Monday, September 1, 2014

Government & Business: Is a Governor More Powerful Than a Corporate CEO?

On Friday, Bill Haslam, the Governor of the State of Tennessee, spoke at a session sponsored by the C. Warren Neel Corporate Governance Center on The University of Tennessee's Knoxville campus.  He is our former city mayor and a hometown favorite for many.  I always enjoy his talks.

His talk on Friday focused on how Tennessee is attracting businesses and jobs and how education--including higher education--plays a role.  But before he honed in on that topic, he asked an intriguing, albeit basic, question that operates on theoretical, political, and practical planes.  That question: How is government similar to and different from private enterprise?  He wanted audience participation.  I waited to see how everyone would react.  He got lots of good answers that cut across economics, management, finance, and governance.

Provocatively (at least for me), he characterized his gubernatorial role as akin to the role of a chief executive officer in a corporation.  He has served as a corporate manager (president of his family's firm and the CEO of a division of another firm), and his vision of the state gubernatorial role is clearly framed by that experience.  He actually called the legislature his "board of directors" in his role as governor. 

Well, after that analogy, I just had to contribute to the discussion with a comment.  I endorsed the governor's view of his position, but I also noted that the executive, as the head of a separate branch of a government of three branches, has power independent of the power afforded to the legislature.  That is when things got interesting, at least for me.

The Governor thought for a second, then avowed (after facially acknowledging the existence of three branches of government) that he had acted more independently as a private-sector executive than he does as Governor.  I smiled and nodded, letting the moment pass (but for a quick side-bar comment to a friend sitting next to me).  But I admit that I took a mental double-take.  I thought: did he really mean that?

Like all state governors, Governor Haslam has signed his share of executive orders on a wide variety of matters--innocuous and important.  And like any governor, he has vetoed legislation, uses the bully pulpit to his advantage, and recently even clashed a bit with the legislature when it attempted to take away some of his power.  So, I knew he wasn't rejecting the theoretical or actual existence of constitutional power in the executive branch.  

But politically and practically, of course, the executive's power in government may be difficult to exercise, especially over the long haul.  President Obama has been testing the limits of executive power at the federal level during his term and is facing increasing public rebuke for his exercise of that power.  Governor Haslam is no doubt wisely very sensitive to the political and practical strictures of executive power, especially in light of the President's perceived power grab and the current local political environment.  (Governor Haslam just won the Republican primary last month and is up for re-election in November.)

Of course, on the corporate side of the aisle, state statutes provide that the board of directors--not the executives, who are corporate officers--manages the corporation.  The board delegates power to the officers, whom it typically appoints.  This is the literal legal doctrine.

But the practical reality is that high-level corporate officers do run the business of a corporation relatively unfettered.  Their managerial control is not absolute, but its day-to-day exercise is not typically--and is not designed to be--action that warrants active board intrusion.  Managerialist theories of corporate control take this fact into account, and most of us who teach in this area can come up with many examples of how managerial control of the corporation is exercised in practice.

So, in the end, I have to admit that I find the Governor's response to my comment less remarkable than it seemed at first blush.  Unfortunately, I missed taking the opportunity to thank him for his insights since I had to run off to another event across campus after his talk.  I guess I now also owe him thanks for inspiring this post . . . .

http://lawprofessors.typepad.com/business_law/2014/09/government-business-is-a-governor-more-powerful-than-a-corporate-ceo.html

Business Associations, Constitutional Law, Corporate Governance, Corporations, Current Affairs, Joan Heminway | Permalink

Comments

Prof:

I suspect we will get a more definitive answer to your question with regards to the State's Medicaid expansion. As the General Assembly passed an act requiring that Haslam seek "advise and consent" before any action with regards to the expansion, it will bring to the forefront where his office stands as to exercise of executive power.

Posted by: Tom N | Sep 2, 2014 7:34:16 AM

Thanks for noting this specific example, Tom N.

Posted by: joanheminway | Sep 2, 2014 7:37:30 AM

Post a comment