Source: https://www.professorbainbridge.com/professorbainbridgecom/2010/09/index.html
Timestamp: 2019-04-26 10:16:43+00:00

Document:
Over the past year, the political world has operated under the assumption that Mitt Romney is the front-runner for the GOP presidential nomination in 2012. After all, he has a wide fundraising network and a deep roster of potential campaign talent. What’s more, Republicans almost always nominate their runner-up from the previous cycle (though both Mike Huckabee and Sarah Palin might also claim that status). But if Romney is the front-runner, he’s starting out at a much weaker position than Bob Dole or John McCain ever did at this point in the ’96 and ’08 cycles. According to our latest NBC/WSJ poll, Romney’s national fav/unfav is upside down at 21%-30%, compared with Dole’s net-positive 38%-25% in Sept. ’94 and McCain’s 40%-16% in June ’06. Intensity is a problem, too, for Romney. Just 6% view him VERY positively, versus 14% for Dole in ’94 and 11% for McCain in ’06.
"Just like Jimmy Carter had peanuts, and Ronald Reagan had jelly beans, Mitt Romney will always have dog sh*t." Love it.
In Elizabeth Warren We Trust?
A while back some kook named Brent Budowsky argued that if President Obama nominated "Elizabeth Warren to lead the new consumer protection agency," "the Democratic base will erupt and turn out to vote in far greater numbers than any current poll suggests." Obama subsequently did name Warren, albeit by some political sleight of hand designed to avoid a Senate confirmation battle. I, for one, have seen no evidence of a hiccup amongst the Democratic base, let alone an eruption, in response. As I predicted, Liz Warren is many things but the savior of the Democrats in 2010 is not one of them.
The Obama administration has promised that the Federal Reserve's new Consumer Financial Protection Bureau will be independent from politics, a model of regulatory expertise grounded in sound data and economics. Naming Harvard Law Prof. Elizabeth Warren as de facto agency head undermines both goals.
By appointing another White House czar to avoid Senate confirmation, the administration politicized the powerful new bureaucracy from its birth. And by appointing an individual with a track record of using questionable research to advance policy ends, it has jeopardized the second goal as well.
The head of the Consumer Financial Protection Bureau is one of the most powerful bureaucratic positions ever created in the American political system. It can regulate or ban almost every consumer credit product in the country, yet it is beyond Congress's power of the purse because its budget is guaranteed as a percentage of the Fed's annual revenues. Under normal circumstances, the Senate would have the opportunity to ask Ms. Warren to explain the way in which she has sometimes interpreted data in her research before entrusting her with control of the agency.
By doing an end-run around the confirmation process, the Obama administration has eliminated our opportunity to find out. And by installing the head of the agency as an assistant to the president inside the White House, it has insulated her from meaningful congressional oversight.
These are pretty serious charges, which deserve a serious and impartial inquiry.
It's not speculation to say "maybe if there was a plant people liked to smoke an industry might market it brilliantly and lobby legislatures and get their way." That's been our history as long as we've had a history with tobacco. If you want to deal with reality you have to deal with all of it, and deal with the tobacco industry as a model.
Let's take that a step further: Suppose Prop 19 passes and the Feds decide to ignore it. Might the tobacco companies start marketing pot? Probably not. But suppose Prop 19 passes, is a success, and leads to widespread legalization. What happens then? Surely the tobacco companies have the expertise and technology to mass manufacture pot products or even tobacco-marijuana combination products. It would be an odd twist of fate if marijuana legalization gave big tobacco a new lease on life.
For better or worse, the U.S. News & World Report’s annual ranking of law schools is the most prominent and widely used ranking by all constituencies having an interest in legal education. The rankings have triggered impassioned responses and a significant body of commentary and analysis. This comprehensive annotated bibliography documents the wide variety of literature analyzing the rankings and explaining why the rankings are loved by some and hated by many. A brief history of the ranking of institutions of higher education, including law schools, provides background and puts today’s debate in context. This study was commissioned as part of the work of the ABA Section on Legal Education and Admissions to the Bar, Special Committee on the U.S. News and World Report Rankings.
This publication outlines the methodological variations in U.S. News and World Report’s annual law school rankings between 1990 and 2010. A law school’s ranking is based upon its overall score on a number of weighted attributes. When comparing school rankings over time, it is therefore useful to understand how the methodology differs from year to year. Not only have the definitions for many of these attributes changed over the years, but also their weight value in the overall scores. This report provides a table of the weight assigned to each attribute each year; a list of each attribute and the changes made to it each year; and a list of all methodology changes in each year. This study was originally published as an appendix to the July 15, 2010 Report of the ABA Special Committee on the U.S. News and World Report Rankings, Section on Legal Education and Admissions to the Bar.
In its Citizens United opinion from last year, the Supreme Court shot down certain campaign-finance limits. In so doing, the court essentially ruled that U.S. corporations have First Amendment free-speech rights.
Might the court take another step toward imbuing corporations with all the rights guaranteed U.S. citizens?
It now has the vehicle to do so if it wants to: The high court agreed to hear a case involving AT&T to consider whether a corporation can challenge the release of government documents as an infringement of the company’s privacy rights. Click here for the Bloomberg story; here for the AP story.
The justices on Monday said they will hear the Obama administration’s appeal of a Third Circuit ruling that corporations can invoke a provision in the federal Freedom of Information Act law that protects against invasions of “personal privacy.” Click here for the Third Circuit opinion.
This is an area where the Supreme Court needs to bring some clarity. Over the years, the Court has granted the corporation--by virtue of its legal personhood--most of the constitutional rights possessed by natural persons. See, e.g., First Nat’l Bank of Boston v. Bellotti, 435 U.S. 765, 784 (1978) (corporation has First Amendment right of free speech); Hale v. Henkel, 201 U.S. 43 (1906) (corporation gets Fourth Amendment protection against unreasonable searches and seizures); Minneapolis & St. Louis Ry. Co. v. Beckwith, 129 U.S. 26, 28 (1888) (corporation entitled to due process of law under the Fifth and Fourteenth Amendments); Santa Clara County v. Southern Pacific Railroad Co., 118 U.S. 394, 416 (1886) (corporation entitled to equal protection of the law under the Fourteenth Amendment).
OTOH, the Court has denied the corporation some of the rights that natural persons possess. Hale v. Henkel, 201 U.S. 43 (1906) (corporation not protected by Fifth Amendment privilege against self-incrimination); Blake v. McClung, 172 U.S. 239 (1898) (corporation not covered by the privileges and immunities clause of the Fourteenth Amendment or of the comity clause of Article IV).
There does not seem to be a coherent theory for deciding which constitutional rights the corporation possesses and which it does not.
Does it depend on our theory of the corporation? If we conceptualize the corporation as an artificial entity created by the state, why should that creature be able to assert any rights as against its creator? OTOH, if we think of the corporation as a legal fiction representing an aggregate of people, those people might be entitled to assert their rights collectively via the corporate form.
Or perhaps it depends on the intent of the framers. Here the trouble is that the role of corporations in society has drastically changed since the Bill of Rights (which is where most of the action is) was adopted. The framers may not have given any thought to the issue of corporate rights.
Perhaps it depends on the purpose behind the amendment in question. If free speech is a trump, then at least media corporations have to have First Amendment rights if speech is to be protected in a modern economy. As with the intent of the framers, however, application of purpose standards is not always easy.
In sum, this is an area that badly needs cleaning up. Somehow, however, I won't be holding my breath.
If I went to the AALS meeting, would I cross the picket line?
It's not a learned society. Instead, it's basically an association of left-liberal busybodies who care mostly about two things; to wit, (1) maintaining their cartel and (2) politically correct, multicultural identity politics.
In that post, I detail at great length my problems with the AALS as an organization and document that "I'm not the only curmudgeon who thinks the AALS is driven by left-liberal ideology."
I haven't been to every AALS annual meeting since I joined the profession back in 1988, but I've been to a lot ... and can count the number of "informative and engaging" panels I've seen on the fingers of one hand.
That post goes on to quote such diverse voices as Brian Leiter and Orin Kerr on the vacuity of AALS meetings.
AALS is not in any way commenting on the labor dispute in San Francisco. We regard our decision as the best among the bad choices we face. It is both painful and disappointing to anticipate the impact of an unresolved dispute on the conduct of our meeting, should that come to pass.
The letter provides the reasoning -- namely that contractual obligations must be honored -- and continues that there will be attempts at "amelioration" by relocating some activities to a non-union hotel.
So the net result is that there is a significant likelihood that law professors attending the AALS annual meeting will be crossing a picket line in San Francisco.
First, I come from a long line of union members. Second, Catholic Social Teaching emphasizes that workers have a natural right both to form unions and to strike. As I read the relevant encyclicals and pastoral letters, this teaching is not a matter of prudential judgment, but rather an authoritative teaching to which faithful Catholics must give religious assent. Finally, unions potentially are an important way of minimizing transaction costs.
The post goes on to develop the final argument at some length. It also explains why a rule of thumb of not crossing any picket line is a useful decision-making heuristic: It saves me the time and effort necessary to figure out whether a given strike is morally and economically justified.
The bottom line is that I find myself agreeing with the left-liberal busybodies. I hate when that happens.
My colleague Lynn Stout and I are co-panelists today on a program here at the UCLA School of Law on Onward and Upward or Over the Cliff? The Future of Financial Reform and the U.S. Economy. My remarks will be based on my recent paper Dodd-Frank: Quack Federal Corporate Governance Round II. A written version of my remarks follows. Supporting citations can be found in the main paper.
During a bubble people are lulled into inaction by the seemingly ever-rising value of their portfolios.
At the same time, however, the stage is being set for a post-bubble burst of regulation.
In the euphoria associated with a bubble, regulators and private gatekeepers tend to let their guard down, so potential fraudsters see an explosion of opportunities, and investors become both more greedy and trusting.
The net effect is a boom in fraud during bubbles, especially towards the end, when everybody is trying to keep the music going.
When the bubble inevitably bursts, investigators reviewing the rubble begin to turn up evidence of speculative excess and even outright rampant fraud. Investors burnt by losses from the breaking of the bubble and outraged by evidence of misconduct by corporate insiders and financial bigwigs create populist pressure for new regulation.
Our UCLA colleague Stuart Banner contends that deep-seated popular suspicion of speculation comes in bad financial times to dominate otherwise popular support for markets, resulting in the expansion of regulation. Financial exigencies embolden critics of markets to push their regulatory agenda. They are able to play on the strand of popular opinion that is hostile to speculation and markets because the general public is more amenable to regulation after experiencing financial losses.
SOX’s provisions created significant new costs that have had a deleterious effect on the economy and the capital markets. Several studies report that the increased costs associated with SOX are one reason for an increase in the number of public corporations deciding to go private. Other studies found that the costs associated with SOX negatively impacted foreign firms and encouraged them to delist from U.S. capital markets. High profile reports from groups like the Paulson Commission and the US Chamber of Commerce find that SOX has contributed significantly to a decline in the competitiveness of US Capital markets.
1. It is a bubble law, enacted in response to a major negative economic event.
2. It is enacted in a crisis environment.
3. It was a response to a populist backlash against corporations and/or markets.
4. It is adopted at the federal rather than state level.
5. It transfers power from the states to the federal government.
6. Interest groups that are strong at the federal level but weak at the Delaware level support it.
7. Typically, it is not a novel proposal, but rather a longstanding agenda item of some powerful interest group.
8. The empirical evidence cited in support of the proposal is, at best, mixed and often shows the proposal to be unwise.
All of Dodd-Frank meets the first four criteria. As I argue in the paper, the corporate governance provisions each satisfy all or substantially all of the remaining criteria.
1. Section 951’s so-called “say on pay” mandate, requiring periodic shareholder advisory votes on executive compensation.
2. Section 952’s mandate that the compensation committees of reporting companies must be fully independent and that those committees be given certain specified oversight responsibilities.
3. Section 953’s direction that the SEC require companies to provide additional disclosures with respect to executive compensation.
4. Section 954’s expansion of SOX’s rules regarding clawbacks of executive compensation.
5. Section 971’s affirmation that the SEC has authority to promulgate a so-called “shareholder access” rule pursuant to which shareholders would be allowed to use the company’s proxy statement to nominate candidates to the board of directors.
6. Section 972’s requirement that companies disclose whether the same person holds both the CEO and Chairman of the Board positions and why they either do or do not do so.
Each of these meets the criteria for “quack” corporate governance. Each displaces state corporate law with new federal one-size-fits-all mandates. Each was a longstanding goal of some interest group that is powerful at the federal level but weak in Delaware. In particular, the most important of these provisions—say on pay, compensation committees, and proxy access—are key parts of the institutional investor agenda.
Time does not permit me to go into the merits of each of the six proposals.
Instead, let me use this opportunity to emphasize that that systemic flaws in the corporate governance of Main Street corporations were not a causal factor in the housing bubble, the bursting of that bubble, or the subsequent credit crunch. To the contrary, “[a] striking aspect of the stock market meltdown of 2008 is that it occurred despite the strengthening of U.S. corporate governance over the past few decades and a reorientation toward the promotion of shareholder value.” The problem necessitating remedial action was the need to address the moral hazard inherent in the idea that some firms were too big to fail.
Even if flaws in the corporate governance of banks and financial institutions were a causal factor in the crisis that would not explain the form Dodd-Frank took. Banks have a number of characteristics that make their corporate governance problems radically different than those of nonfinancial firms. Yet, the provisions of Dodd-Frank addressed herein regulate the corporate governance of all public corporations, whether they are in the financial industry or not.
Instead, Dodd-Frank’s corporate governance provisions were included in the legislation because key policy entrepreneurs were able to hijack the legislative process to advance a longstanding political agenda. Specifically, as I already noted, all the major governance provisions were strongly supported by activists in the institutional investor community, especially union and state and local pension funds, for whom such items as proxy access and say on pay were high priority agenda items.
It seems reasonable to assume that these same activist investors will be the shareholders most likely to make use of their new powers. The interests of these activists, however, are likely to differ significantly from those of retail investors or even other institutions. Indeed, union and state and local pension funds are precisely the shareholders most likely to use their position to self-deal—i.e., to take a non-pro rata share of the firms assets and earnings—or to otherwise reap private benefits not shared with other investors.
I believe many [investor] activists will concede that their interests in proxy access do not lie solely in the ability to successfully place a nominee on a company’s board of directors; instead, the proxy access right is also an important means of obtaining leverage to seek outcomes outside of the boardroom that may otherwise not be achievable — outcomes that are often unrelated to shareholder value maximization.
The proposition that Dodd-Frank’s corporate governance provisions were a sop to special interests is further confirmed by the odd disconnect between the internal logic of those provisions and the back story of the financial crisis. Consider, for example, the question of executive compensation. Regulators identified executive compensation schemes that focused bank managers on short-term returns to shareholders as a contributing factor almost from the outset of the financial crisis. As was the case with almost all public U.S. corporations, banks and other financial institutions shifted in the 1990s to a much greater reliance on equity-based pay for performance compensation schemes. The rationale for such schemes is that they align the risk preferences of managers and shareholders. Because managers typically hold less well-diversified portfolios than shareholders, having significant investments of both human and financial capital in their employers, they tend to be much more averse to firm specific risk than diversified investors would prefer. Pay for performance compensation schemes that link managerial compensation to shareholder returns are designed to counteract that inherent bias against risk and thus align managerial risk preferences with those of shareholders.
In sum, the shareholder empowerment measures adopted before the crisis did nothing to prevent it and may well have contributed to it. The new provisions included in Dodd-Frank thus are unlikely to prevent another such crisis and may even increase the odds of some similar crisis induced by excessive risk taking.
What we have in Dodd-Frank thus is a bubble law designed to promote rent seeking by a powerful interest group, which in my book makes it a classic example of quack corporate governance.
It's been damned ugly out here.
As the Commission reviewed these issues, it recognized that despite a number of high profile governance issues over the last decade, the current governance system generally works well.
Try telling it to Lucian Bebchuk and the rest of the self-appointed shareholder spokesmen crowd, however.
The SEC and/or the NYSE should periodically assess the impact of major governance reforms to determine if these reforms are achieving their goals, and in light of the many reforms adopted over the last decade the SEC should consider the expanded use of “pilot” programs, including the use of “sunset provisions” to help identify any implementation problems before a program is fully rolled out.
The methodology the court uses for determining the existence of a rule of customary international law is consistent with what I believe to be the correct, positivist understanding of international law. (An approach that I have elaborated upon in more detail here.) In order for a rule of custom to exist there must be both state practice and a belief by states that the practice is obligatory, opinio juris. What the court avoids is assuming the existence of a rule of custom because it might seem logical for such rule to exist. In other words, the court will admit that a rule of custom exists if, and only if, it can demonstrate that state practice created such a rule. I think this is the correct method for evaluating the existence of a rule of custom.
[On the merits,] I find the arguments advanced by Judge Carbranes quite persuasive. That is, the court does seem to demonstrate that states have not created a specific rule of custom establishing corporate liability.
Andrew Woods analyzes the "detailed and impressive arguments" made in the amicus brief of which I was a co-signer.
The Florida Supreme Court recently issued the Olmstead v. Federal Trade Commission case. The case's holding is that F.S. 608.433 (4) allows a court to order a debtor to surrender "all right, title, and interest" in the debtor's single-member LLC to satisfy an outstanding judgment, unlike many other states where the sole remedy is a charging order. Although the case was based on a single-member LLC, the Court's rationale could extend to multi-member LLCs as well.
This case is probably the death knell for single-member LLCs in Florida until the Florida legislature fixes the sole remedy issue. Also, because this is a case of first impression in the United States under this type of wording of the statute, it may be precedential to other jurisdictions with similar wording.
In Federal Trade Commission v. Olmstead, 528 F. 3d 1310 (11th Cir. 2008), the Court of Appeals certified the following question to the Florida Supreme Court: “Whether, pursuant to Fla. Stat. § 608.433(4), a court may order a judgment-debtor to surrender all “right, title and interest” in the debtor’s single-member limited liability company to satisfy an outstanding judgment” (i.e., is “reverse veil piercing” permitted). The certified question was answered in the affirmative by the Florida Supreme Court in a five-to-two decision rendered on June 24, 2010. Olmstead v. Federal Trade Commission, 2010 WL 2518106 (Fla.). Although ss. 608.433(4) appears to limit the right of a judgment creditor to obtain a charging order and be only an assignee of the member’s economic interest, the Olmstead decision permits the creditor to foreclose on the membership interest of the debtor. Unless the decision is overturned by legislation, it is expected that this decision will have a profound effect on the way single-member LLCs are used in business transactions and for asset-protection and estate planning purposes and may dissuade the formation of such entities in Florida. Moreover, as the dissent in the opinion pointed out, the decision may also have implications for the protection afforded to an LLC and its members in a multi-member LLC. See also, In re: Ashely Albright, 2003 Bankr.Lexis 291 Bank. (D.Colo. April 4, 2003), in which the Bankruptcy Court, applying Colorado law, permitted a bankruptcy trustee of a member of a single-member Colorado LLC to control the LLC and reach its assets, noting that “To the extent a debtor intends to hinder, delay or defraud creditors through a multi-member LLC with ‘peppercorn’ co-members, bankruptcy avoidance provisions and fraudulent transfer law would provide creditors or a bankruptcy trustee with recourse [to the assets of the LLC].” For a discussion of “reverse piercing” in the corporate context, see Section III.D of the Overview to Florida Business Corporations.
Courts are now routinely applying the corporate law doctrine of veil piercing to limited liability companies. This extension of a seriously flawed doctrine into a new arena is not required by statute and is unsupportable as a matter of policy. The standards by which veil piercing is effected are vague, leaving judges great discretion. The result has been uncertainty and lack of predictability, increasing transaction costs for small businesses. At the same time, however, there is no evidence that veil piercing has been rigorously applied to affect socially beneficial policy outcomes. Judges typically seem to be concerned more with the facts and equities of the specific case at bar than with the implications of personal shareholder liability for society at large.
I'm off to St Louis for a bar association meeting. Blogging will be light and, due to TypePad's feeble iPad app, rudimentary.
In lieu of trying to moderate comments while I'm on the road and to give myself the last word on L'affaire Henderson, I've closed comments on all posts.
In the fantasy leagues for which I serve as commissioner, I set things up so that all free agents after the draft go on the waiver wire. So each week all available players go on the waiver wire until Wednesday or Thursday depending on the league. The idea is to give everybody a fair chance to snag the hot favor of the moment.
In one of the leagues where I'm a mere player, the Commissioner has things set up so that free agents can be added to your team at any time without having to clear waivers. Only players dropped that week go on the waiver wire. Let's call that league Cowboys Drool.
So here's where the difference matters: I was plugging along on an article about the impact of corporate governance on the competitiveness of American capital markets when I got an alert that Andy Reid has named Michael Vick as the Eagle's starter going forward. I popped over to the Cowboys Drool home page, spotted Vick on the Free Agent list and picked him up. I had to drop Mike Tolbert to make room, but a quick check of the news wires indicated that Ryan Mathews (my starting RB 2) is okay to play next week.
This is only possible because of Cowboys Drool's waiver/free agency rules. I'm not saying Cowboy Drool's commissioner made the wrong choice. I'm just curious which people prefer. So here's my first question for fellow fantasy football players: Which rule do you prefer? Free for all or everybody on waivers?
Would you keep both Schaub and Vick? Note to comment section trolls: I own two dogs. What Vick did was reprehensible. He paid his debt to society. Let's all move on.
If I trade Vick, who should I insist upon in return (it's a PPR league in which yards get half of what they do in standard scoring, so that TDs are emphasized)?
Anyway, back to the salt mine.
Comments are closed. Email responses welcome.
What fact about your future would you like to know?
How long you will live.
How much money you will make in your lifetime.
The NAME of the person best suited to you.
How happy you will be compared to the average human.
What profession you will spend most of your life doing.
Where will you live for most of your life.
How many children you will have.
I worry more about how long my stint in Purgatory is going to be.
I'm not worried about it and the answer would be none of io9's (or your) business.
Her name is Helen and it's been that way for 24 years.
I'm a happy camper. But how happy is the average person? How would I know? How do we make interpersonal comparisons of utility?
I'm going to be a law professor until the pry my cold dead hands from the podium. Or at least until I hit the answer to # 2.
Los Angeles holds the current record and I'm likely a LA lifer.
I hope quickly and painlessly.

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