At risk in current frenzy for financial regulatory reform may be the authority of state securities regulators to police securities fraud.   Securities firms unsuccessfully pursued legislation to limit the enforcement power of states, back in 1994, but the issue remains on the reform agenda.  The preemption of state regulatory authority across a range of areas is a significant theme of the recommendations in the Treasury Department’s Blueprint for a Modernized Financial Regulatory Structure.

Robert Kuttner of the Boston Globe was advancing a plan to create a federal agency to buy up troubled mortgages and renegotiate them so that those who could afford it would be able to stay in their homes. The proposal was modeled on the New Deal’s Home Owners Loan Corporation. I thought it was a proposal that merited attention. Many of Conglomerate’s commenters thought otherwise, and condemned the idea as a bailout of greedy, irresponsible homeowners and/or investors.

Without commenting on the merits of the specific proposal that Kuttner advanced (I am sure it had some flaws), I cannot help but think that we could have forestalled the current crisis if government leaders had come together to address the problems when they surfaced at the consumer end.

Now politicians on both side of the aisle are pushing the need for more regulation, and railing against greed, excessive salaries and golden parachutes.  Seems we are all populists now (at least for the next 50 days).  It will be interesting to see if the current crisis leads to a short term flurry of reforms of the type that followed the 2001 accounting scandals or to a more rigorous rethinking of how we regulate financial markets and corporate governance.  Let’s hope for the latter.

The question arises as part of my research into the mechanisms for crafting corporate law in the U.S.  Because Delaware judges play a central role in the process, it seems important to determine how they play their role, what motivates them, and to whom they are accountable. 

Many scholars have noted the prolific nature of Delaware’s judiciary.  Professors Marcel Kahan and Ed Rock counted 22 recent articles published by Delaware judges. Professor Lawrence Hamermesh has published a helpful chart as an appendix to his Columbia Law Review article, The Policy Foundations of Corporate Law. Yet nobody seems to have persuasively explained this phenomenon.  Presumably judicial opinions provide judges with an adequate forum to explain and justify their decisions.  Why then would judges feel compelled to supplement their legal opinions with further explanations, elaborations or justifications in the academic literature?  More importantly are these extra-judicial exhortations helpful, harmless or insidious?

One purpose of these articles and speeches could be to provide guidance to corporate managers, attorneys and commentators as to the substance and meaning of Delaware corporate law.  Thus judges are supplementing their law-making role, moving beyond ex-post assessment of corporate conduct to ex-ante guidance for practitioners and their clients.  Such motivation can be viewed as positive, but also potentially  problematic.  The message may be lost in translation and, because judges cannot be bound by these extra-judicial comments, advice gleaned from their comments may be of dubious value.

Another view is that the constant commentary has a political purpose: to shore up the legitimacy of the state’s role in setting corporate policy.  On this view, Delaware judges not only seek to explain their approach to corporate controversies, but promote their own superior abilities to act as arbiters in these disputes.  Certainly, many articles by Delaware jurists fit this mold.  If this is the motivation, we might want to take the message conveyed with a grain of salt.  If part of the motivation for the articles and speeches is preserving the state’s (and the judges’) sphere of influence, then readers and scholars should consider such when evaluating the arguments the judges present.   

 Cross-posted at Conglomerate.

My guess is that the struggle over proxy access will continue for some time.  Some shareholder groups threatened litigation if the proposed rule was adopted.  In addition, Congressional Democrats are opposed to the rule adopted, and are likely to be perturbed that the SEC acted without a full complement of Commissioners.  Despite their dismay, it seems unlikely that Democrats in Congress will muster the initiative to legislatively overrule the Commission

I will be joining Matt Bodie of PrawfsBlawg who is hosting the book club on Tuesday December 4.  Also posting will be law professors David Zaring, Darian Ibrahim, and Michael Dorff.  Dan Lyons, the real Fake Steve Jobs will respond and answer questions to wrap up the discussion.  Here is the announcement: PrawfsBlawg: Book Club on “oPtion$” by Fake Steve Jobs.

For now, I will only say that oPtion$ is a fun read.  It is a satirical account of Steve Jobs’s excellent adventures as Apple comes under federal investigation for its stock option backdating practices.  It also has a nice shiny cover, a tribute to the  iPod.

The current vacancies on the Commission are a sore spot between Chairman Christopher Cox and the SEC’s Congressional overseeers, as Cox maintains that the Commission will move forward on controversial proxy access proposals despite the absence of a full complement of Commissioners.  Congressional leaders on the other hand have urged Cox to postpone action on proxy access until the existing and prospective vacancies are filled.

Here is the BNA story (subscription required): Securities Regulation & Law Rpt – FINRA Official, Atlanta Lawyer Said Dems Picks for Slots on SEC