I like all three of the players in this mix - Brown, Strine, and Steele - but I come down very much on the latter's side.Chief Justice Steele approves of his judges acting as lobbyists in the corporate governance debate, behavior that is highly political and damages the integrity of the courts. The approach makes it easer to see the Delaware courts not as neutral jurists but as one more interest group and makes the idea of preemption at the federal level far more palatable.
But even more so, allowing, indeed encouraging, judges to engage in "extrajudicial activities" can easily result in external statements that go well beyond clarification of legal principles. The article written by VC Strine is not an exposition of the law but is a discussion of the elements of the corporate governance process that the Vice Chancellor likes and dislikes. The article is an outgrowth of the policy articulated by the Chief Justice.
One of the best articles about Delaware corporate law I've ever read is Ed Rock's piece, Saints and Sinners: How Does Delaware Corporate Law. Work?, 44 UCLA L. Rev. 1009, which argues that:
In this understanding, holdings can be analogized to sermons from the bench, while dicta and law review articles by judges can be analogized to books or articles preachers write.? all of us internalize rules and standards of conduct with which we generally try to comply. We do this not only because we may fear some sanction, formal or informal, but also because doing so is important to our sense of self-worth, because we believe that doing a good job is the right thing to do. How are these rules and standards, which are the rails along which so much of our lives run, generated and maintained? For most employees of the firm, the set of formal and informal systems of socialization, detection, and sanction are sufficient. Thus, for the typical middle manager, the example of other managers, the gossip around the coffee machine, and the possibility of discharge by a more senior manager can provide an adequate set of instructions and sanctions.
The problem faced by such a ?norm-based? account of managerial behavior is that senior managers and directors are, by design, the chief criticizers and the chief sanctioners. As such, they are less constrained by gossip around the coffee machine. What replaces gossip and other sanctions for this critically important group? How are the rules and standards that govern the behavior of senior managers and directors generated and maintained? A claim of this Article is that the Delaware courts provide a supplemental source of gossip, criticism, and sanction for this set of actors who are beyond the reach of the firm's normal systems of social control.
The subjects of the study of U.S. corporate governance--the senior managers and directors of large, publicly held corporations, and the lawyers who advise them--form a surprisingly small and close-knit community. The directors of large, publicly held corporations number roughly four to five thousand. A small group of lawyers, centered in New York and Wilmington, with others in Chicago and Los Angeles, specialize in Delaware corporate law. The community has its own court, the Delaware Chancery Court, with review by the Delaware Supreme Court. It has its own newspapers: the Wall Street Journal and, for the lawyers, the New York Law Journal. People know each other and, as we will see below, apparently care about their reputation in the community. The story I tell in this Article is very much the story of how a small community imposes formal and informal, legal and nonlegal, sanctions on its members. ?
To put my point differently, in this Article I seek to take the standard-like quality of Delaware fiduciary duty law seriously. At the core of my analysis is a claim that standards work very differently than rules, that standards are typically generated and articulated through a distinctively narrative process, leading to a set of stories that is typically not reducible to a rule.
My claim here--which is a descriptive claim--is that the Delaware courts generate in the first instance the legal standards of conduct (which influence the development of the social norms of directors, officers, and lawyers) largely through what can best be thought of as ?corporate law sermons.? These richly detailed and judgmental factual recitations, combined with explicitly judgmental conclusions, sometimes impose legal sanctions but surprisingly often do not. Taken as a whole, the Delaware opinions can be understood as providing a set of parables--instructive tales--of good managers and bad managers, of good lawyers and bad lawyers, that, in combination, fill out the normative job description of these critical players. My intuition is that we come much closer to understanding the role of courts in corporate law if we think of judges more as preachers than as policemen.
Just as a preacher might write a book or article to reach a slightly different audience, or to convey a message that might not be appropriate in the forum of a sermon, judges may use dicta and articles for the same purposes. As Rock explained:
Rock cites former Chancellor William Allen's famous speech on MBOs as "a relatively explicit attempt--delivered from the podium rather than the bench--to induce better behavior by managers."Some Delaware judges give speeches and appear on panels. This provides an additional platform from which to summarize and promulgate standards of conduct for members of the corporate bar and their clients.
The trouble, of course, is not that Delaware judges are giving speeches. The trouble is that Jay doesn't like the substance of the speech:
As regular readers know, my views on the merits are a lot closer to Leo's than Jay's. But suppose I agreed with Jay? Would that lead me to take a different different view of Leo's speeches?In truth, the system of corporate governance that relies on courts with a decidedly pro-management bias who have no qualms at using speeches and dicta to influence the process is antiquated and under attack.
I don't think so. In my article, Social Propositions and Common Law Adjudication, 1990 U. Ill. L. Rev. 231 (1990), I reject the argument that judges are essentially free to make new law based on their own conception of proper morality and policy. Adjudication must be a neutral, objective application of distinctly legal expertise to a specific problem, not a mask for the personal values and preferences of the adjudicator. Accordingly, while judges may rely on norms and policies, they may only properly rely on those norms or policies that can fairly be said to have substantial support in the relevant community, or can be derived from norms or policies that have such support.
If Jay wants to criticize Leo or other Delaware judges for expressing policy views in their speeches and articles, he needs to make two moves. (1) Jay needs to show that the judges' stated policy preferences are affecting the outcome of decisions and (2) that the judge's stated policy preferences cannot "be said to have substantial support in the relevant community, or cannot be derived from norms or policies that have such support."
Rock's point is that Delaware judges are engaged in a process that generates precisely such norms and policies. By engaging in extrajudicial expressins of such norms and policies, judges expose themselves to feedback loops that test the coherence of their personal views with those of the larger relevant community. They get questions at conferences, their articles generate replies (indeed, Leo's latest speech generated a host of replies in the same issue of the Journal of Corporation Law, including one by yours truly), and so on.
In sum, Delaware jurists are not potted plants. They are part of the community of corporate lawyers and are actively engaged in setting the norms by which we who toil in these vineyards live.
