Saturday, September 16, 2017

Corporate Law as a Model for Democracy

Here at BLPB, Joan Heminway has written a couple of posts discussing comparisons between norms in corporate theory, and norms in democratic theory.   A few months ago, she discussed the potential conflicts between Donald Trump’s private business interests, and his role as a “fiduciary” for the United States.  As she pointed out, in corporate law, we have procedures to address potential conflicts, which include fully informed approval by the principal or unconflicted fiduciaries, and external review to determine fairness.  But there is no similar procedure to address conflicts in the political realm.

Well, it appears that Joan’s not the only one thinking along these lines.  I read with interest this amicus brief submitted in the Supreme Court case of Gill v. Whitford, posted by Professor D. Theodore Rave at the University of Houston.  The case itself is about political redistricting, but Prof. Rave makes the intriguing argument that redistricting should be addressed the same way we address conflicts of interest in business law.  Specifically – and drawing on his earlier article in the Harvard Law Review, Politicians as Fiduciaries – he proposes that districts drawn by independent commissions receive a lower level of scrutiny than districts drawn by “interested” political actors, in much the same way that we scrutinize interested business transactions more closely than disinterested ones.  Under such a system, as in corporate law, political actors would retain the flexibility to draw districts as they see fit, but they would be encouraged to use certain practices over others. 

From a precedential standpoint, we may have traveled too far from this path for the Supreme Court to change course now, but it’s a fascinating idea that I would love to see the Court seriously entertain.

I also note that in their article Beyond Citizens United, Nicholas Almendares and Catherine Hafer make the related argument that statutes should receive heightened judicial scrutiny if they implicate the interests of major campaign contributors.  They don’t draw the comparison to corporate law directly, but they offer the same idea: conflicts in the political realm can be identified just as they are in business, and receive a closer look as a result.

http://lawprofessors.typepad.com/business_law/2017/09/corporate-law-as-a-model-for-democracy.html

Ann Lipton | Permalink

Comments

Politicians don't owe any fiduciary duty to their constituents or to the governmental units they represent. That's why you can't sue them for violating their duties of care or loyalty.

The "independent commission" approach presupposes that there is some entity that will better represent "the people" than the folks the people have chosen to represent them. IMO that's profoundly anti-democratic. We could solve that problem by electing the independent commission, but that would just make it explicitly political again.

Posted by: Frank Snyder | Sep 16, 2017 8:56:47 AM

Hi, Frank. I agree there's definitely the question of democratic norms, but I think it's more difficult to say as a descriptive matter that politicians don't owe fiduciary duties to the public. STOCK Act, for example, declares that federal officials have duties of trust and confidence to US citizens, and Donna Nagy has argued the statute wasn't necessary. In any event, I think the argument is less about whether politicians "are" fiduciaries than about whether we can solve similar problems in similar ways.

Posted by: Ann Lipton | Sep 16, 2017 9:13:18 AM

Thanks for the shout-out, Ann. These are interesting new references. I suspect you also saw this Washington Post article from earlier today, which indicates that the President's business is (perhaps unsurprisingly) becoming more tied to revenue from political clients/customers and less to revenue from charitable clients/customers: https://www.washingtonpost.com/politics/trumps-divisive-presidency-reshapes-a-key-part-of-his-private-business/2017/09/17/b2892628-98a8-11e7-87fc-c3f7ee4035c9_story.html?utm_term=.345bf002885e ("Trump’s divisive presidency reshapes a key part of his private business"). This will continue to be a story to follow. It will be interesting to see if traditional agency law agreements are used to justify the position that elected government officials have fiduciary duties to the electorate.

Posted by: joanheminway | Sep 17, 2017 8:46:59 PM

Oy - I hadn't seen that article. Seems like an apt metaphor for the times - everything nonpolitical is being pushed aside in favor of the political.

Posted by: Ann Lipton | Sep 18, 2017 1:26:57 AM

Nomprofits are boycotting Trump properties because their leaders disagree with his politics. Not surprising they're booking those who aren't boycotting. I'm not sure what the issue is.

Posted by: Frank Snyder | Sep 18, 2017 5:05:00 PM

Frank - forgive me if I'm misinterpreting, but you seem to be assuming that it was like, nonprofits used to book, and the properties were at capacity, so there was no room for the political events, and now that the nonprofits are dropping out, finally the political events can be accommodated. And I suppose maybe that happened? An alternative possibility is that the properties had capacity for all these events, but the political ones only became interested because of Trump's presidency - including, potentially, the chance to ingratiate themselves with him, beg favors, make themselves heard while paying a fee. Meanwhile, the nonprofits started shying away, also because of his presidency, leading to the polarization.

In other words, this is not simply supply and demand - both the increase and decrease in demand is directly due to the office.

The problem, in this scenario, is that current bookings are not arm's length business deals, but akin to bribes.

Maybe that's not the case, but in the corporate context, that's why we'd try to have a neutral decisionmaker - to ensure that the deals were done in the ordinary course of business.

Posted by: Ann Lipton | Sep 18, 2017 5:42:32 PM

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