ProfessorBainbridge.com

A Catholic Perspective on Citizens United

Kevin Lee offers up a very interesting post on the Citizens United case from the perspective of Catholic social thought re corporations. Although I disagree with Lee's view that the case is "a dangerous development for the American democracy," I found the brief essay highly thought provoking:

Corporations, not being ontological persons, have no inherent rights. They are creatures of the states in which they are chartered by the authority of the executive, typically acting through the secretary of state. The Supreme Court seems to seek to federalize the ability to shape the rights that states give to the entities they create.

Catholics have traditionally affirmed that the physicality of real human persons is foundational for their dignity. Philosophical systems that have sought to ground the dignity of the person apart from the physical embodiment of actual beings run two risks--first, they devalue the dimensions to human existence that cannot be communicated conceptually--thus conscience can be viewed as a collective discourse. They mystery of persons revealed in Christ escapes such discourse. The mystery of the person is not disclosed in discourse, but in the mystery of the Eucharistic presence and the mystery of the Church as communion. Second, by devaluing the physical, the body becomes an object of inconvenience and subject to scorn when it becomes an interference with one's lifestyle. Life as a physical reality loses meaning.

I'm always glad to see law professors taking CST seriously, even though they usually deploy to ends with which I find myself in disagreement.

Taking the Establishment Clause to an Extreme

Elie Mystal:

Today the Tenth Circuit told the state of Utah that it could no longer erect crosses by the side of the highway memorializing state troopers who have died. The WSJ Law Blog excerpts this part of the opinion in American Atheists, Inc. v. Duncan (PDF):

“This may lead the reasonable observer to fear that Christians are likely to receive preferential treatment from the [Utah Highway Patrol],” the judges wrote, adding elsewhere in the opinion that “unlike Christmas, which has been widely embraced as a secular holiday. . . . there is no evidence in this case that the cross has been widely embraced by non-Christians as a secular symbol of death.”

I’m sorry, are there Hindus driving through Utah who are unaware that “Christians are likely to receive preferential treatment” in Utah? If so, I’d call that person a most unreasonable observer.

All joking aside, are we really living in a world where a simple cross to mark the death of a government worker violates the Establishment Clause?

My friend and UCLA Law colleague Eugene Volokh comments:

The practice, the panel held, violated the Establishment Clause because it had the effect of endorsing Christianity. (For pictures of the crosses, which included the names of the troopers, as well as the date of death and the Utah Highway Patrol beehive symbol, see the last three pages of the opinion.)

The circuit has 7 Republican appointees and 3 Democratic appointees among its active judges, but the panel consisted of three Republican appointees, including two in active service. It thus seems quite unlikely that the case will be reheard en banc. But five of the U.S. Supreme Court’s nine members seem likely to disapprove of the endorsement test — Justices Scalia, Kennedy, and Thomas are on the record as opposing the test, and Chief Justice Roberts and Justice Alito seem likely to take the same view. So that might be a reason for the Justices to take the case, which doesn’t have the procedural complexities of this year’s Mojave cross case (Salazar v. Buono). [UPDATE: Note that Justice Kennedy, who has long been on the record as opposing the endorsement test, wrote in Salazar that “The goal of avoiding governmental endorsementdoes not require eradication of all religious symbols in the public realm. A cross by the side of a public highway marking, for instance, the place where a state trooper perished need not be taken as a statement of governmental support for sectarian beliefs. The Constitution does not oblige government to avoid any public acknowledgment of religion’s role in society. Rather, it leaves room to accommodate divergent values within a constitutionally permissible framework.” Chief Justice Roberts and Justice Alito joined that opinion.]

Eugene then launches into an extended "on the other hand," focusing on Scalia, which made my head hurt.

<TONGUE IN CHEEK>I'm waiting for the day somebody tells me to take down the painting of St Thomas More that hangs in my UCLA office (adorned with a rough cross made from a palm leaf I got on Palm Sunday). I assume some atheist will argue that it "may lead the reasonable observer to fear that Christians are likely to receive preferential treatment" from yours truly.</TONGUE IN CHEEK>

Vanity of vanities, all is vanity

I'm procrastinating by thumbing through the new 19th edition of the Bluebook looking to see if they used any of my writings as sample citations. I'm not proud of it, but there it is.

If you spot one, let me know.

The function of tenure

Rick Hills:

Brian Leiter has been making intemperate attacks on critics of tenure lately. His immediate target is Mark Taylor, whose proposals to abolish tenure won him a lot of academic ire. Brian and I both dislike the style and substance of Taylor's type of philosophical work, so I attribute some of Brian's sharpness of tone to the admitted egregiousness of his target's prose. But Brian's arguments for tenure do not, I think, stand much scrutiny.

The core of Brian's argument is that tenure protects professors' right to say or write controversial things. But I do not see why professorial freedom of expression could not be adequately safeguarded by a much narrower rule barring dismissal for viewpoint-related reasons. This sort of First Amendment-style protection would safeguard professors' rights to make controversial statements without providing gratuitous insulation for professors who are simply lazy, incompetent, or corrupt. Why not require the sacked prof to set forth a prima facie case that their dismissal was the result of something controversial that they said or wrote? This burden could be light: The plaintiff might simply proffer something -- anything -- written or said within a year or so of dismissal that could remotely be regarded as controversial. The employer would then bear the burden of showing that the dismissal was unrelated to the proffered writing or utterance. Think of such a burden-shifting framework as roughly analogous to the Griggs disparate-impact test. The benefit of such a rule is that it not only makes dismissal of incompetent, lazy, or corrupt professors easier but also gives all profs more of an incentive to write controversial stuff, if only to have a prima facie case when the pink slip shows up in the mailbox.

But what if tenure serves some other purpose? Specifically, at least in the professional schools, tenure might be viewed as a form of compensation. Lawyers at elite law firms make a lot more money (often by an order of magnitude) than law professors. Unlike the way it supposedly used to be, when partnership purportedly equaled life tenure (I'm not sure that was ever true, but let's assume it arguendo), partners today face very serious risks of having their draw cut or even being fired if they fail to satisfy their partners' expectations regarding billing and client development. Those of us with real lifetime tenure thus face much less risk of losing our job and much less volatility risk with respect to our annual income. Lower risk = lower return.

In other words, by reducing my risk exposure by granting me life tenure, the law school saves money. Granted, it also probably attracts lawyers who are more risk averse than those who remain in practice, but that's true of any compensatory scheme in which one trades off security for cash. So maybe it's a feature rather than a bug.

Richard Mason:

Indeed it seems to me that tenure is closely analogous to the stock option packages received by executives in a corporation, or to the shares of a general partnership held by the partners. Tenure is effectively a way to give a profitable ownership share of a non-profit organization.

If universities were actually for-profit corporations, then they could compensate their employees with grants of shares or stock options. Like tenure, grants of stock options would (a) not be an immediate cash expense for the corporation; (b) have a true cost which was hard to measure; (c) be thought to encourage employee loyalty and align the employee's interest with the corporation's interest, although as we know, neither tenure nor stock options function perfectly in this regard.

However since universities are non-profit organizations, they are stuck with tenure as an ownership-stake-like form of compensation. Giving out shares of trusteeship of the university would be problematic, since the shares could not be sold and members of a non-profit corporation cannot financially benefit from their membership.

The CalPERS "Effect"

James McRitchie:

A report from consultant Wilshire Associates found that activist involvement by CalPERS increased returns at many of  the 142 “Focus List” companies. Prior to the pension’s involvement, the companies’ returns averaged 83.3% below their various benchmarks; afterward they yielded returns 12.7% above the benchmarks. Although the cumulative 12.7% is not as high as past results, their corporate governance program still much more than pays for itself.

There's just one problem, of course: Correlation is not causation.

In the first place, exogenous variables such as other explanatory factors must be adequately controlled and tested. The Wilshire Associates study, however, makes no effort to control for the effects of other explanatory or control variables. Thus, we have no idea whether the results would hold after other factors are considered.

Second, there is an endogeneity problem. In order to support an inference of causality, the data and the analysis must be dynamic. The independent variable for CalPERS involvement must be lagged relative to the dependent variables. This was not done. Indeed, there simply is no regression analysis anywhere in the study.

So it tells us bupkus about causation.

Should student class ranks be disclosed? Should faculty be ranked?

When I was in law school, UVa had an official policy of not disclosing class ranks. At the end of the first year, you knew you were in the top X% (I can't remember the number) if you graded onto law review. After graduation, you knew if you were in the top 10% if you were elected to Coif, but supposedly that was it. (The #1 graduate may have been recognized. I can't remember.) There was also an unofficial policy of quietly telling graduates competing for prestigious clerkships or teaching positions their class rank. So, as it happens, I know mine. (Rhymes with herd.)

Marc Hodak links to a study of the effects of ranking employees:

Prof. Barankay also offered workers either a job where they would be ranked or one where they wouldn’t be.

[T]he job without the feedback attracted more workers — 254, compared with 76 for the job with feedback.

“This was a surprising outcome, but it speaks to the paradigm of revealed preferences,” he notes. “Economists are usually very skeptical about what people say they will do. We focus on what people actually choose to do. Their choices convey information about what they care about. In this case, it seems that people would rather not know how they rank compared to others, even though when we surveyed these workers after the experiment, 74% said they wanted feedback about their rank.”

So, people generally don’t like to be ranked against their peers, even though they say they do, and rankings appear to encourage the high performers to slack off and the poor performers to give up.  ...

This got me to thinking about ranking students. Maybe the policy of not disclosing class rankings, at least while the students are still in school, actually makes sense.

OTOH, what about the faculty? Our student evaluations are publicly available. Granted, we don't provide a ranking of faculty, but it's easy enough to figure out. Are we encouraging "the high performers to slack off and the poor performers to give up"? I don't think so, which makes me wonder whether there's a problem with the study or whether our incentive structure differs from most workplaces. My guess is the latter.

Government as Shareholder

Marcel Kahan and Ed Rock discuss the problems that are posed when the US Government takes a majority shareholder position in a private company, as it did in GM, Chrysler, et al.:

Corporate law provides a complex and comprehensive set of standards of conduct to protect noncontrolling shareholders from controlling shareholders who have goals other than maximizing firm value, but are designed with private parties in mind. We show that when the government is the controlling shareholder, the Delaware restrictions are largely displaced, but hardly replaced, by federal provisions....

Having concluded that the existing accountability structures do not provide sufficient protection of minority shareholder interests, we examine the variety of ways (in the U.S. and elsewhere) in which government ownership has been structured in order to minimize political interference at the expense of non-controlling shareholders, including nonvoting stock, independent directors, dedicated trusts, and separate management companies. None of these approaches offers robust protection of non-controlling shareholders.

Because neither ex ante legal structures nor ex post judicial review holds much promise for controlling political interference, we are left with a choice between developing new structures of accountability and bringing this anomalous era of government control to a speedy conclusion.

I vote for bringing it to an end.

SEC Sues New Jersey ... US Treasury Next?

Erik Gerding has a nice analysis of the SEC's lawsuit against NJ:

According to the SEC release, New Jersey failed to disclose in 79 state bond offerings between 2001 and 2007 (totaling $26 billlion) that two public employee pension funds were underfunded. According to the SEC, the failure to disclose masked

the fact that New Jersey was unable to make contributions to [the pension funds] without raising taxes, cutting other services or otherwise affecting its budget. As a result, investors were not provided adequate information to evaluate the state's ability to fund the pensions or assess their impact on the state's financial condition....

New Jersey is a special state in many ways, but my gut instincts tell me this SEC action is just the vanguard of a coming wave of state and municipal securities litigation. We have all the ingredients for an epidemic ....

He also adds an interesting thought:

Here is a more puckish thought for cheering up – would the SEC ever bring charges against the U.S. Treasury? Might certain federal programs be underfunded, and fixing the gap might be impossible for the country “without raising taxes, cutting other services or otherwise affecting its budget”?  

Go read the whole thing.

Top 10 Books in Corporate Governance

JW Verret put together a list of what he regards as the "ten books that are required reading for the modern corporate governance thinker," which includes one of my books and mentions another in passing:

There is one very serious "error" in Verret's list, of course, which any of my regular readers will spot in an instant. ☺ And some omissions, such as:

It is the progenitor of almost everything we do and basic to any serious scholar's knowledge base.

Still the best book on the key issue of competitive federalism

I found it tremendously provocative, even though I disagree with a lot of it. It was really quite important in the literature on shareholder activism.

Highly idiosyncratic, but still the best one volume introduction to the law and finance of business associations.

The scholar needs to know the history of his subject and this is a great introduction to the history of the corporation.

A wonderful treatment of the question "can a Christian work for a corporation," which I've found hugely helpful in thinking about issues of corporate social responsibility and the relationship of the state and the corporation.

The basic problem with the SCOTUS

My friend and colleague Jonathan Zasloff's post on standing in the Prop 8 case nicely captures--albeit perhaps inadvertently--what I think is the basic problem with the state of constitutional law today:

If the Prop 8 is dismissed for lack of standing, then that means that gay marriages will be legal in California. It will move the cause forward. We will see gays and lesbians get married, with the end of the world not occurring.

And most importantly, it will mean that all of this can occur without worrying about what Anthony Kennedy will feel like when he wakes up in the morning. Kennedy has been sympathetic on issues of gay rights: after all, he wrote Romer and Lawrence. But taking this case to the Supremes means asking him to hold that gay marriage is mandated across the United States. He doesn’t want to do that: that’s why he wrote Romer narrowly, without squarely facing the issue of review standard for sexual orientation discrimination. It’s too much of a risk to force him into this kind of position.[Ed: Emphasis supplied.]

The court has arrogated too much power to itself over what ought to be political issues (Jonathan doubtless will disagree with that claim both as to judicial review in general and gay rights as a legal issue in particular, but those are questions for another day) and Kennedy's position as the swing vote on a closely divided court vests entirely too much power in one person. Fundamental public policies all too often hang on the whims of one unelected old guy in a robe. And, as old guys in robes go, Kennedy isn't Gandalf or even Yoda. So it would be nice to find a way of making it less important whether Kennedy gets up in the morning on the conservative or liberal side of his bed.

Delaware Dress Code

WSJ;'s Law Blog reports that:

... courts around the country are cracking down on what they consider to be inappropriate attire, according to this story in Tuesday’s USA Today.

For instance, according to the story, Delaware courts have adopted a provision that bars skirts shorter than 4 inches above the knee when standing. “We’re not out to treat people as school kids, but we do expect if you come to court, you need to treat it with the appropriate respect and dignity it should deserve due to the occasion,” says Delaware Superior Court Judge William Witham Jr. ...

It's a good thing Ally McBeal didn't practice in Wilmington.

The story continues:

A pajama-clad woman who was turned away from court in Delaware “probably wears that outfit to the grocery store,” Fischer said. “Dressing up, that’s something that you’re taught, and if you don’t live or participate in any of the arenas where you need to dress up, you probably just don’t think about it.”

I've been unable to discover whether Delaware's Chancery Court, with which yours truly and most readers of this blog (I would guess) are mainly concerned, has adopted a comparable set of rules.

I have, however, opined on dress codes before.

Update: Prominent Delaware lawyer and blogger Francis Pileggi kindly linked to this post and passes along this observation:

Most Delaware lawyers know that it is at least an unwritten rule that a "white dress shirt" is expected of lawyers who appear in a Delaware court.

Confirms what commenter AnonCorpLawyer said below.

But why this Wimbledon like insistence on white? What would be wrong with a nice, understated blue? Would this really be unacceptable?

  

While we're on the subject, would this be acceptable?

 

Heh.

The "Ground Zero" mosque

I find myself in complete accord with what President Obama said about the matter:

As a citizen, and as President, I believe that Muslims have the same right to practice their religion as everyone else in this country. ...  And that includes the right to build a place of worship and a community center on private property in Lower Manhattan, in accordance with local laws and ordinances.  This is America.  And our commitment to religious freedom must be unshakeable.  The principle that people of all faiths are welcome in this country and that they will not be treated differently by their government is essential to who we are. 

Having said that, I think it behooves those who spent so much time, effort, and, in many cases, vitriol defending the placement of the mosque to now devote, say, a tithe of that effort to promoting religious liberty in Islamic countries, many of which rank at or near the bottom on scales of religious freedom:

The Muslim majority countries comprise the religious areas with the largest current restrictions on religious freedom. This pattern parallels problems with democracy, civil liberties, and economic freedom, but the negative trend with respect to religious freedom is even stronger. Of the twenty “unfree” countries and territories surveyed, twelve are Muslim majority. Of the seven countries receiving the lowest possible score, four are Muslim majority. This is a phenomenon that goes beyond the Arab world or the Middle East. In measures of, for example, electoral democracy, the Muslim world outside of the greater Middle East scores better than the Middle Eastern countries, and over half of the world’s Muslims live in electoral democracies: the problems with democracy are concentrated in the Middle East. However, in terms of religious freedom, the large Muslim democracies of Indonesia and Bangladesh score a five and a six respectively. In these cases, the problems of religious freedom are due not to government repression but to widespread societal religious violence, including religiously based terrorism, aimed at minorities and at undercutting the government. It should also be added that there are religiously free Muslim majority countries, including some of the poorest, Mali and Senegal, which are religiously freer than many European countries.

Judge Balks at SEC-Citigroup Settlement

The SEC concluded its investigation of Citigroup's alleged misconduct in the mortgage securities market during the housing bubble by entering into a settlement agreement with Citigroup pursuant to which the latter agreed to pay a fine of $75 million. Although that sounds like a lot of money, for Citigroup it's just a drop in the bucket, especially when you consider that the SEC originally alleged that Citigroup understated its exposure to subprime assets in 2007 by nearly $40 billion

When asked to approve the settlement, Judge Ellen Segal Huvelle recently balked. The WSJ reports:

The judge, striking a frustrated tone, fired several questions at the SEC, among them why it pursued only two individuals in the case and why Citigroup shareholders should have to pay for the alleged sins of bank executives.

"I look at this and say, 'Why would I find this fair and reasonable?'" the judge told both sides at a 90-minute hearing. "You expect the court to rubber-stamp, but we can't."

The small size of the fine seems readily explicable: The SEC didn't have much of case. From what's been made public about the case, it looks to me like Citigroup committed bad business decisions, not fraud. In context, Citigroup treated the SEC case as a nuisance suit and paid a trifling $75 million to make it go away, just as they might throw a bogus slip and plaintiff a few bucks to make her suit go away.

As for why Citigroup shareholders should have to pay rather than the executives who committed the malfeasance, that's a damned good question. Personally, I don't see much point to corporate entity liability, as I explained in a commentary on corporate slavery reparations:

Legal liability can be justified on a number of grounds, such as deterrence, compensation, and retributive justice. Requiring a corporation to pay reparations to victims of centuries or even decades old wrongs advances neither deterrence nor retributive justice.

Who do we punish when we force the corporation to pay reparations? Since the payment comes out of the corporation's treasury, it reduces the value of the residual claim on the corporation's assets and earnings. In other words, the shareholders pay, not the directors and officers who actually committed the alleged wrongdoing (who in most of these cases are long dead anyway).

As far as deterrence goes, the problem is that shareholders don't control corporations. Corporation law assigns the responsibility for making corporate policy to the board of directors and the firm's managers. Holding the shareholders liable for something that happened decades ago is unlikely to have much deterrent effect on the corporation's current directors and managers. Human nature being what it is, current managers likely believe that they won't commit the errors of their predecessors. On top of which, the prospect that shareholders will be held liable is far less likely to deter management misconduct than would the prospect that the managers who made the decisions would be held personally liable.

Retributive justice likewise is poorly-served by corporate-level liability. Retributive justice is legitimate only where the actor to be punished has committed acts to which moral blameworthiness can be assigned. Because the corporation's legal personhood is a mere legal fiction, however, a corporation is not a moral actor.

Edward, First Baron Thurlow, put it best: "Did you ever expect a corporation to have a conscience, when it has no soul to be damned, and nobody to be kicked?" The corporation is simply a nexus of contracts between factors of production. As such, there is no moral basis for applying retributive justice to a corporation -- there is nothing there to be punished.

Even if you assume the corporation is still benefiting from alleged wrongdoing that happened decades or even centuries ago, the modern shareholders are mere holders in due course. It is therefore difficult to see a moral basis punishing them. They have done nothing for which they are blameworthy.

In sum, both deterrence and retributive justice require that punishment be directed solely at those who actually commit wrongdoing. In this context, it would be the directors, officers, or controlling shareholders who actually enslaved people. Since they're long dead, there is nobody left who properly can be punished.

Given that the vast bulk of securities law claims are resolved in ways that benefit only the lawyers who brought the class action rather than the allegedly injured investors, compensatory rationales don;t work either.

5 Oddly Chosen Books

Brink Lindsey of Cato picks 5 books about conservatism, including those by Mill, Hayek, and Ayn Rand. Those are some seriously odd choices unless you're talking solely about the libertarian wing of conservative thought. Given the post's title, "Traditional and Liberal Conservatism," however, one would have expeted to see at least one of the following:

Do the Prop 8 proponents have standing to appeal?

Jonathan Adler has a very helpful analysis of that question.