March 5, 2011
The Impact of Citizens United: Anti-Incumbent or Pro-Business?
Here at Akron, we recently had the privilege of having Prof. Bradley Smith come to talk to us about the impact of Citizens United on the most recent elections. I was asked to comment on his remarks, and in preparation for this Brad was kind enough to direct me to a recent opinion piece that he published in the Wall Street Journal that set forth a number of the main points of his talk--you can find that piece here. I ended up framing my comments in terms of a possible progressive response to Prof. Smith's conclusion that Citizens United primarily benefits challengers of either party. I set forth my comments below, after the links to a couple of recent news items that may also be relevant.
In his Wall Street Journal opinion piece, Prof. Bradley Smith declares that when it comes to all the liberal wailing and gnashing of teeth over Citizens United, “none of the doomsday predictions has come true.” Prof. Smith does not argue, as some have, that Citizens United did not impact the elections. He attributes as much as 11% of the increased political spending in this past election to Citizens United. And in response to the assertion that Citizens United has contributed to a power shift, he says: “Exactly.” However, Prof. Smith tells a story of Citizens United having “helped to level, not tilt, the playing field,” and that the decision “will continue to benefit whichever faction is out of power.” In other words, Citizens United is an anti-incumbency success story.
I think there is another story—one that better fits the facts that confront us today. The story of Citizens United that I want to tell is the story of yet another nail in the coffin of middle-class America; a story of big business and the super-rich adding yet another bullet to their arsenal—and using it with utmost efficiency. To set the backdrop for this story, let me quote a bit from the introduction to “Winner-Take-All Politics: How Washington Made the Rich Richer—And Turned Its Back on the Middle Class,” by Jacob Hacker and Paul Pierson:
[R]ising inequality is only the clearest indicator of an economic transformation that has touched virtually every aspect of American’s standard of living. From the erosion of job security to the declining reach of health insurance, from the rising toll of home foreclosures to the growing number of personal bankruptcies, from the stagnation of upward social mobility to the skyrocketing of personal debt, the American economy that has delivered so much to the fortunate [between 2001 and 2006, the share of income gains going to the top 1% was over 53%] has worked much less well for most Americans.
Against this backdrop, what have the newly-elected set out to do? They have set their sights on abolishing Dodd-Frank for the recently bailed-out Wall Street bankers who have recovered very nicely indeed to rake in record profits this year while Main Street continues to deal with unemployment and foreclosures. They have set their sights on repealing universal health care, a result much appreciated by the free-spending health-care industry. They plan on cutting much of the social safety net so they can continue to give tax breaks to the wealthy. (Moody’s recently estimated that the House Republicans’ proposed cuts would cost 700,000 jobs by 2012.) And they have set their sights on busting the unions that serve so much of Main Street.
If this were in fact merely an anti-incumbency story, it would not be so one-sided and consistent with the 30-year trend toward an American oligarchy. Seemingly every change proposed by the newly elected favors big business and the super-rich, and places an even greater burden on the already struggling middle class. And it is precisely these groups—big business and the wealthy—that liberals feared would stand to benefit the most from Citizens United. I do not see anything to suggest that in the next election the increased spending allowed by Citizens United will be targeted against these newly-elected pro-business representatives merely because they are incumbents. There may be a voter backlash, because Citizens United is after all just a piece of the puzzle. And the general corporate practice of backing the expected winners, regardless of ideology, should continue. But to think that we will be talking about an anti-incumbent Citizens United effect next election strikes me as unlikely. While Citizens United extended its ruling to unions, a recent report noted that of the top 10 outside spenders in the 2010 elections, 7 were right-wing groups and 3 were labor unions.
So I would say, no—the story of Citizens United is not an anti-incumbency story. The story of Citizens United is a pro-big business story. And if you are one of those who believe our democracy is intended to serve all, rather than just an elite few, then it may well be fair to say that the doomsday predictions regarding Citizens United have in fact very much come true.
March 4, 2011
Seven-Day Extension for NFL and NLFPA Bargaining
So the NFL and the Players' Union have extended negotiations on their collective bargaining agreement. A good choice in my view.
Neither side wants to get lumped into the Wisconsin labor mess. After all, both the NFL and NFLPA want fans from both camps in that dispute. A lockout or other event links the two in news items going forward, and they are wise to avoid that 24-hour news circle.
I take this as a good sign that both sides are paying attention, at least a little, to public perception. That's good business and good for business.
More personally, as a lifelong Lions' fan, I am hoping this means that they will be ready to play on schedule for next season. It would be disappointing to have a delayed or lost season when things seem to be finally going in the right direction. An 8-8 season is finally back in the realm of possibility!
Examination Copies of Casebooks: Are No-Resale Stickers Enforceable?
Law professors regularly receive free casebooks and statutory supplements from the legal textbook publishers. We don’t specifically ask for most of these books; the publishers know what courses we teach and send us everything they publish in those subject areas. I assume this practice isn’t confined to law schools, that professors in other fields also receive free textbooks.
Lately, some of those books have arrived with stick-on labels prohibiting resale. For example, a statute book I recently received from Thomson West has the following label on the front cover: “Professor Review Copy: Not for Resale”.
I don’t resell any of the books I receive, and I don’t intend to do so. But, being a curious legal academic, I have wondered if those no-resale stickers are legally binding. The answer, I think, is no.
There is a federal statute, 39 U.S.C. 3009, dealing with unordered merchandise. It provides:
“(a) Except for (1) free samples clearly and conspicuously marked as such, and (2) merchandise mailed by a charitable organization soliciting contributions, the mailing of unordered merchandise or of communications prohibited by subsection (c) of this section constitutes an unfair method of competition and an unfair trade practice in violation of section 45(a)(1) of title 15.”
Most of the books I receive are unordered, but they are free samples, so sending them would not violate federal law. However, subsection (b) of the statute provides: “Any merchandise mailed in violation of subsection (a) of this section, or within the exceptions contained therein, [my emphasis] may be treated as a gift by the recipient, who shall have the right to retain, use, discard, or dispose of it in any manner he sees fit without any obligation whatsoever to the sender.”
Note that subsection (b) covers not only merchandise sent in violation of the statute but also merchandise like the books I receive that falls within the free sample exception—merchandise mailed “within the exceptions” to subsection (a). Therefore, I have the right to use or dispose of them “in any manner . . .[I see] . . . fit, without any obligation whatsoever to the sender.” That would undoubtedly include reselling them, so those labels have no effect whatsoever.
Moreover, subsection (b) goes on to provide: “All such merchandise shall have attached to it a clear and conspicuous statement informing the recipient that he may treat the merchandise as a gift to him and has the right to retain, use, discard, or dispose of it in any manner he sees fit without any obligation whatsoever to the sender.” None of the books I receive include such a statement; in fact, the labels seem to suggest just the opposite.
Of course, this analysis would not apply to books I specifically ask a publisher to send. If I request a book, it is not “unordered” and the statute would not apply.
March 3, 2011
Should the liberal wing of the Supreme Court change its tune on corporate theory?
[DISCLAIMER: This is a rant-in-progress working draft. I reserve the right to claim someone else hijacked my BLPB account to post this.]
Writing in dissent in Citizens United, Justice Stevens asserted:
“Nothing in this analysis turns on whether the corporation is conceptualized as a grantee of a state concession, a nexus of explicit and implicit contracts, a mediated hierarchy of stakeholders, or any other recognized model.”
In other words, corporate theory didn’t matter to the resolution of the case. The majority, meanwhile, was apparently so convinced of that point that it didn’t even bother to address the issue.
Fast-forward to this week’s FCC v. AT&T decision, wherein the Court unanimously concluded that corporations do not have personal privacy rights under FOIA. Again, while there was speculation that the Court would need to answer the question, “What is a corporation?” in order to decide whether that entity had personal privacy rights, there was no mention of the competing theories of the corporation.
So, we have two cases where the issue of the nature of the corporation seems to be teed up for the Court, yet is ignored and/or disavowed. The conservative wing is 2-0 in these cases; the liberal wing 1-1. Maybe it’s time for the liberal wing to reconsider its strategy. Here are some arguments in support of the change:
1. Corporate theory was in fact very much on the table in Citizens United, as I have argued here, and by going along with the majority in ignoring the issue the dissenting justices missed an opportunity to force the majority to adopt expressly what I believe they adopted implicitly—that is, a nexus-of-contracts view of the firm. I think forcing this issue would have been a good play for the dissent, given that nexus-of-contracts theory (and its emphasis on the social benefits of deregulation—which is a great position if the “social benefits” include the worst financial crisis since the Great Depression) has never been more on its heels in the past 30 years than it arguably is right now (for more on that, see my recent SSRN posting: The Dodd-Frank Corporation: More than a Nexus of Contracts).
2. Sooner or later the Court is going to have to take this issue on. Cases involving the rights of corporations aren’t going away any time soon, and ignoring the issue seems almost disingenuous. For example, in Citizens United the majority told us that there was nothing about corporations qua corporations that justified restricting their political speech solely on the basis of their corporate status—corporations, after all, are merely associations of citizens. But in FCC v. AT&T, corporations are effectively deemed to be so obviously different from individuals as to make it almost laughable that they should be understood to have personal privacy rights. Wrote Justice Roberts:
“’Personal’ in the phrase ‘personal privacy’ conveys more than just ‘of a person.’ It suggests a type of privacy evocative of human concerns—not the sort usually associated with an entity like, say, AT&T.”
Well, before you said it was so in Citizens United, many would not have usually associated a constitutional right to unbridled political speech with corporations, as evidenced by the seemingly common response to the opinion: “Who knew that corporations were entitled to the same right to free speech that individual citizens are?”
[INSERT COMPELLING CONCLUSORY REMARKS HERE]
March 2, 2011
Auto Sales Up, GM Stock Down; Gas Prices Up, Auto Sales Steady?
The Detroit Free Press reports that February auto sales for 2011 were up 27% compared to the same month the year prior, and they were at the highest level since August 2008 if you take out the cash-for-clunkers boost of August 2009. (Note on cash-for-clunkers incentives: whether that was a good investment remains a question, but whether it worked to boost sales is not.)
General Motors sales were up 46.4% from last year, but the stock fell below $33 for the first time since its offering last fall. Why? At least in part because GM used incetives of about 2.5% above the mean to boost their own sales. (Note on GM incentives: These, too, worked to boost sales, but sales aren't all that matters.) With desires to sell the government's remaining stake in GM this year, this will be watched closley by analysts, the government, and taxpayers alike.
Another thing to watch: gas prices. As the Free Press reports,
After a robust sales month in February, automakers and analysts say they don't expect rising gas to stall the auto industry's expected recovery this year unless the price zooms past $4 per gallon.
Unless? I think they mean when. Unrest in the MIddle East, increasing demand globally, and (hopefully) an improving economy are likely to lead to price increases. Average gas prices in the United States are already at $3.38, and it's still cold. I've been hearing rumors of "$4 by the Fourth (of July)" for gas prices, and I frankly am starting to think we could see $4 per gallon gas for the Memorial Day weekend.
I don't think prices will stay that high, at least initially, and I don't think people will freak out the same way (or at the same level) they did last time, either. It will level off auto sales, and perhaps shift the types of sales to some degree, but I don't think it will be devastating to the industry or the economy.
I do think that the days of oil at $60 or less per barrel are over, and I'll be shocked to see if it gets much below $80 per barrel for any period of time. That should mean long-term health for oil and gas producing states, anyway.
I have no emprical evidence to back any of this up (and as a law professor, perhaps I shouldn't). It's just what I think based on my read of the market and recent actions of market particpants. Time will tell if I have this right -- and now that it's on the internet, I am sure someone will be sure to let me know if I got it wrong. (Incidentally, I'd be fine with being wrong on the Memorial Day thing.) Thanks to one of my co-bloggers, they'll probably already have the term they'll use, too.
Last week, I wrote a post on veil-piercing in which I used the phrase "intellectually vacuous." A colleague has kindly pointed out that now, whenever someone Googles the phrase "intellectually vacuous," my name will pop up.
March 1, 2011
Supreme Court Decides FCC v. AT&T
The United States Supreme Court just decided FCC v. AT&T, Inc. The Freedom of Information Act exempts from disclosure law enforcement records the disclosure of which “could reasonably be expected to constitute an unwarranted invasion of personal privacy.” Justice Roberts, for a unanimous court, (with Kagan not participating) distinguished between “person” and “personal.” The opinion concedes that corporations are “persons” but argues that “personal” means more than just relating to a person; it relates to human concerns.
No constitutional issue here--this was purely a question of statutory interpretation—but interesting nonetheless.
Padfield on the Dodd-Frank Corporation
I realize I'm a bit behind the curve here, but I just started shopping my latest paper, "The Dodd-Frank Corporation: More Than a Nexus of Contracts," and posted a copy on SSRN (the preceding link gets you there). Interested law review editors should not feel like they need to wait to hear from me to contact me directly at firstname.lastname@example.org (we really should add "shameless self-promotion" to our blog categories). While I am actively shopping the paper, I expect to have an opportunity to make further edits and so appreciate any and all feedback on the content. Here is the abstract:
Corporate theory matters. By way of example, I explain in this Essay how the Citizens United opinion can be read as a decision wherein the competing theories of the corporation played a dispositive role. Furthermore, some of the most important issues confronting courts and legislatures in the foreseeable future will involve questions about the nature of the corporation. In light of this, this Essay argues that the Dodd-Frank Wall Street Reform and Consumer Protection Act serves, in addition to all its other roles, as an important and novel data point in the on-going corporate theory debate. Specifically, I argue Dodd-Frank implicates corporate theory in two ways. First, it reaffirms yet again that corporations remain subject to significant government regulation as a matter of positive law—a fact that constitutes at least somewhat of a nuisance for contractarians. Second, and more importantly, Dodd-Frank’s formal recognition that at least some corporations have literally gotten too big to fail vindicates some of the most important normative assertions of concession theory broadly defined.
By the way, I dare anyone to find another paper on SSRN that uses the phrase "jumped the shark" in the same sentence as "Dodd-Frank" and "nexus-of-contracts."
February 28, 2011
Michael Lewis, author of The Big Short (and The Blind Side, etc.), was sued yesterday for defamation by Wing Chau, an asset manager who was apparently portrayed as one of the main people behind the U.S. financial meltdown.
This has been widely reported, and the complaint is here. I don't know Mr. Chau and have never seen him, but I found the following claim of defamation mildly amusing: Lewis, it seems, portrayed Mr. Chau as "short with a Wall Street belly -- not the bleacher bum's boiler but the discreet, necessary pouch of a squirrel before winter."
Maybe Mr. Chau is a P90X kind of guy, but this one seems kind of senstive. Then again, no one said that about me in a book, either.
Wilkes v. Springside Nursing Home-The Backstory
Many people are familiar with Donahue v. Rodd Electrotype, 328 N.E.2d 505, the 1975 Massachusetts Supreme Court opinion that held shareholders in closely-held corporations owe each other fiduciary duties akin to those owed by general partners in partnerships. Wilkes v. Springside Nursing Home, Inc., 353 N.E.2d 657 (Mass. 1976) is slightly less familiar but just as important. In Wilkes, the Massachusetts Supreme Court had to operationalize Donahue, determining what the respective parties’ burdens were in a corporate freezeout case. It was Wilkes that really had to wrestle with the conflict between protecting minority shareholders and allowing the majority to run the business.
Eric Gouvin (Western New England) has written an interesting account of the backstory of Wilkes. His article includes biographies of the principals and a detailed description of the setting of the case. The parties, apparently, had a history, and that history helps animate the case. If you like to see the story behind famous cases, and in particular if you want to understand how problems arise in closely-held businesses, I strongly recommend Eric’s article.
February 27, 2011
Stout on Shareholder Primacy
Lynn Stout has posted a paper on SSRN entitled "New Thinking on 'Shareholder Primacy.'" Here is the abstract:
By the beginning of the twenty-first century, many observers had come to believe that U.S. corporate law should, and does, embrace a “shareholder primacy” rule that requires corporate directors to maximize shareholder wealth. This Essay argues that such a view is mistaken.
As a positive matter, U.S. corporate law and practice does not require directors to maximize shareholder wealth but instead grants them a wide range of discretion, constrained only at the margin by market forces, to sacrifice shareholder wealth in order to benefit other constituencies. Although recent “reforms” designed to promote greater shareholder power have begun to limit this discretion, U.S. corporate governance remains director-centric.
As a normative matter, several lines of theory have emerged in modern corporate scholarship that independently suggest why director governance of public firms is desirable from shareholders’ own perspective. The Essay reviews five of these lines of theory and explores why each gives us reason to believe that shareholder primacy rules in public companies in fact disadvantage shareholders. It concludes that shareholder primacy thinking in its conventional form is on the brink of intellectual collapse, and will be replaced by more sophisticated and nuanced theories of corporate structure and purpose.