This Article advances a normative case for using say on pay litigation to enhance the state courts’ role in policing directors’ compensation decisions. Outrage over what many perceive to be excessive executive compensation has escalated dramatically in recent years. In 2010, such outrage prompted Congress to mandate say on pay—a nonbinding shareholder vote on executive compensation. In the wake of say on pay votes, some shareholders have brought suit against directors alleging that a negative vote indicates a breach of directors’ fiduciary duties. To date, the vast majority of courts have rejected these suits. This Article insists that such rejection represents a wasted opportunity, and argues that Delaware courts should use say on pay litigation to alter how they assess board duties related to pay practices for at least three reasons. First, empirical evidence suggests that we cannot rely exclusively on say on pay to alter board behavior. Second, if Delaware and other state courts fail to respond to calls for better regulation of compensation practices, those courts risk further federal intrusion in this area, which could undermine private-ordering along with value-enhancing experimentation and innovation that can only occur at the state level. Third, say on pay votes are an ideal vehicle for increasing state courts’ role not only because courts should encourage boards to consider shareholder concerns but also because negative say on pay votes may be a critical signal that there is a defect in pay policies that needs to be addressed. Instead of being used as a tool to bypass fiduciary duty law, say on pay should serve as a springboard for reinvigorating such law as it pertains to executive compensation.
This Article examines agency-level activity during the preproposal rulemaking phase—a time period about which little is known despite its importance to policy outcomes—through an analysis of federal agency activity in connection with section 619 of the Dodd–Frank Act, popularly known as the Volcker Rule. By capitalizing on transparency efforts specific to Dodd–Frank, I am able to access information on agency contacts whose disclosure is not required by the Administrative Procedure Act and, therefore, not typically available to researchers.
I analyze the roughly 8,000 public comment letters received by the Financial Stability Oversight Council in advance of its study regarding Volcker Rule implementation and the meeting logs of the Treasury Department, Federal Reserve, Commodity Futures Trading Commission, Securities and Exchange Commission, and Federal Deposit Insurance Corporation prior to the Notice of Proposed Rulemaking. This analysis reveals significant public activity, but also a stark difference in investment by financial institutions versus other actors in influencing Volcker Rule implementation. It further reveals a greater unity of interest among financial market participants than suggested by press reports and the provision’s legislative history. Finally, the data shed light on the efficacy of the notice and comment process as a means for federal agencies to engage the general public and solicit relevant information in advance of rulemaking.
Agency Costs in the Era of Economic Crisis: The Enhanced Connection Between CEO Compensation and Corporate Cash Holdings
This Article reports the results of an empirical study that suggest that the current economic crisis has changed managerial behavior in the United States in a way that may impede economic recovery. The study finds a strong, statistically significant, and economically meaningful, positive correlation between CEO total annual compensation and corporate cash holdings during the economic crisis in the years 2008—2010. Such a significant correlation did not exist in prior years. The empirical findings suggest that high CEO compensation increases managerial risk-aversion in times of crisis. The Article considers several explanations for these empirical findings, some of which imply a market failure. The study has implications for the discussion on managerial pay arrangements and the implementation of the Dodd–Frank Act concerning say on pay.
The market failure deemed “the credit card problem” is in fact a story of unprecedented market success. Advanced underwriting technology has facilitated identification of the most profitable credit card consumer as one who is on the verge of bankruptcy. The resulting market segmentation represents a massive upward redistribution of wealth from the poor to wealthy individuals and corporations. Neoclassical and behavioral economists seek to solve the credit card problem through increased disclosure and cognitive strategies, focusing exclusively on consumer rationality. These interventions are incomplete because the industry’s business model relies on the exploitation of “subsistence” credit card users who have little or no choice in their credit card use. This Article analyzes the credit card problem through the lens of structural inequality, and shifts the focus from the consumer to the industry. It proposes amendments to the CARD Act, including “subsistence amnesty,” the temporary elimination of interest rates and fees on subsistence purchases made by individuals living in poverty.
In 2012, more than 50 law enforcement agencies across the United States began using a mobile device, the Mobile Offender Recognition and Information System (“MORIS”), to identify persons via facial recognition technology (“FRT”) and iris scans. No legislative guidelines exist detailing how this personal information can be collected, stored, or used. State and federal case law are silent as to how law enforcement should use MORIS. And although some law enforcement agencies have developed internal guidelines, privacy and policy concerns loom.
This Note explores the privacy and policy concerns raised by MORIS’s use and proposes that the Arizona legislature appease these worries. First, the Note details the level of suspicion police officers should obtain before using MORIS by comparing the device to technology that courts have previously considered. Next, the Note discusses policy concerns, such as the possibility for police bias and error. In response, the Note proposes solutions to minimize these concerns. The Note argues that neither law enforcement nor MORIS’s developer is positioned to sufficiently mitigate these concerns through self-regulation. In turn, the Note concludes that the state legislature should adopt the Note’s recommended guidelines, which strike a balance between MORIS’s benefits to law enforcement and citizens’ privacy.
Appearances Can Be Deceiving: Default Judgments by Motion or Hearing Under Rule 55(b) of the Arizona Rules of Civil Procedure
Within the span of nine months, the Arizona Court of Appeals issued two directly conflicting rulings on the correct procedures required to obtain a default judgment under Rule 55(b) of the Arizona Rules of Civil Procedure. Although Rule 55(b) seems unambiguous on its face, the Arizona Court of Appeals arrived at two distinct interpretations regarding three key aspects of the rule—namely, what constitutes an appearance; when an appearance triggers the noticed hearing requirement; and when it is appropriate to grant a default judgment by motion or hearing. These competing interpretations hinge on how the policies behind the rule are balanced: Should Arizona favor conserving judicial resources or resolving cases on the merits? As it stands, Rule 55(b) most likely should be read to favor judicial economy given the history of amendments to the rule and a full reading of its plain language. If the Arizona Supreme Court ever takes up the issue, however, the Court ought to consider whether judicial economy should trump a defaulted defendant’s interest in participating in a damages hearing when that defendant has shown an interest, albeit imperfect, in defending the claim.