last paragraph of Justice Scalia's dissent, and then I want you to explain it to people, John, because it's very interesting. I mean, it's very, very interesting. Justice Scalia writes, "The Court's decision today is perhaps driven by a feeling that the subject of assisted suicide is none of the federal government's business. It is easy to sympathize with that position. The prohibition or the deterrence of assisted suicide is certainly not among the enumerated powers conferred on the United States by the Constitution. And it is within the realm of public morality, bonos mores, traditionally addressed by the so-called police power of the states. But then, neither is prohibiting the recreational use of druge, or discouraging drug addiction among the enumerated powers. From an early time in our national history, the federal government has used its enumerated powers, such as the power to regulate interstate commerce, for the purpose of protecting public morality. For example, by banning the intersate shipment of lottery tickets, or the interstate transport of women or immoral purposes. Unless we are to repudiate a long and well-established principle of our jurisprudence, using the federal commerce power to prevent assisted suicide is unquestionably permissable. The question before us in not whether Congress can do this, or even whether Congress should do this, but simply whether Congress has done this in the C.S.A., Controlled Substances Act. I think there's no doubt that it has. If the term legitimate medical purpose has any meaning, it surely excludes the prescription of drugs to produce death. Unpack that, John Eastman. It's very dense.

JE: Well, it's very dense, and it's the reason Justice Thomas wrote separately in dissent as well. Look, Justice Scalia is saying that this is clearly not commerce, it's not interstate. The power to regulate the health, safety, welfare and morals of the people is a state power, as originally understood. But we're 70 years past that fight having been fought and lost. The federal government routinely today regulates police power type things that are properly for the states, and Justice Scalia is saying we're at least going to be consistent. We're either going to follow our jurisprudence, and let the federal government regulate basically anything, or we're going to repudiate 70 years of jurisprudence. Now until last year, in the medical marijuana case, Justice Scalia was on the side of let's repudiate this stuff. ...

HH: And now, the new Chief joined with Scalia, not with Thomas, and interpret that for us.

JE: Well, you know, I actually think that's a pretty profound signal, looking at the tea leaves. And I'm disappointed in the new Chief for it. The fight between Thomas and Scalia, and the difference slice they put in their respective dissents, is one about whether we're going to have an administrative state, or whether we're not going to have an administrative state. And Justice Scalia is much more willing to be deferential to the administrative state here than Justice Thomas has been.

Some will condemn Scalia for abandoning originalism in this line of cases. Yet, I think these cases actually reveal something more interesting about Scalia, which is that he is not purely an originalist. Instead, Scalia's jurisprudence has elements of originalism and textualism, but also of traditionalism. The latter looks at how the Constitution has been interpreted over time, such that well-established traditions become entrenched. The real problem with Scalia is that he doesn't seem to have a hierarchy for choosing between the three. As David Zlotnick observes:

Heterarchy, not hierarchy, could be the battle cry of those critics who focus on the interplay of Scalia's methods rather than on the individual components. Led by Jeffrey Rosen, this group alleges that, even if Scalia's methodology is hierarchical in theory, his opinions reflect a more opportunistic picking and choosing of the method that leads to his preferred result. Rosen's contention is that "in case after case, Scalia chooses among mutually inconsistent interpretive principles - textualism, originalism, traditionalism - in order to reach results that he finds politically congenial." For example, Rosen challenges Scalia's claim that the Due Process Clause of the Fourteenth Amendment should be read to refer only to procedural rights. He argues that a historical understanding reveals a "substantial overlap ... between notions of due process of law and notions of equal protection of the law," as well as a "view [of] the due process clause as a mandate that judges should protect certain fundamental economic rights."

A number of scholars have come to similar conclusions in other areas. In his examination of Scalia's takings jurisprudence, William Fisher found that in Lucas v. South Carolina Coastal Council, Scalia devised a precedent-based clear rule for takings without first exploring the Framers' understanding of the Takings Clause. If he had, Fisher contends, he would have discovered that the original understanding of this clause "proscribed only formal expropriations of private property," not the effects of regulations on property value that Scalia's rule encompassed. ...

Normally, Scalia evades these contradictions by resorting to overly confident textualist assertions or by abdicating his commitment to conduct historical research. Once in a while, however, Scalia comes close to admitting that he does not always follow a strictly hierarchical approach beginning with text and proceeding to history and clear rules. For example, in Waters v. Churchill, he acceded to a judicially created First Amendment doctrine (a clear rule) but admitted that he had not "inquired into the historical justification" of that rule.

Rather than that of a systemic ideologue with a hierarchy of methods, Scalia's constitutional practice better resembles that of a practical handyman who reaches into his workbox to select the tool best suited to accomplish a particular job. The question that remains, however, is how often his political values influence his methodological choices.

There is much to be admired about Scalia. It no longer seems possible, however, to believe that he is developing a coherent conservative jurisprudence. Nor, insofar as results are concerned, that he can be expected to bring back the Constitution from the exile to which Wickard assigned it.

The Power of Technology

My email inbox has been overflowing today with missives from colleagues, sent for the most part to the entire faculty, about UCLAProfs.com, a site that purports to out extreme left-wing UCLA. This episode got me to thinking about the ability of technology to liberate and democratize.

When I was in college or law school, there basically was no way for students to speak out about alleged abuses by professors short of 1960s-style campus riots, which by the time I went to university the local cops were really good at squelching. Sure, you could give the professor low evaluations, but when the prof had tenure, that didn't have much impact. And, there was an urban legend at my school about a guy who dropped trou on one especially annoying prof.

The same was true of most authority figures back then. There was no way to effectively complain about news anchors, politicians, union leaders, or what have you.

The internet has changed all that. Blogs provide a outlet for those who want to respond to authority figures. Websites like Uclaprofs.com or RateMyProfessor.com provide another vehicle. (Larry Ribstein and Thom Lambert have some related thoughts on how technology allows those of us in the business law academy to puch back against the MSM.)

Getting feedback from the proletariat is always unsettling for authority figures, even radical left authority figures who have devoted their lives to deconstructing all authority (except their own). The initial and, perhaps natural, reaction is to decry it as McCarthyism and a danger and so on. (In a blog post, one of my colleagues says "it seemed to me like familiar right-wing radio tactics brought home to the ivory tower, not a pretty sight.')

Upon mature reflection, however, we have to realize that the world has changed. Those over whom we have authority now have at their disposal technology that gives them a very loud megaphone. Very public criticism has become the lot of all authority figures, including those within the ivory tower.

Much of that criticism will be unfair, uninformed, or just plain dumb. Isn't it Sturgeon's Law that says 90% of everything is crap? But so what? As my friend and colleague Eugene Volokh notes:

... if I think your criticism is unsound, my duty is to remain undeterred. It's not always an easy duty to fulfill. But look: Most of my colleagues have tenure. Even our untenured colleagues have the protection of being reviewed by their peers, and peers who are generally unlikely to much sympathize with what the UCLAProfs.com site says. We're in a much better position than other public servants, who routinely have to deal with criticism. If we're not robust enough to resist unsound criticisms -- if we're deterred from saying certain things even when we think they should be said -- what's the point of all the employment protections we have?

Precisely. And so I say to my colleagues: Welcome to the 21st Century. It's going to be a very bumpy ride.

Whose beliefs count?

In a thoughtful post, which ought to be read in full, Mark Kleiman concludes:

All judges judge by their personal beliefs. Whose beliefs would you expect them to judge by?

I offered some thoughts on that question, albeit in the context of common law rather than constitutional adjudication, in Social Propositions and Common Law Adjudication. Excerpt:

… many commentators posit that judges always act in ways Eisenberg would define as legislative. Social propositions are not only relevant to all cases, they are determinative. And the determinative social propositions in any particular case are those held by the individual judge. Adjudication thus is not what it claims to be—a neutral, objective application of distinctly legal expertise to a specific problem—but a mask for the personal values and preferences of the adjudicator.

Eisenberg rejects both the factual premise that judges routinely act as legislators and the theoretical proposition that they may properly do so, advancing several related justifications for his position. The first focuses on the social function of courts. Any complex society needs an institution before which claims based on existing societal standards can be heard. In our society, that institution is the courts. “If the courts resolved disputes by reasoning from those moral norms and policies they think best, there would be no institution to which a member of the society could go to vindicate a claim of right based on existing standards.” Second, since the judicial system is a peculiarly undemocratic institution, the legitimacy of the adjudicative process requires courts to look to “existing legal and social standards rather than those standards the court thinks best.” Finally, prohibiting the courts from employing their personal standards makes legal reasoning fairer and more easily replicable by the profession.

Having established, at least to his own satisfaction, that limits on the adjudicative use of social propositions are necessary, Eisenberg proceeds to provide them. His major contribution comes in defining the set of social propositions from which the court may select. In addition, Eisenberg adds to our understanding of stare decisis in the course of requiring courts to give some weight to the value of doctrinal stability. …

According to Eisenberg, adjudicators may only employ those norms or policies that “can fairly be said to have substantial support in the community, can be derived from norms [or policies] that have such support, or appear as if they would have such support.” Two critical assumptions underlie this claim: (1) that social morality is a meaningful concept; and (2) that judges are capable of discerning and effectively applying social morality ….

… “By accepting and retaining office the judge undertakes an ongoing commitment to carry out the rules of the office,” one of which is “a moral obligation to faithfully employ the norms of social morality ... whether or not he privately agrees with those norms.”

The Eisenberg to whom the essay refers is law professor Melvin Eisenberg, whose book The Nature of the Common Law I was reviewing.

Kelo

Chri stine Hurt on eminent domain post-Kelo:

Months later, I'm still confused as to why anyone would support the Kelo decision, including liberals.  I consider myself a liberal, and I hate Kelo.  What's liberal about a forced sale of low-income producing properties to allow for development by a private third party?  ... Spurring this thread today is a NYT article on current uses of eminent domain power and the threat of such power.  Todd Zywicki posts on the vulnerability of entities that do not generate tax revenues, such as churches, to eminent domain. 

For the benefit of those of my readers who took the weekend off from the blogosphere, let me point you to a pos t in which I discussed an absolutely appalling abuse of the eminement doman power by Los Angeles City Councilman Bernie Parks. I liked Dangerous Dan's summary of my post:

Professor Bainbridge has an account of eminent domain abuse in L.A. that is head-shakingly, mouth agape unbelievable. It combines official corruption, abuse of power, baiting-and-switching, rejection of voter will, and cronyism all in one case. It's simply amazing. Make sure to read it.

More Executive Comp Disclosure

On January 6th, the Securities and Exchange Commission announced a new regulatory initiative to "consider whether to propose amendments to the disclosure requirements for executive and director compensation, related party transactions, director independence and other corporate governance matters, and securities ownership of officers and directors." The seemingly innocuous wording of the notice conceals a plan said to be of sweeping proportions.

Blogger Mark Carey reports that:

Under the control of Chairman Christopher Cox, who has made executive pay his priority agenda, the SEC may soon begin to require complete disclosure in proxy statements for total compensation of the top five highest paid executives. Locating total compensation has been an elusive effort for most shareholders. The information is typically buried in corporate filings. The SEC is believed to propose a new table in corporate proxy statements that will provide a breakdown of total compensation, including stock options and their value.

The proposed changes to be announced at the January 17, 2006 meeting ... may also require: 1) a lower reporting threshold of total aggregate perks to $10,000; 2) disclosure of specific change in control payments; 3) new compensation table that would also include retirement pay; and 4) a new compensation table for executives.

According to law professor and blogger Larry Ribstein, the cost to corporations to provide such disclosures will be substantial:

The WSJ says that the disclosures are more than any company is doing, even the "roughly 25% of the 500 biggest public companies in the U.S. [that] now disclose more about executive pay than current rules require." So there's a lot of new direct costs down the pike. The story quotes a securities lawyer as saying "It will take real preparation." ...

And then we have the same big-small problem as under Sarbox: the per capitalization costs of disclosure are more -- possibly way more -- for small than for big companies, particularly if the disclosures require more than the companies are already doing for tax purposes. Moreover, the smaller companies are generally riskier, and therefore must compensate their executives more aggressively.

There likely will be additional indirect costs. New disclosure requirements, for example, almost always create new opportunities for securities fraud litigation when errors occur in the mandated disclosures.

These costs might be worth bearing if the new disclosure rules were likely to benefit investors, of course. The odds are that the new rules will not do much for investors, however.

The logic of the SEC's proposal is that enhanced disclosure will enable shareholders to complain to the board about excessively high compensation, challenge excessive compensation in derivative litigation, reject excessive compensation plans put to a shareholder vote, and vote out of office directors who approve excessive compensation.

The theory of rational shareholder apathy, however, predicts that most shareholders prefer to be passive investors. A rational shareholder will expend the effort to make an informed decision only if the expected benefits of doing so outweigh its costs. Given the length and complexity of SEC disclosure documents, the opportunity cost entailed in becoming informed before voting is quite high and very apparent. Moreover, most shareholders' holdings are too small to have any significant effect on the vote's outcome. Accordingly, shareholders assign a relatively low value to the expected benefits of careful consideration.

If shareholders are rationally apathetic, more information will not lead to better decisions. Indeed, greater volumes of information will only make the situation worse.

Because the SEC's proposed new executive compensation disclosure rules thus will increase the cost to companies of complying with their disclosure obligations, but will not lead to more informed shareholder decision making, what then is their purpose?

One can infer that, in adopting these rules, the SEC got back into the therapeutic disclosure business. In other words, the Commission is using disclosure requirements not to inform shareholders, but to affect substantive corporate behavior. In this case, to put the brakes on executive compensation.

Therapeutic disclosure requirements undoubtedly affect corporate behavior, and it is troubling on at least two levels. First, seeking to effect substantive goals through disclosure requirements violates the Congressional intent behind the federal securities laws. When the New Deal era Congresses adopted the Securities Act and the Securities Exchange Act, there were three possible statutory approaches under consideration: (1) the fraud model, which would simply prohibit fraud in the sale of securities; (2) the disclosure model, which would allow issuers to sell very risky or even unsound securities, provided they gave buyers enough information to make an informed investment decision; and (3) the blue sky model, pursuant to which the SEC would engage in merit review of a security and its issuer. The federal securities laws adopted a mixture of the first two approaches, but explicitly rejected federal merit review. As such, the substantive behavior of corporate issuers is not within the SEC's purview.

Second, and even more disturbing, in this case the SEC's rules overstep the boundaries between the federal and state regulatory spheres. The last time the Commission tinkered with the executive compensation disclosure rules the SEC said that it wanted to bring shareholders into the compensation committee or board meeting room and thereby enable them to see specific decisions through the eyes of the directors. This goal, however, flies in the face of the separation of ownership and control created by state corporate law. Under state law, shareholders have no right to approve most board decisions, let alone to initiate corporate action. Of particular relevance in this context, shareholders have no right to participate in compensation decisions. In other words, they have no right to be brought within the meeting room.

It's disappointing that new SEC Chairman Cox has decided to make his first signature issue one whose costs exceed its benefits and which strikes a blow against the basic principles of competitive federalism that are the peculiar genius of American corporation law.

I'm confused...

According to our Supreme Legislature Court, federal drug law does not preempt state law when it comes to doctors prescribing drugs so their patients can kill themselves, despite the long-standing moral and legal traditions against suicide. But federal drug law does preempt a state law that would allow doctors to alleviate suffering by prescribing a simple joint. I'm sure there's some hypertechnical explanation for why this all makes sense, but do we really want unelected and unaccountable judges deciding key social issues on the basis of hypertechnicalities?

Feinstein Nixes Alito Filibuster

My favorite US Senator from California, Diane Feinstein, ann ounced that she'll vote against Alito but also said a filibuster would be unwarranted, which suggests she would vote for cloture. It's a not unreasonable position. Of course, her willingness to stake out such positions is what differentiates her from the feckless Barbara Boxer.

Filibuster Deal Proponents Vindicated?

Tigerhawk thinks so:

...  by signing up for the principle that the filibuster would only be deployed against candidates with some fundamental defect, the Gang of 14 essentially renounced ideology alone as the basis for a filibuster and required that the Democrats find something of substance to object to. When Bush picked smart, experienced, moral nominees, the Democrats could not lay a glove on them without resorting to scurrilous attacks that made them look like such idiots that even Joseph Biden had to throw in the towel.

As a supporter of the deal who took a lot of flak from my fellow conservatives for doing so, I'd like to think that that's right, but in fact I think it's still a bit early to declare victory. I suspect that Alito is getting a filibuster pass in part because the Democrats know that there are still 5 votes to uphold Roe. The real test will come if and when Bush gets a chance to replace, say, Stevens, which really would make a far more dramatic shift in the Court's center of gravity.

O'Hare on Alito

In a post endorsed by Kevin Drum, ProfessorBainbridge.com's favorite liberal blogger, Michael O'Hare says some very nice things about Samuel Alito but then complains that Alito:

... has is a piece missing, conspicuously, radiantly, displaying the absence of any sense of, well, justice. Not a case came up for discussion in which he registered that one or another outcome was just wrong, outrageous to a sense of decency, or to him. ... the man appears to be completely comfortable dealing with frightful social wrongs by moving the issue down the hall to another office.

This is, I think, a superb example of the basic divide between the liberal and conservative views of the judicial role. O'Hare wants judges to effect social justice, which O'Hare presumably would prefer that they define to accord with his own sense of what is just. In effect, O'Hare wants to empower unelected and unaccountable judges to define what constitutes social justice and then to bring to bear the state?s monopoly on the use of coercive force on those who deviate from the judge's personal sense of justice.

In contrast, I think judges have no right to impose their own personal policy preferences. Instead, judges are on the bench to enforce the rule of law. Supreme Court Justice Harlan made this point quite well when he criticized what he called "a current mistaken view of the Constitution and the constitutional function of this Court. This view, in a nutshell, is that every major social ill in this country can find its cure in some constitutional ?principle,? and that this Court should ?take the lead? in promoting reform when other branches of government fail to act? (Reynolds v. Sims 1964, 624).

Who Owns the Corporation?

Phil Town responds to one of my recent posts with this observation:

...the idea that the shareholders are not real owners is ridiculous.

Query: How do you own the a legal fiction? Ownership implies a thing capable of being owned. To be sure, we often talk about the corporation as though it were such a thing, but when we do so we engage in reification. While it may be necessary to reify the corporation for semantic convenience, it can mislead. Conceptually, the corporation is not a thing, but rather simply a set of contracts between various stakeholders pursuant to which services are provided and rights with respect to a set of assets are allocated.

Because shareholders are simply one of the inputs bound together by this web of voluntary agreements, ownership is not a meaningful concept in nexus of contracts theory. Someone owns each input, but no one owns the totality. Instead, the corporation is an aggregation of people bound together by a complex web of contractual relationships.

As I explain in detail in my article The Board of Directors as Nexus of Contracts, the shareholders' contract with the firm has some ownership-like features, including the right to vote and the fiduciary obligations of directors and officers.

Even so, however, shareholders lack most of the incidents of ownership, which we might define as the rights to possess, use, and manage corporate assets, and the rights to corporate income and assets. For example, shareholders have no right to use or possess corporate property. Cf. W. Clay Jackson Enterprises, Inc. v. Greyhound Leasing and Financial Corp., 463 F. Supp. 666, 670 (D. P.R. 1979) (stating that ?even a sole shareholder has no independent right which is violated by trespass upon or conversion of the corporation?s property?). Management rights, of course, are assigned by statute solely to the board of directors and those officers to whom the board properly delegates such authority. Indeed, to the extent that possessory and control rights are the indicia of a property right, the board is a better candidate for identification as the corporation?s owner than are the shareholders. As an early New York opinion put it, ?the directors in the performance of their duty possess [the corporation?s property], and act in every way as if they owned it.? Manson v. Curtis, 119 N.E. 559, 562 (N.Y. 1918).

This remains true even if a single shareholder (or cohesive group) owns a majority of the corporation's voting stock. To be sure, ownership of such a control block gives shareholders substantial de facto control by virtue of their ability to elect and remove directors, yet this still does not confer either possessory or management rights on such shareholders. Indeed, an effort by such a shareholder to exercise such rights might well constitute a breach of fiduciary duty by the controlling shareholder. In appropriate instances of such misconduct by a controlling shareholder, the board may well have a fiduciary duty to the minority to take steps to dilute the majority shareholder's control (as by issuing more stock). See, e.g., Delaware Chancellor Allen's opinion in Mendell v. Carroll, 651 A.2d 297, 306 (Del. Ch. 1994), in which he suggested that the board of directors could "deploy corporate power against the majority stockholders" to prevent "a threatened serious breach of fiduciary duty by the controlling stock." Granted, as I have observed elsewhere on this blog, "corporate law is far more tolerant of hegemony than constitutional law," but Allen's dicta would make no sense if majority voting control equalled ownership.

Let me offer another illustration. As I discuss in my article Unocal at 20, if shareholders own the corporation, the board of directors of a target corporation would have no proper role in reponding to a tender offer. The shareholders' decision to tender their shares to the bidder would no more concern the institutional responsibilities or prerogatives of the board than would the shareholders' decision to sell their shares on the open market or, for that matter, to sell their homes. Both stock and a home would be treated as species of private property freely alienable by their owners. Yet, as we all know, corporate law confers an effective gatekeeping function on the target's board of directors by allowing them to deploy potent takeover defenses.

In discussing corporations, it is easy to lose sight of the overriding fact?that firms are nothing more than groups of people. We often find ourselves using jargon like owners, monitors, team members, agent, principal, partner, manager, employee, and shareholder. We also often find ourselves engaged in a form of reification?treating firms as though they were things having an existence separate from the people who comprise them?when we say things like ?General Motors did so and so.? General Motors is a firm; it is pure fiction to say General Motors did anything. Reification is often useful, or even necessary, because it permits us to utilize a form of shorthand?it is easier to say General Motors did so and so than to attempt in conversation to describe the complex process which actually may have taken place. Indeed, it is very difficult to think about large firms without reifying them. Reification, however, can be dangerous. It becomes easy to lose sight of the fact that firms aren't things, they are simply a group of people for whom the law has provided an off-the- rack relationship we call the corporation. There simply is nothing there that can be owned.

Biden Gets It From Both Sides re Alito

Senator Joe Biden had a rough week in the Alito hearings. So much so, that he's now taking shots from both sides of the aisle. First, from the left, here's what Richard Cohen thinks:

The only thing standing between Joe Biden and the presidency is his mouth. That, though, is no small matter. It is a Himalayan barrier, a Sahara of a handicap, a summer's day in Death Valley, a winter's night at the pole (either one) -- an endless list of metaphors intended to show you both the immensity of the problem and to illustrate it with the op-ed version of excess. This, alas, is Joe Biden.

Ouch. That'll leave a mark. Anyway, now from the right comes P eggy Noonan with something much worse than criticism - namely, sympathy (albeit laced with condescension):

The great thing about Joe Biden during the Alito hearings, the reason he is, to me, actually endearing, is that as he speaks, as he goes on and on and spins his long statements, hypotheticals, and free associations--as he demonstrates yet again, as he did in the Roberts hearings and even the Thomas hearings, that he is incapable of staying on the river of a thought, and is constantly lured down tributaries from which he can never quite work his way back--you can see him batting the little paddles of his mind against the weeds, trying desperately to return to the river but not remembering where it is, or where it was going. I love him. He's human, like a garrulous uncle after a drink.

In this, in the hearings, he is unlike Ted Kennedy in that he doesn't seem driven by some obscure malice--Uh, I, uh, cannot, uh, remembuh why I hate you, Judge Alioto, but there, uh, must be a good reason and I will, um, damn well find it. When he peers over his glasses at Judge Alito he is like an old woman who's unfortunately senile and quite sure the teapot on the stove is plotting against her. Mr. Biden is also unlike Chuck Schumer in that he doesn't ask questions with an air of, With this one I'm going to trap you and leave you flailing like a bug in a bug zapper--we're going to hear your last little crackling buzz any minute now! ...

... When Mr. Biden says things like, "Try to follow me, Judge Alito," as he goes on one of his long, sterile journeys, I wonder if Judge Alito has to control himself with an act of will. I wonder if he has an inner Regis Philbin, and wants to throw out his arms and say, "Follow you? If I follow you, we'll both wind up lost!" When Mr. Biden says, "Now this is a somewhat subtle point," I wonder if Judge Alito wants to say, "Joe, if it were a subtle point you wouldn't be making it!"

It almost makes me sorry for having poked fun at Biden's Princeton malaprops. Almost.