The reality-based community is having a collective meltdown over today's Hobby Lobby decision. The worst argument I've seen from that corner so far is that it's illegitimate because all members of the majority have penises. Or something.
The second worst argument flows from a Mother Jones diatribe that claims Hobby Lobby is hypocritical because some of its employees are allowed to invest some of their 401(k) savings in mutual funds that happen to own stock in companies that make contraceptives. Over on Facebook, John Carney blasted this argument out of the water:
The protest against corporate personhood is deeply incoherent. If you impose obligations on a corporation and hold it responsible for not meeting that obligation, you are treating the corporation as a thing with agency. Why shouldn't that corporation be able assert rights against this imposition?
What are the defining characteristics of a person? What makes one thing a person and not another thing?
Absent a religiously inspired answer, anything you come up with will an inadequate answer. It will be over-inclusive or under-inclusive. A genealogical investigation will reveal that our concept of personhood is inconstant. An anthropological investigation will reveal that personhood is culturally conditioned and varies between peoples.
Personhood is a social construct. You naive metaphysicians objecting to corporate personhood need a better argument than "corporations aren't people."
There are good theological explanations of personhood. There aren't good secular explanations that would disqualify the application of personhood to corporations for certain purposes.
If data is the plural of anecdote, we need just one more example to go along with this classic story of plaintiff bar abuse from the pen of Keith Paul Bishop to declare that the evidence favors fee-shifting bylaws.
It's a very fair review, although apparently the reporter concluded that I left my audience unpersuaded. Apparently, I'll have to go back and try again, which I'd certainly be happy to do!
The paper on which my lecture was based is Director versus Shareholder Primacy in New Zealand Company Law as Compared to U.S.A. Corporate Law (March 26, 2014). UCLA School of Law, Law-Econ Research Paper No. 14-05. Available at SSRN: http://ssrn.com/abstract=2416449.
Abstract: Any model of corporate governance must answer two basic sets of questions: (1) Who decides? In other words, when push comes to shove, who has ultimate control? (2) Whose interests prevail? When the ultimate decision maker is presented with a zero sum game, in which it must prefer the interests of one constituency class over those of all others, whose interests prevail?
On the means question, prior scholarship has almost uniformly favored either shareholder primacy or managerialism. On the ends question, prior scholarship has tended to favor either shareholder primacy or various stakeholder theories. In contrast, this author has proposed a “director primacy” model in which the board of directors is the ultimate decision maker but is required to evaluate decisions using shareholder wealth maximization as the governing normative rule.
Shareholder primacy is widely assumed to be a defining characteristic of New Zealand company law. In assessing that assumption, it is essential to distinguish between the means and ends of corporate governance. As to the latter, New Zealand law does establish shareholder wealth maximization as the corporate objective. As to the former, despite assigning managerial authority to the board of directors, New Zealand company law gives shareholders significant control rights.
Comparing New Zealand company law to the considerably more board-centric regime of U.S. corporate law raises a critical policy issue. If the separation of ownership and control mandated by the latter has significant efficiency advantages, as this article has argued, why has New Zealand opted for a more shareholder-centric model? The most plausible explanation focuses on domain issues, which suggest that there are a small number of New Zealand firms for which director primacy would be optimal. The unitary nature of the New Zealand government may also be a factor, because the competitive federalism inherent in the U.S. system of government promotes a race to the top in which efficient corporate law rules are favored.
The slides from my presentation are reprinted below:
I am huge fan of Charles Stross' Laundry Files SF series (well, in fairness, given my physique I'm a huge fan of anything of which I'm a fan, but let's not go there). Only July 1, The Rhesus Chart (Laundry Files), the latest installment will be published. I've already pre-ordered my copy. Given the very positive starred review it just got from Kirkus Reviews, it looks like you should too:
Laundry regulars by now will be familiar with Stross' trademark sardonic, provocative, disturbing, allusion-filled narrative. And, here, with a structure strongly reminiscent of Len Deighton's early spy novels, the tone grows markedly grimmer, with several significant casualties and tragedies, perhaps in preparation for Angleton's feared CASE NIGHTMARE GREEN.
Stross at the top of his game--which is to say, few do it better. Pounce!
As most readers will know, Blair and Stout theorized that in this situation where various stakeholders make different types of investment (capital, human/labor, etc.) and where it is hard to tell what is earned from each separate contribution, that the stakeholders leave decisions up to the board of directors-- a mediating hierarchy--to apportion the gains and monitor the firm.
I have nothing but respect for Margaret and Lynn, and while their team production model has some overlap with my director primacy model, I have (obviously) preferred the latter. I gave a detailed critique of team production in Director Primacy: The Means and Ends of Corporate Governance, 97 Northwestern University Law Review 547 (2003), much of which was later revised and updated in my book The New Corporate Governance in Theory and Practice.
Alison Frankel argues the Halliburton ruling could backfire on defendants:
According to David Boies of Boies, Schiller & Flexner who argued the Supreme Court case for investors — and shareholder lawyers Max Berger of Bernstein Litowitz Berger & Grossmannand Lawrence Sucharow of Labaton Sucharow, the Halliburton ruling not only won’t curb securities class action filings but could actually improve plaintiffs’ position after class certification.
Here’s why. The Supreme Court’s decision does not give securities defendants a new right: They’ve always been able to argue at various turning points in these cases that their supposed fraud didn’t affect share prices. The Halliburton opinion just clarifies that defendants can use those arguments to oppose class certification.
Realistically, said plaintiffs’ lawyer Berger, shareholders in almost all cases will be able to offer their own evidence that corporate misstatements led to drops in stock prices. Even if other factors contributed to the stock drop, Berger said, his side will be able to win class certification if alleged fraud had anything to do with the decline. ...
Securities fraud plaintiffs, in other words, are already equipped to counter price impact arguments opposing class certification with evidence from their own economics experts, who will say that share prices fell because of the alleged fraud. (And if investors can’t find experts to support their price impact theories, they should not have brought their cases in the first place.)
It’s true, said plaintiffs’ lawyer Sucharow, that if price impact battles take place at the class certification stage rather than in summary judgment briefing, plaintiffs’ lawyers will have to spend more time and money on experts earlier than they’re used to. But the reward for defeating price impact defenses at the class certification stage, he said, will be a better position in post-certification settlement talks: Defendants won’t be able to argue that shareholders can’t prove price impact.
Joan Heminway points out another way in which the case will affect settlement bargaining:
The longer the case goes on, the more incentive defendants have to settle--oftentimes (in my experience) foregoing the opportunity to defend themselves against specious claims because of the ongoing drain on financial and human resources.
CLS Blog posts a firm memo from Proskauer on the case:
The Halliburton decision likely will increase defendants’ incentive to pull out all stops to litigate price impact at the class-certification stage. Advancing the fight on this issue from the merits stage to an earlier phase of the case could help dispose of meritless claims that might otherwise have survived scrutiny under Basic’s presumptions. The defense bar has maintained – and argued to the Supreme Court – that settlement pressures can increase if a class is certified, so defendants likely will try to wage the price-impact war sooner, rather than later. The class-certification phase could thus become a more expensive, protracted part of the case.
In fact, three members of the six-Justice majority (Justices Ginsburg, Breyer, and Sotomayor) filed a one-paragraph concurrence acknowledging that “[a]dvancing price impact consideration from the merits stage to the class certification stage may broaden the scope of discovery available at class certification.” But they nevertheless concluded that the Court’s decision “should impose no heavy toll on securities-fraud plaintiffs with tenable claims.” Were the three concurring Justices leaving themselves an escape hatch to rethink their position if practice shows that the new discovery burdens are becoming too great?
Steven Davidoff has a very extended treatment with lots of background, concluding:
In the past years, the court has been steadily taking two to three securities law cases a year over the past years.
In the process, the court has erected an elaborate array of rules that mostly govern when class certification can be given. In other words, it has been tinkering with the process of determining when a case can proceed to a final settlement.
But it hasn’t done much. Securities cases continue to be filed, and this decision will not stop that. Indeed, the Supreme Court has cemented the position of the top plaintiffs’ law firms because the rules are so intricate only they and a handful of defense lawyers fully understand them.
This may serve fine for those who want these cases to continue and see such litigation as helping shareholders, but for the opponents, it seems like it is a lot of time spent for very little. It means securities litigation, for better or worse, is here to stay as long as the Supreme Court – which started this business — is deciding the issue. The apocalypse has been postponed.
The Harvard Corporate Governance blog has a client memo from Wilson Sonsini Goodrich & Rosati, which draws this lesson from the case:
Defense hopes that the presumption of reliance would be overruled have been dashed, and the world we live in still includes securities class actions. Nevertheless, the fact that the Supreme Court made clear that defendants can attempt to rebut the presumption of reliance at the class certification stage is a victory for defendants. How significant that victory ultimately will be may depend on the particular facts of each case, as well as how the courts address defense challenges to the applicability of the presumption of reliance. In the typical case—a positive announcement is followed by rise in the stock price, and a bad news announcement is followed by a sharp drop—Halliburton is not likely to change much. In other cases, in which the stock price movement is less clear, the decision may give rise to opportunities to narrow the class period or even defeat class certification entirely.
In the vast majority of securities fraud cases, there is a “price impact.” Indeed, the classic “strike suit” scenario is when a company’s stock takes a sharp dive when negative information comes out, and plaintiffs’ attorneys stumble over each other to file claims alleging securities fraud. The dispute is almost never over whether there actually was a stock drop; it is over whether the company fraudulently concealed the negative information. As such, the opportunity to rebut the fraud on the market presumption by showing lack of price impact is likely to be of little avail in most cases.
How is a court to know whether the market in which a security is traded is “efficient” (or, given that market efficiency is not a binary matter, “efficient enough”)? Chief Justice Roberts’ majority opinion suggested this is a simple inquiry, but it’s not. Courts typically consider a number of factors to assess market efficiency. According to one famous district court decision (Cammer), the relevant factors are: “(1) the stock’s average weekly trading volume; (2) the number of securities analysts that followed and reported on the stock; (3) the presence of market makers and arbitrageurs; (4) the company’s eligibility to file a Form S-3 Registration Statement; and (5) a cause-and-effect relationship, over time, between unexpected corporate events or financial releases and an immediate response in stock price.” In re Xcelera.com Securities Litig., 430 F.3d 503 (2005). Other courts have supplemented these Cammer factors with a few others: market capitalization, the bid/ask spread, float, and analyses of autocorrelation. No one can say, though, how each factor should be assessed (e.g., How many securities analysts must follow the stock? How much autocorrelation is permissible? How large may the bid-ask spread be?). Nor is there guidance on how to balance factors when some weigh in favor of efficiency and others don’t. It’s a crapshoot.
Thom also explains at some length why it's a mistake to assume that "there is a “market” for a single company’s stock," efficient or not.
Alden Abbott says that in Halliburton "the Supreme Court regrettably declined the chance to stem the abuses of private fraud-based class action securities litigation."
Given the costs and difficulties inherent in rebutting the presumption of reliance at the class action stage, Halliburton at best appears likely to impose only a minor constraint on securities fraud class actions. ...
Congress should eliminate the eligibility of private securities fraud suits for class action certification. Moreover, Congress should require a showing of specific reliance on fraudulent information as a prerequisite to any finding of liability in a private individual action. What’s more, Congress ideally should require that the SEC define with greater specificity what categories of conduct it will deem actionable fraud, based on economic analysis, as a prerequisite for bringing enforcement actions in this area.
Issue # 2 of Volume 11 of Econ Journal Watch includes a symposium which "suggests that mainstream economics has unduly flattened economic issues down to certain modes of thought (such as ‘Max U’); it suggests that economics needs enrichment by formulations that have religious or quasi-religious overtones." Among the articles is a very interesting one by my friend Eric Rasmussen, the abstract of which explains:
The Prologue to this issue discusses how the flatness of economics leaves out aspects of reality that do not fit neatly into its formulations. I agree that much is left out, but I am not so sure methodology is to blame. Rather, the omission is caused by our restriction of economic methodology to particular assumptions about reality. In this essay, I first show that something like utility maximization has long been present in Christian theology. To be sure, economics is ‘flat’ in its style and, unlike religion, excludes by custom certain scholarly tools which would complement the flat approach. I argue, however, that the essential difference is that some religions, in particular Christianity, take their start from belief in factual assumptions that economics ignores.
Business firms are ubiquitous in modern society, but an appreciation of how they are formed and for what purposes requires an understanding of their legal foundations. Intended for general readers, as well as students and policy markets, Business Persons provides a scholarly and yet accessible introduction to the legal framework of modern business enterprises.
It explains the legal ideas that allow for the recognition of firms as organizational "persons" having social rights and responsibilities. Other foundational ideas include an overview of how the laws of agency, contracts, and property fit together to compose the organized "persons" known as business firms. The institutional legal theory of the firm developed embraces both a "bottom-up" perspective of business participants and a "top-down" rule-setting perspective of government.
Other chapters in the book discuss the features of limited liability and the boundaries of firms. A typology of different kinds of firms is presented ranging from entrepreneurial one-person start-ups to complex corporations, as well as new forms of hybrid social enterprises. Practical applications include contribution to the debates surrounding corporate executive compensation and political free-speech rights of corporations.
Thus far it is shaping up as an interesting and important work. (One minor complaint: the typeface is pretty small for us old guys.)
Orts' core premise is especially interesting in light of the recent discussion I started about "law and [fill in the blank]." Orts asserts that economic theories of the firm are inherently incomplete, in large part because "law is needed to explain the social origins and foundations of firms." (x) The strong claim is that "Without law, business firms cannot exist." (x)
I'll be interested to see how that claim plays out, especially because I've always agreed with Larry Ribstein's argument in The Important Role of Non-Organization Law, 40 Wake Forest L. Rev. 751 (2005) that:
In a federal system with an internal affairs choice of law rule, firms can avoid organization law simply by choosing their state of organization. It follows that, in such a system, organization law has less influence in shaping firms than underlying economic constraints on organizational form.
This observation is consistent with Bernard Black's thesis that even apparently mandatory business organization rules are “trivial” because parties would have adopted them anyway, they can be avoided by advanced planning, the political forces that shape corporate law can change them, or the rules cover rare or otherwise unimportant matters.
In other words, while it is true that you (probably*) need law to create complex firms, it's not clear that organization law is non-trivial once you get past the basic question of creation.
*: Imagine a world in which there is contract law but no corporate or partnership law. In theory, parties wishing to form a firm could simply draft a contract to govern their interactions. In practice, of course, the twin problems of uncertainty and complexity mean that any such contract inevitably would be costly to negotiate and even so would doubtless remain incomplete. Corporate and partnership law step forward to provide the parties with a standard form contract, which reduces their bargaining costs, while still allowing (to varying degrees) individual specification by agreement. Does this make organization law "essential" or merely very useful? Your answer to that question may ultimately depend on whether you think asset partitioning (especially affirmative asset partitioning) could be effected via contract. I concur with Larry that "state business entity laws [are necessary to] give firms protection [i.e., affirmative asset partitioning] they cannot obtain under other law."
Updates will follow as I progess through the text.
A new report from the ACLU suggests that American police departments have become militarized to a dangerous and excessive extent.
The ACLU's investigation found that SWAT teams are increasingly being used in drug searches in U.S. citizens' homes, even if children or the elderly are present. Case in point: This morning, Alecia Phonesavanh published a heartfelt article in Salon describing how a SWAT team threw a grenade into her two-year-old son's crib while searching for drugs.
Some alarming statistics from the report: 79 percent of SWAT deployments were to private homes — the majority of which were for drug searches — and only seven percent of SWAT deployments were for hostage, barricade, or active shooter situations. In addition, 50 percent of Americans impacted by SWAT deployments are black or Latino, while impacted whites account for just 20 percent.
The militarization of our police is a trend that ought to disturb everyone, regardless of political affiliation. We are all at risk, especially--but not only--the most vulnerable populations.
, the latest installment will be published. I've already pre-ordered my copy. Given the very positive starred 
.
, which Amazon describes as follows:
