We corporate and securities law types rarely get to play in the rarified air of The Constitution, so we are awaiting eagerly the Supreme Court's decision in Free Enterprise Fund v PCAOB, in which the argument is whether the provisions of Sarbanes-Oxley governing the selection of members of the Public Company Accounting Oversight Board violate the Appointments Clause of the US Constitution. (I have argued that it does.)
Law professor (and former federal judge) Michael McConnell argues in today's WSJ that Kenneth Feinberg's position as TARP "pay czar" likewise violates the Appointments Clause:
The Appointments clause of the Constitution, Article II, section 2, provides that all "Officers of the United States" must be appointed by the president "by and with the Advice and Consent of the Senate." This means subject to confirmation, except that "the Congress may by Law vest the Appointment" of "inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments."
There is no doubt that Mr. Feinberg is an "officer" of the United States. The Supreme Court has defined this term (Buckley v. Valeo, 1976) as "any appointee exercising significant authority pursuant to the laws of the United States." Mr. Feinberg signed last week's orders setting pay levels for executives at Bank of America, AIG, Chrysler Financial, Citigroup, GMAC, General Motors and Chrysler. They have the force of law and are surely an exercise of "significant authority" pursuant to an Act of Congress. He is not a mere "employee," acting at the direction of a superior. That means his office is subject to the requirements of the Appointments Clause.
While somewhat more disputable, Mr. Feinberg's is probably an "inferior" officer, defined as one subject to supervision and removal by a member of the cabinet. Although he has substantial discretion and independence, Mr. Feinberg reports to the secretary of the Treasury, who can fire him any time for any reason. This means that Congress could, if it wished, vest the appointment of the pay czar in the secretary, without any need for Senate confirmation.
But Congress has not done so. On the contrary, it vested the authority to implement TARP's compensation provision in the secretary of the Treasury. The secretary may sub-delegate that power to someone else—but that someone must be an "officer" properly appointed "by and with the advice and consent of the Senate."
The Supreme Court observed in Buckley v. Valeo that the provisions governing appointments under the Constitution reflect more than "etiquette or protocol." They embody the Founders' conviction that all power under U.S. laws must be exercised by officers with constitutional authority.
The Founders understood that the president and heads of the executive departments could not single-handedly carry out the law, so they required Senate confirmation as what the Federalist Papers call "an excellent check" on abuse or favoritism by the president. Yes, there are some offices so inferior that this check may be eliminated—but it is for Congress to judge which ones these may be. Congress and Congress alone has power to dispense with the safeguard of the confirmation process.
The power to set compensation at large American businesses is especially subject to potential abuse, favoritism, arbitrariness, or political manipulation. It is no reflection on Kenneth Feinberg, who has a sterling reputation and who appears to have approached these sensitive duties with a spirit of commendable integrity, to say that the checks and balances of the Constitution should be scrupulously observed. They were not. Because he is not a properly appointed officer of the United States, Mr. Feinberg's executive compensation decisions were unconstitutional.
