Sunday, September 12, 2010
Dodd-Frank: Quack Federal Corporate Governance Round II, by Stephen M. Bainbridge, University of California, Los Angeles (UCLA) - School of Law, was recently posted on SSRN. Here is the abstract:
In 2005, Roberta Romano famously described the Sarbanes-Oxley Act as “quack corporate governance.” In this article, Professor Stephen Bainbridge argues that the corporate governance provisions of the Dodd-Frank Act of 2010 also qualify for that sobriquet.
The article identifies 8 attributes of quack corporate governance regulation: (1) The new law is a bubble act, enacted in response to a major negative economic event. (2) It is enacted in a crisis environment. (3) It is 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 three criteria. It was enacted in the wake of a massive populist backlash motivated by one of the worst economic crises in modern history. As the article explains in detail, the corporate governance provisions each satisfy all or substantially all of the remaining criteria.