The Permanent and Presidential Transition Models of Political Party Policy Leadership

David Fontana[*]

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Introduction

One of the central questions raised by comparative constitutional law is whether the American constitutional system is somehow different, or even exceptional, when compared to the systems of other countries.  As Stephen Gardbaum has written, “even within the common framework of . . . modern constitutional fundamentals, there is still a pervasive sense that the United States remains broadly exceptional or different.”[1]  Whatever the veracity of this conventional wisdom as applied to the rest of the American system, it is undeniably true that the events dominating the United States since the election of Barack Obama on November 4—the events related to the presidential transition—are a uniquely American drama.

The phenomenon of the transition between elected governments—a time where one political leader or party has already been elected but has not yet taken official power—is not unknown to the rest of the world, and seems specifically contemplated by the constitutions of other countries.[2]  What makes the American system unique, then, is not the existence of the transition period, but its significance.  In the major constitutional regimes elsewhere, political parties more clearly identify their policy leaders even when not in power, and thus have a much smaller number of personnel decisions to make when transitioning to power.[3]  By contrast, American political parties do not clearly identify who their policy leaders are when they do not occupy the White House.  Because of that, and because American Presidents have such a large number of political appointments to make, the transition period becomes a crucial moment for the new American President to coronate a select few political figures as the current and future political and policy leaders within his Administration, and therefore within his party.  The contrast leads to a simple, but significant, difference: While political parties in other countries define their policy leaders permanently, American parties define their policy leaders in substantial part through a singular moment of high drama—the presidential transition.

A Team Production Approach to Corporate Law and Board Composition

Bernard S. Sharfman & Steven J. Toll[*]

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In today’s world of corporate governance, the board of directors of a publicly held firm[1] (public company) will almost certainly be made up of a majority of independent directors.[2]  For example, both the New York Stock Exchange and the NASDAQ require that a public company’s board have a majority of independent directors and that the major corporate board committees—audit, compensation, and nominating—be composed entirely of independent members.[3]  Moreover, both stock exchanges require that directors meet certain subjective and objective criteria before they can be considered independent.[4]  In addition, proxy advisory companies, those companies that help shareholders decide how to vote on company matters, have their own enhanced independence guidelines.[5]  This movement toward increased board independence began during the 1990s but was given a big boost by the Enron scandal.[6]  It is also a reflection of society’s evolving understanding of how a public company is to be governed.  As so well expressed by Professors Margaret Blair and Lynn Stout, “[t]he notion that responsibility for governing a publicly held corporation ultimately rests in the hands of its directors is a defining feature of American corporate law; indeed, in a sense, an independent board is what makes a public corporation a public corporation.”[7]  As discussed below, it allows the board of a public company to act as a “mediating hierarchy;” that is, as an arbiter of disputes between the various stakeholders that constitutes a public company.[8]  Moreover, many believe that independent boards can better monitor managerial opportunism and enhance firm performance relative to management dominated boards.[9]

If independence is critical, then one option to ensure board independence is to require that a board be composed solely of independent directors.  However, this is problematic because an all independent board would lack the insights, knowledge, and understanding of those who know the company best.  This would cause more harm than good in board decision-making.  Therefore, a corporate board composed of a majority but not entirely of independent directors appears preferable.

But having a majority of independent directors means nothing unless these independent directors also exercise “independence of mind.”[10]  They must be able to make independent judgments without being overly influenced by inside directors and executive management.  This, of course, is easier said than done.  Moreover, “independence does not consider how the directors will contribute to the board’s understanding of the firm’s core capabilities” and thereby help optimize firm performance.[11]  Thus, independence in itself provides little in the way of guidance on how independent board members are to be selected.

The LDS Church, Proposition 8, and the Federal Law of Charities

Brian Galle[*]

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In the days before and after the passage of California’s “Proposition 8,” a ballot initiative barring legal recognition of same-sex marriages in the state, it was widely reported that the LDS Church, together with other religious organizations, played a significant role in supporting the initiative.[1]  National attention peaked with a New York Times report detailing some of the church’s efforts, which included e-mails to members imploring them to donate money to “Yes on 8” organizations as well as other logistical support for proponents of the measure.[2]  Gay rights advocates and others have now called for an investigation of the Church’s activities, arguing that they violate federal restrictions on political activities by tax-exempt charities.

This Essay considers the merits of the argument that the Mormon Church’s support for Proposition 8 violated federal tax law.  I take as given the facts reported by the New York Times and other major news outlets.  Although the facts are not really in dispute, much of the underlying law is.  There are few clear guidelines governing lobbying by charities.  In the end it is impossible to say whether the Church’s conduct will have any tax-law repercussions.  My conclusion that there is uncertainty, though, stands in contrast with existing claims that the expenditures of the LDS Church and others are clearly unproblematic.

My discussion here is also aimed at revealing some of the weaknesses of the law of charities.  In particular, the Proposition 8 episode exposes a serious hole in the fabric of the federal law: the possibility that massive, multi-million dollar lobbying expenditures, large enough to swamp any opposition, may be perfectly legitimate, so long as they are undertaken by a sufficiently gigantic organization.  It is hard to see a good justification for a rule that would, in effect, grant political influence only to the largest charities, but that seems to be one plausible interpretation of current law (albeit an interpretation I argue against here).  Further, recent events show that the IRS so far has failed to grapple with the most important questions surrounding the rules against lobbying, such as the problem of how to value the use of mailing lists, websites, e-mail, and phone trees—tools that now are central to modern politics.

Part I of the Essay sets out the background rules governing charities.  Part II explains how these rules, as interpreted to date, lead to fairly inconclusive results in the Prop 8 scenario, largely because of valuation problems and uncertainty about the extent of permissible activities for large organizations.  Part III presses more closely towards a thorough understanding of the political-activity laws, arguing that the two best candidates for the purposes underlying those laws both suggest that the LDS Church’s expenditures should be problematic.

Combating Midnight Regulation

Jack M. Beermann[*]

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The flurry of regulatory activity by the outgoing administration of President George W. Bush has raised, once again, the specter of midnight regulation.[1]  In contrast to the late-term action of the Clinton Administration, much of the Bush Administration’s late-term action seems to have been more deregulatory than regulatory, but from a political and legal standpoint, that distinction may not make much, if any, difference.  While midnight regulation provokes an instinctively negative reaction, it is not completely clear what is wrong with it.  This uncertainty arises in part because of the different reasons for midnight regulation.  In my earlier work on this subject, I identified four possible reasons for late-term action, and in this Essay I add a fifth, although I confess a lack of knowledge on whether this fifth reason is actually a significant factor in midnight regulation.  The original four are: (1) the natural human tendency to work to deadline, which has been referred to in the literature as the “Cinderella constraint;”[2] (2) hurrying to take as much action as possible near the end of the term to project the administration’s agenda into the future; (3) waiting to take potentially controversial action until the end of the term when the political consequences are likely to be muted; and (4) delay by some external force that prevented the administration from taking desired action until late in the term.  The fifth, and new, possible reason for late-term action I call “timing.”  Timing is a form of waiting, not based on potential negative consequences, but rather, based on the desire to achieve something positive before the presidential election in order to help either one’s own reelection bid or the election prospects of the incumbent party.  One can imagine, for example, the President delivering an October surprise of favorable regulatory action for the automobile industry if Michigan looks like a swing state in the upcoming election.

Whatever the reason for midnight regulation, there seems to be a general perception that something has gone wrong when an outgoing administration takes important action while the incoming administration is waiting to take over.  Most late-term action is subject to the obvious question of why, if the regulation was deemed so important, the administration failed to act during the previous three or seven and three-quarters years.  The lines of normative critique of midnight regulation are fairly evinced by each of the factors posited above.  Thus, even though the Constitution leaves the incumbent in office for approximately eleven weeks after election day, the public feels uncomfortable when an outgoing administration waits until late in the term to take politically controversial action or loads up on late-term actions to project its policy preferences in the future.

Intellectual Property Rights: The View from Competition Policy

Shubha Ghosh[*]

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Three propositions inform the debate over the relationship between intellectual property rights and competition policy.  The first involves concerns over how the anticompetitive uses of intellectual property will increase as intellectual property rights become stronger.  The second is that the uses of competition norms to loosen intellectual property rights will diminish the incentives for innovation.  Finally, there is the belief that the tension between competition policy and intellectual property rights can be reconciled by recognizing how market competition is consistent with innovation and by acknowledging the competition norms that shape the scope of intellectual property rights.  In this Essay, I examine these three propositions and their application to the preliminary report on the pharmaceutical industry released by the European Commission on November 28, 2008.[1]