Corporate Chicken

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Midst this summer’s preoccupation with vacations, London and (around here) the collapse/revival/recollapse of the Red Sox, a fascinating corporate-social experiment is bubbling just below the lead headlines: Chick-fil-A.

We do not, here in Massachusetts,  know much about this company, a large restaurant chain that is privately owned and has its locations South and, to some extent, West of New England.  I am not even sure whether it is a fast food outfit like a Wendy’s or a casual dining chain like Olive Garden.  But all reporting indicates that its food is really good and that the chain is growing rapidly.

The nub of the issue is the active assertions of management that gay marriage is wrong.  The question is, what impact will this activism on a social issue have upon the company.  Reportage on the opinion pages of the Globe suggested this week-end that gay marriage supporters are wasting their time trying to make an issue of this, or trying to get people to not eat at these restaurants (I gather there are only two locations that are within driving distance from Greater Boston).  The argument seems to be: the food is good so do not deprive us; social positions of management have nothing to do with the food; why single out this one company and this social issue, and isn’t it wrong to do so — for example, would liberals be happy about a social boycott of restaurants owned by Muslims, or devout Catholics?

Today’s Wall Street Journal (B-1) jumps into the fray, noting that for the short term Chick-fil-A is not likely to be badly hurt; the vast bulk of their stores are in regions that most strongly oppose gay marriage in the first place.  One of those helpful little WSJ maps attempts to demonstrate graphically the locations of stores and of anti-gay-marriage sentiment.  But the Journal is of course a finance-centric publication with urban Eastern overtones, and speculates that with the power of social media, Chick-fil-A is making what is perhaps an existential mistake, dooming its company in areas of potential major expansion at the hands of liberal tweets and blog posts.

The debate can be viewed from the standpoint of corporate governance.  Recent governance theory has suggested that the traditional focus on damage control and crisis management is an outdated concept in today’s social media world, where major brand damage can occur with lightning speed that outstrips almost any after-the-fact response strategy.  Today, this theory holds, the only game worth playing is up-front prevention of brand deterioration.  Boards are encouraged to approach this element of risk management by making sure that their company is out ahead of social media pitfalls, avoiding positions that might create a furor and becoming active in the social media world so as to continually monitor what is being said and to help shape the dialog.

Surely, based on this view of the world, what the Cathy family (management of Chick-fil-A) is doing is, as the Journal suggests, “swimming against the tide.”

There are lots of ways to think about the problem from a social standpoint. The Cathys have a right to free speech.  We do not think about the social or political views of virtually all companies we deal with (unless one of those views creates a physical or economic disaster, a palpable result which may be driven by those ideas but which is different in kind from the ideas themselves).  But the partisan sorting out of American life, reflected by our current politics, the Tea Party (and counterparts on the Left), the constant elevation of social debates to a degree that undercuts tolerance of other views, and the very democratization of the instrumentalities of communication through the internet and social media, are categorically and fundamentally altering the manner and content of how we think about decisions.

That change is the social issue which Chick-fil-A is testing.  Is this the first case where, in the long run, the mere content of social ideas espoused by a company management, social ideas which are subject to debate and not clearly abhorent across the board, will harm a company in a significant way?  Aside from the social experiment, the case should be watched by those in corporate America to inform how one must think about risk management.  Does the new corporate checklist include a review to make sure that a company and its principal players are “vanilla” on social issues?  Political issues?

Should boards police their corporations to meet the standard that our parents taught us when invited to someone’s house for dinner?  “Use the forks starting from the outside in, and whatever you say do NOT discuss politics or religion!”

Blue Sox

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It has been a while since I posted about the Boston Red Sox, and followers of baseball likely know the reason: they have been playing terribly.  And if you go back to the last (2011) All Star break, they are 50 wins and 63 losses, which probably puts them in the bottom quarter of all teams while having the second or third highest payroll.

And it is hard to post about the Red Sox when in Boston, where the constant sports press beats incessantly on their failures, on management, and on the running joke of all games being sold out for the umpteenth straight time.  But there are some interesting things to think about as the Sox sit today at exactly .500, tied with Toronto for last place in the super-performing AL East.

First, let us lay some blame on Bobby Valentine, who for some reason was on Kevin Youkilis’ case and claimed that Youk (of all people) was dogging it, not putting it all on the line for the team.  We gave him away to the other Sox in exchange for a minor league pitcher and a utility infielder who is hitting below .170 AND we still get to pay his salary of five or six million dollars.  The result?  Youk was named Player of the Week in our very League, and his replacement at third is an injured rookie and his replacement replacement put on the worst show I have ever seen from a big league player, when I suffered through the Yankee destruction of the Sox at Fenway last Sunday night: he made an error at third; he bounced a throw to first on a double play by not setting up correctly; switched to first, he ran to the bag rather than catching a catchable grounder that bounced into right field through the space he left open; on a grounder to first he whipped the ball to second and then ran over to cover first for the return double play ball and thus blocked out the view of the pitcher who was properly covering the bag; he went hitless and clearly had never seen a big league curve ball before in his whole life, striking out I don’t recall how many times.  Gomez may be a lovely guy and just watch–given my powers of observation he may end up as the next Wade Boggs– but he sure stank the place out on Sunday, and all you could think about as this clown bounced from third to first was, “but these are Youk’s positions, and did he not win a Gold Glove at first?”

Some folks “in the know” think that Youk was done, stick a fork in him, and he burned bridges in the clubhouse, with Big Papi, etc.  I am not in the know, but I do know this: after Gonzalez left the game Sunday (illness) there was not a person in the infield, and indeed in the entire Sox line-up, who could carry Youk’s bat-bag as far as I am concerned.

You could win a playoff spot with the people the Sox have on their DL or who are playing below historical norms: Beckett, Lester, Pedroia, Lackey, Jenks, Bailey, Ellsbury, Gonzalez,  Bard, Crawford, Dice-K.  But these guys cannot play, or not as in the past; and we are still paying them (and Youk too!).  The front office is end-gamed on trades, out of money by any rational measure, and must be thinking that the sainted Theo got out of town just before he should have been run out on a rail (watch out, you Cubs fans).  Now the front office has to figure out whether to try for the new second wild card slot this year (they are only 2 1/2 games back for that slot although there are five teams ahead of them) or whether they should declare this a building year.  Their goals will drive their trading strategy.

Speaking of which, the Boston press seems to think that management must trade Ellsbury, which would be a real crime because last year he was about the best position ball-player I have seen since Willy Mays (yes — Willy Mays).  He will be a free agent, very expensive, and is rumored as not long for the Sox in any event.  And truth be told, we need pitching more than we need outfielders.  But how many cynical hits can the fans take and still want to buy season tickets?  This is actually a subject of email traffic even now within my own group who split the season.

Today’s Red Sox look like the Mets of a few years ago; aging or under-performing players with big price tags playing sub-.500 ball.  It will take a big effort, or a few years, to compete at the top of the League but the question is: which of three paths does management take? Tweak ourselves into the playoffs, or go blockbuster to fix it all now, or mentally accept we are rebuilding and spend a couple of years doing it.

In a way, fans might be more comfortable with the last option, which can be understood and holds out clear hope for the future while lifting the pressure for current performance.  Does management have the dough and the resolve to fix it all now?  That option is the only one that will permit further increases in ticket prices.  Do they need to increase prices any more when water is $4 a bottle and “premium” beer is $9.25 and my sandwich was $9.50?

Another school of thought is that the once-vaunted Sox management is out of touch and has so much ego, so much being invested in being the big sports gorilla in a big sports city, that they will NEVER declare, or appear to be in the midst of, a rebuilding year.  It will always be “we are trying like crazy to win NOW.”  I am unable to analyze these people as easily as the sports writers and cynical fans seem able to do, however.  I just think they are greedy and end-gamed, an ugly thought.

Sox fans were better before we won two World Series.  Now we expect excellence, not just a day at the Park.  And now that we are paying the price of excellence in the ticket scale, we also are entitled to get it.  Poor blue Sox.

READING THE SUPREME COURT DECISION ON HEALTHCARE

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Regrettably, the reading of Supreme Court opinions often falls only to lawyers.  There is much that is technical in them, but most (in cases such as the Affordable Care Act) relates to policy, to the nature of our social contract with each other, and the application of close logical analysis to a given set of facts.

Some opinions soar with rhetoric, or with literary allusion.  Some opinions purport to expose the essence of the American experience.  Some anger and offend.  Some are just really good to read so as to inform the current debate.  Chief Justice Roberts’ decision in the Affordable Care Act case is in that last category.

I pause to speculate as to how many have read it.  I suspect many who comment on it have not; although it is possible that the misstatement of its contents by politicians is manipulative and purposeful, relying on the near-certainty that the average voter is not going to read the sixty pages (almost 200 pages with syllabus and dissents).

I submit that anyone truly interested in bringing an open mind to the current election must be a reader.  That class of people may be quite small, of course; research has shown that very few people ever change their mind during an election, and (although this is speculation and not supported by research) I suspect that those few who do change their minds are not usually driven by what candidates say about Supreme Court opinions.

All this is a pity.  Justice Roberts, much maligned as a tool of partisan politics, has for whatever reason written an elucidating and wholly enjoyable opinion, and one that informs our understanding of just what our government is all about.  Cynics may say that Roberts was forced to swing in favor of the statute, at least in part, in order to assure his Court’s legacy and save himself from the historical judgment of partisanship at the expense of jurisprudence.  That suspicion may be bolstered by Justice Kennedy’s view of the unconstitutionality of the Act, but whatever the reason the majority opinion itself is satisfying to read, subtle to think about, and destined to be over-simplified for political gain in the current election environment.

What does it say?  Really say?

The individual mandate of the statute says that the vast majority of people without other health insurance coverage must pay annually what is called a “shared responsibility payment” to the IRS, to be collected like a tax and to be measured based on income (but never below $695 nor more than the cost of a certain model health insurance policy which covers far less than most solvent Americans would consider to be adequate).  There never was serious question of whether the Congress could do this and call it a tax.  But Congress (the Democrats, to be fair) called it a penalty and based it not on the Constitutional power to tax but on the Constitutional power to regulate commerce.  (States have general powers to do anything not delegated to the Federal government by the Constitution and we call these State functions “police powers.”  The Feds have ONLY the powers granted [enumerated] by the Constitution.)

Citing ample prior authority, the majority opinion held that the power to regulate commerce presupposed there was commercial activity.  Someone who did not buy insurance was not engaged in an act of commerce.  The majority rejected the argument, embraced by the more liberal justices, that sooner or later everyone goes for health care and thus being in the commerce of health care is never an “if,” only a “when.”  The majority was concerned that if the Federal government could regulate doing nothing by calling it commerce, there was nothing it could not pass laws about.

Citing other ample authority, and noting that something is what it is, and not what its label says it is, the majority found that the payment required of the uninsured was in fact a tax.  (They did not even find it was a tax for all purposes, there is a fascinating analysis much ignored as to why it is NOT a tax as a matter of legislation; they just found that it was a tax in the Constitutional sense of the word.)

The second part of the law subject to review extended Medicaid coverage.  Previously, such coverage benefited pregnant women, children, people over 65, and people earning 2/3rds of the Federal poverty level.  The extension covers everyone in a family earning less than 133% of the poverty level.  Many states brought suit to declare this provision unconstitutional, as forcing the states to cover this expanded population.  Their basis was this: if a State refused to provide such coverage, it would lose all funding for all other Medicaid programs now existing, which result was coercive.  The majority said that this was indeed coercive, in effect forcing the States to adhere to a Federal policy by a grossly disproportionate penalty imposed in an unrelated area.  The majority struck the requirement that States adopt the expansion, leaving them the option to do so voluntarily.

While State resistance to the Medicaid expansion is to my mind difficult to understand, particularly since the Federal government will pay initially 90% of the cost and never less than 80% in exchange for which virtually all State residents will be insured (thereby improving the public health of the population, protecting the economics of local hospitals, and protecting the taxpayer base from having to pay for uninsured medical expenses incurred by the uncovered), the Court was deciding Constitutionality, not policy, and found the expansion unconstitutional.

There is much embedded philosophy in the Roberts opinion and indeed speculation had been that if Justice Kennedy had been in favor of the mandate premised on the Commerce Clause (so that it would have been found Constitutional by a 5-4 vote anyway), then Roberts would have surely voted that way also, making the vote 6-3 but ensuring that he (Roberts) could write the majority opinion.  The Roberts opinion is full of reassuring signals to conservative  constituencies, indicating the limited reading Roberts wants this opinion to have.  Witness the following among others (all internal punctuation and references to cases are omitted):

* “The Federal Government may enact a tax on an activity that it cannot authorize, forbid, or otherwise control.”

* “Proper respect for the co-ordinate branch of the government requires that we strike down an Act of Congress only if the lack of constitutional authority to pass the act in question is clearly demonstrated.  Members of this Court are vested with the authority to interpret the law; we possess neither the expertise nor the prerogative to make policy judgments.”

* “The Framers created a Federal Government of limited powers, and assigned to this Court the duty of enforcing those limits.  The Court does so today.  But the Court does not express any opinion on the wisdom of the Affordable Care Act.  Under the Constitution, that judgment is reserved to the people.”

I omit discussion of the dissents which are, in the aggregate, twice as long as the majority opinion.  They are not the law of the land, and political debate will revolve around spinning and misrepresenting the majority; it is ambitious enough here to attempt to state clearly that which WAS DECIDED, as a point of reference in what will become a sea of distortion.  Indeed, already Democrats are ignoring the unconstitutional finding on the Medicaid part of the Act which leaves 50 Million people potentially uncovered, and the Republicans are  trumpeting the startling revelation that what we have here is a tax imposed by Democrats, even if patterned after Governor Romney’s successful Massachusetts legislation.

The opinions (majority and dissents) discuss at a fundamental level the theories of American democracy and the pressure that the Constitution is placed under by a country infinitely more populous and sophisticated and modern that the colonies at the end of the 18th Century.  Some of the more arcane discussions are not even touched upon here, and may be too lawyer-ly to be of general interest.  But rather than sitting on the beach this summer with Fifty Shades of Grey, I suggest instead reading Fifty Shades of Governance, as written by Chief Justice Roberts.  It is, in its own way, far sexier.

I’ve Been Thinking…

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American columnist and humorist Art Buchwald wrote the best stuff I ever read in a newspaper.  His column ran in some New York paper (the Post?) when I was a teenager and I loved its often staccato style: a series of quick thoughts, or bullets, about things anomalous.  Its tone and point of view —  serious stuff mediated by sardonic perspective — I like to think informs the approach of my blogs.

Although I cannot find a specific reference on the internet, I believe some of his columns were captioned “I’ve Been Thinking.”  I have made this phrase one of the categories into which my posts are sorted, and have selected the phrase as the title of this particular post.

Seems that Buchwald won a Pulitzer Prize for doing all of this.  No risk of that happening here, but the below gets a whole bunch of confusion and a modicum of anger out of my system as I drift into the Fourth of July, so the exercise works for me.  You may not be so lucky.

I’ve been thinking:

*The reason that 57% of US mothers without college degrees are unwed and 94% of US mothers with at least a college degree are in fact married [reference: Harvard alumni magazine] has to do with people opting for choices that give them otherwise unavailable self-esteem.

*That is also the reason poor people buy clothes with conspicuous labels, fancy cell phones and sneakers that cost $100.

*I do not understand why Romney has chosen to make the policy underlying the Health Care Act his key issue as it is his very own policy, and the policy aspect does not change depending on whether it is articulated in a State or Federal program.

*Why do Republicans announce that Health Care is the largest tax hike in American history when it does not even come close, and when we had larger ones as recently as in 1993 and before that even a larger one under Reagan?

*Stock market prices rise and fall wildly these days, depending on each slight perturbation in the European situation, as if clearly minor and temporary developments reflect a final state of affairs; but if some recent negative developments in fact were final, the stocks should not drop two percent but fifty percent.

*Lots of so-called venture capitalists are not willing to venture their capital.

*Small businesses are engines of job growth because they are filled with entrepreneurs and employees fired by large businesses.

*Occupy Wall Street has entered into our national awareness through a slick CD recording of really bad folk-style songs excoriating the one percent, while the Tea Party seems to maintain real influence but lacks its own music CD.

*Boston public transportation was always broke because of lack of riders and, now that ridership has spiked upwards, it is even more broke, suggesting that management is off-track, or worse.

*Gary Loveman thinks he has a lock on a casino at Suffolk Downs, which does not look like a resort destination to me.

*The city of Boston replanted the entire Occupy Boston site, below my office window, with lots of barriers and some pretty big trees, but I think you could still fit a bunch of tents in there if you were so inclined.

*The Supreme Court Health Care decision is a victory for capitalism.  Beforehand, our system was pure socialism: you were sick, you went to the hospital or clinic, you had to be treated, you had neither money nor insurance, the cost went into the tax base, and middle class and rich people paid all the expenses for you through their taxes.  Marx would have been proud.

*If the US or NATO does not take out the Iranian nuclear program and Israel does it, what happens next?

*In that event, will it matter who wins the election in the US?

*The US is a fundamentally religious society with religious references in our currency, patriotic music and loyalty pledge, and an instinct to refrain from any criticism of any statement couched in terms of religious exercise — in that limited regard, sort of reminds you of some Islamic societies.

*If you applied the statistics of major American politicians and presidents who have had sexual affairs to the population at large, we would be a grossly amoral society.  Makes you wonder if we are.

*If electronic or computer-printed postage becomes the norm as the volume of hard copy mail continues to plunge, will collections of rare stamps become more valuable or worthless?

*Does the rise of the internet doom American politics, as people drown in partisan and unreviewed content while losing the ability to study lengthy materials or debate openly and intelligently?

*If we follow the admonition to direct education to developing specific job skills, are we so ignoring the study of government and the social contract as to create the kind of apolitical electorate that will accept dictatorship as the price of order?

*How many Americans believe that it is improper to pass laws defining civil rights, as those rights are inherent even if not embraced by a large majority of voters?

*When is the year that we will have a gay President?

*Instead of legislating in favor of gay marriage, why don’t we pass a law making everyone a party to a civil union for purposes of government policy, and people can privately call themselves married if that is a meaningful personal or religious designation?

*If, as his defense lawyer suggested, Whitey Bulger had immunity from the FBI, why did he bother to hide for 16 years?

I am off for one day of doing nothing.  Last reader out, please close the door behind you….

Facebook: Grow up and Smell the Carnage

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A little knowledge is axiomatically asserted to be a dangerous thing; let me be dangerous.  Here is an excerpt from a blurb received today via the National Association of Corporate Directors (a great organization; disclosure: I am on the New England chapter board):

“A bipartisan group of lawmakers called on regulators to overhaul the way initial public offerings are conducted,” reports the Wall Street Journal(June 21, Eaglesham, Demos), “concerned that last month’s flubbed stock sale by Facebook Inc. shows the current system unfairly punishes small investors.” In a letter to SEC Chairman Mary Schapiro, Rep. Darrell Issa (R-Calif.) urged the agency to revamp rules for pricing and disclosure in IPOs. Separately, Sen. Jack Reed (D-R.I.) — the Democratic chairman of a subcommittee of the Senate Banking Committee — publicly stated that regulatory changes are needed to boost investor confidence sapped by the social networking giant’s botched debut. According to the Journal, “the prodding from lawmakers puts pressure on the SEC to rev up its scrutiny of the Facebook deal. Officials are examining technical glitches on the Nasdaq Stock Market that caused chaos during the stock’s first day of trading that left some investors unsure of how many Facebook shares they owned — and at what price.” In addition, the agency is reportedly investigating whether the underwriters broke any rules by allowing warnings from research analysts about Facebook’s business prospects to be passed along to handpicked clients, but not the general public.”

SO–let me see if I understand.  The primary complaint is that trading glitches prevented avaricious short-term investors from effectively flipping the stock for a quick profit.

They were prevented from doing so with respect to a stock so grossly hyped that every person who was awake and read a newspaper, a magazine or a blog knew that it was volatile at best and possibly very overpriced.

The conclusion being reached is that one class of investors, the small public investor (who likely could not get his hands on the stock at $38 anyway) was prevented either from buying the stock or flipping the stock for a quick profit.

Rep. Issa, the putative champion of the little guy, thinks we need laws to prevent this.

What one needs here is either a repeal of the laws of human nature or, alternately, an anti-capitalist mandatory substantive review of public deals to both attempt to mark them to market and to make sure that retail investors are denied access (rather than encouraged).  But that would be anti-American.

As I write this, Facebook is under $32; it came at 38 and its high was 45.  Who should be investing in this stock?  Who shoud be allowed by law to invest in this stock?  Is this stuff that the Congress should care about?  Pass MORE regulation, driven by people who at the same time decry over-regulation of our capital markets?

Maybe it is time to grow up.  Capital markets are extremely risky and depend on some people being smarter and quicker than other people.  Retail investors by and large will not be among the smarter and quicker.  They lose and under our system they must play so — grow up and live with it.

SEC Acts on Compensation Committee Regulation

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Today the SEC announced final rules concerning compensation committees of public company boards of directors.  This action is a mere two years after being mandated by the Dodd Frank Act and demonstrates the struggles of the SEC in keeping up with its regulatory agenda.  That having been said, the content of the final rules is not startling.

Basically, securities exchanges now must establish listing rules that traded companies must comply with, requiring a wholly independent comp committee with the power to hire and totally control compensation consultants; companies must agree in advance to foot the bill.

Proxy disclosure amendments require indication of conflicts of interest between the consultant and the company and management, and how the conflict is being addressed; proxy disclosure already elicits details about the use of consultants, payment of fees, etc.

Many but not all public companies use consultants; while it is clear that using consultants is not sufficient alone to discharge fiduciary duty, the data provided by consultants and the discussion of variables is strong evidence of diligence and care.  Some large companies do not use consultants as a matter of practice, but the burden of going against a de facto best practice is heavy.

Those who decry creeping regulation through the securities laws as a drag on entrepreneurship and job creation, and who react negatively to the web of regulation contained in Dodd Frank, will have more evidence to point to.  But the new rules are not a significant added burden to the already existing practices of most companies.  The real game is the loss of the older practice of the board fixing compensation in its own judgment and not having to explain it to anyone.  And today, even with a comp committee and consultants, poor performance in stock price will foster resistance to the board from shareholders and problems with ISS.

The real problem of course is driven by human nature.  In fixing compensation of C level executives, what board member is content to say that his or her executive is just average in skills, or even below average (someone HAS TO BE below, mathematically)?  Does the disclosure say “Your board decided we have and want to keep an average CEO and pay him the market average, we think the board discharges its duty to you in this regard by providing mediocre pay to a mediocre president”?  Not hardly likely.  Boards want to think, and do think, they have gotten someone above average, at least.  Everyone ends up being perceived as above average.  The pay scale increases to make a new, higher average.

These are not human dynamics that can be cured by disclosures and by preventing conflicts of interest.  Unless the unthinkable is thought of (regulation by government or quasi-governmental institutions of actual executive pay), it will continue.  Again, a failure of regulation to rein in human nature.

It remains good to be king.  And to be a C level executive.

News: Criminal Law System Totally Useless?

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Criminal law addresses several issues with assumed results.  It addresses the need for fairness and closure by punishing disfavored behavior.  It addresses the need for moral retribution in the same fashion.   It is supported by lawyers and lawmakers as having prophylactic effect, preventing crimes from happening because people are fearful of punishment; this utilitarian argument is most favored by legal folks who are thinking about law, as opposed to abstract fairness, moral values or satiating a lust for revenge.

Unfortunately it seems that laws may not prevent people from doing evil after all.  I do not know where that leaves us because intuitively it just feels wrong to say, hey criminal laws do not have impact so let people do what they want, we can save lots of money on the court system and on cops and jails.

I thus eagerly await June 5, when Harper-Collins publishes “The (Honest) Truth About Dishonesty: How we Lie to Everyone–Especially Ourselves.”

One can quarrel with the book’s pop-culture title and its grammar, but the author is a credentialed behavioral economist (they write the very best books, don’t they  –all those statistics that just disprove  everything we ever thought) who says that probability of getting caught has “no effect” on the occurrence of dishonest behavior. If that be true, then criminal laws therefore will exist only for much-maligned reasons: enforcement of subjective or moral values, or revenge.

We have long recognized that certain crimes of passion are not prevented by criminal law: the domestic dispute, the Jihadist, the withholding of tax dollars that go to support the military, .  No one seriously contends that these folks are impacted by the thought of jail time.

Bernie Madoff clones are particularly hard to think about in these terms.

But it seems there is a lot of experimental support for the proposition that dishonesty is controlled by things like “honor pledges,” placing signatures at certain positions on documents, moral reminders, and simple supervision.  And interestingly, there is indication that increased amounts to be stolen may, for the vast majority of people other than hard core crooks, actually decrease dishonesty; apparently you can rationalize stealing a dollar while considering yourself a fundamentally good person, but somewhere up the line most people don’t feel comfortable taking a really large sum.

Now, whether the experimental techniques used by the researchers (asking college students questions that afford them the chance to cheat, lie and steal if they so choose) have analogy to harsher and more raw factual situations, and whether the lack of criminal laws will turn loose the very small percentage of truly evil people in the world against whom we need protection, is likely to prove a philosophical question (at least until some economist begins to think about it).  But the idea (which by the way I have extrapolated, it seemingly is not the thesis of the book itself) that much of our criminal system is a waste of time is pretty startling, and worthy of a closer look when the no-doubt overpriced hard cover edition hits the streets.

I pause to express confusion about one aspect of this implied result.  There are indeed physically dangerous people in jail.  Pathological killers, sex offender recidivists, etc.  Perhaps since by definition the criminalization of their offenses is just the rubric for locking them up, we need another category of confinement,  which will capture these folks for us; and perhaps that new nomenclature will foster new thinking about treatment of these people, if they cannot be dismissed as “criminals.”  I am discomforted mightily by spending a lot of societal capital, in time and money, to address this aspect of the issue, but perhaps doing so is the measure of an increasingly humane approach to incarceration.

It sure does get complicated and I am sure I am leaving a trail of half-thoughts and logical lapses in my wake here.

Perhaps I can ask the publisher to comp me under the guise of my posting a blog about the book.  Now that I know that getting caught isn’t going to hold me back, there is nothing standing between me and a free Kindle download.  Don’t you just love economic analysis?

Facing a Dying Nation?

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I am reminded of the lyrics from Hair as I read the New York Times account (May 17) captioned “Whites Account for Under Half of Births in U.S.”  There is a tinge of fear in the reporting; fear that our social compact cannot ultimately stand the strain fifty years down the road.

Are we in fact:

“Facing a dying nation
Of moving paper fantasy
Listening for the new told lies
With supreme visions …”?

The question is particularly focused from the Boston standpoint; a segregated city without a real societal plan to bridge the gap.  That 92% of U.S. population growth in the past decade came from Hispanics, blacks, Asians and persons of mixed ethnicity seems not believable from where I stand —  which of course is a measure of the issue.

The article worries whether the white de facto majority (today and in the near future) will be willing to actually pay the tab for educating a mass of children who do not look like that majority.  The article offers the self-satisfied assurance that the U.S. is better off than many European-based societies because at least we have a surge of young people to drive the economy and support the aging white population;  one expert is quoted:  “If the U.S. depended on white births alone, we’d be dead.  Without the contributions for all these other groups, we would become too top-heavy with old people.”

What is NOT said by the article or the quoted experts is the inverse of the worry that aging rich whites will not pay to educate the alien young.  What is NOT said is that the alien young will not pay to support the old age of the alien old.  Seems to me both stand-offs are plausible if we do not bridge our inbred prejudices, and fast.

In a world where Breivik blows away 77 people in Oslo and Zimmerman blows away one kid in Florida, in a world where on this morning’s drive time news we hear that a bunch of cops drill a 15 year old with a spray of bullets after the kid knifes the cop, in a world where just about every country or area seethes with the detritus of what must be a fundamental human condition —  the instinctive initial recoiling from “the other” — in a country which in the words of the Times “has wrestled mightily with issues of race, from the days of slavery, through a civil war, bitter civil rights battles and, most recently, highly charged debates over efforts to restrict immigration,”  it strikes me that we need to do a lot of work  and deal with a lot of backwards slips if the U.S. is going to pull this one out of the fire.

The American Challenge for this century may not be forestalling economic decline; it may be just surviving as a political entity that provides a predictable and adequate life style to a reasonable number of the people who happened to find themselves within its borders.

CURRENT KEY BOARD GOVERNANCE ISSUES

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At the May meeting of the New England Chapter of the National Association for Corporate Directors, the subject was that time-honored question: “what keeps the directors up at night?”  As it turns out, an awful lot.

A spirited panel included Ken Burnes (lead director at State Street), Ralph Verni (board chair of Eaton Vance Mutual Funds) and Kim Williams (professional director who among other posts serves on the Weyerhaeuser board).

The program started with a leading survey which contained a predictable list of “the top five”: executive compensation, board role in corporate strategy, CEO succession, board role in strategic management, and director recruitment.

The things that worried the NACD panel were, however, far broader.

  • Do risk committees (or their equivalent) adequately identify risk?
  • Is a company protected from cyber-attack in an age which is seen as encouraging a growth in corporate espionage?
  • Is the high rate of pay in private companies disincentivizing proper staffing of public companies, where public comp is under intense scrutiny?
  • In manufacturing companies, is capital made sufficiently available to drive both internal needs (for safe operating conditions) and external needs (emissions control, tsunamis, weather catastrophes)?
  • Do directors sufficiently understand the company’s business and competitive climate to provide requisite guidance?

Much of the discussion circled back towards risk assessment.  It was noted that management always thinks that everything is under control, and it is the task of the board to dig deeply.  Directors were urged to “ask the stupid question” when they do not understand.  Other ways to make sure that boards are adequate to their risk assessment task include providing wide diversity of backgrounds on the board so as to spark discussion and understanding, and embracing current trends in board recruitment which look for specific skill sets to complete board’s skill requirements.

From a lawyering standpoint, I note that there was no discussion whatsoever of certain areas in which we lawyers know that much litigation against directors arises: nondisclosure of allegedly material information contemporaneously with a substantial drop in stock price; accusations of self-interest or lack of care in connection with acquisition transactions; lack of appropriate oversight of corporate affairs in a variety of areas including but not limited to the Foreign Corrupt Practices Act; the entire range of what lawyers call the Caremark duties of general supervision of corporate operations.

The Supreme Court: Healthcare, Immigrants and Killer Teens

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On a recent visit to Boston, Attorney Steve Shapiro (General Counsel to the American Civil Liberties Union) outlined matters before the Supreme Court today, or likely to arise in the coming 2012-2013 session.

I.    Obama – Care

The gorilla in the room is litigation concerning the healthcare law (designated derisively by some as “Obama Care” but we in Massachusetts really know it more by its original name: “Romney Care”).  In an unprecedented move, the Court extended its usual one hour argument time by a factor of six in order to hear arguments on specific issues posed by the Court itself:

  • Is the case ripe to be decided today since most of the provisions, including the requirement to obtain health insurance (the so-called “individual mandate”), don’t take effect until 2014?
  • Since the IRS can collect the penalty for violating the individual mandate only by offsetting tax refunds, and since there is an established rule of law that you can challenge a federal tax provision only after the tax is paid, will it ever be possible to challenge the law from the “tax” standpoint?
  • Can a citizen be forced to buy a commercial product such as insurance?
  • If the Supreme Court strikes the individual mandate, what other parts of the law if any are so inter-related that they must also be stricken?

Why is the Civil Liberties Union interested in the healthcare law, bearing in mind it is not overtly a civil liberties statute and the ACLU has taken no position as to whether the healthcare law is wise legislation?  The reason has to do with Commerce Clause of the Constitution; the ability of the Federal government to pass the healthcare law is dependent upon whether such legislation fits within the constitutional grant of authority to the Federal government to regulate interstate commerce, and a broad reading of the Commerce Clause of the Constitution is necessary in order to support a variety of civil rights legislation which is similarly premised.

Shapiro noted that there is political pressure on the Supreme Court to decide this issue now, regardless of the technicalities as to whether it is “ripe.”  As to the question of whether the case is appropriate for decision where the “tax” has yet to be collected, Shapiro points out that the Administration has firmly taken the position (requisite in the current economic climate) that the IRS-collected penalty is simplynot a tax.  Indeed, its collectability is only as an offset from otherwise government-owed refunds which may never arise.

Whether a citizen can be forced to buy insurance is fascinating.  It seems clear that State governments could in fact impose such a requirement, because it is an exercise of the general police powers.  But the Federal government only has those powers which are expressly afforded to it by enumeration in the Constitution.  All other powers are retained by the people and the States.  Thus for example, the similar Massachusetts Healthcare Law cannot be attacked on the ground of lack of government authority.

In a way it is therefore a shame for the Administration that it has claimed that the penalty is not a tax, since the Federal government clearly is entitled to levy tax pursuant to the Constitution.

Challengers to the law say that the Commerce Clause cannot support the legislation.  It may be true that if an individual chooses to buy health insurance he then participates in the interstate commerce business of the healthcare system.  But, say opponents, the statute is focused on individuals who do not buy health insurance and, consequently, uninsured individuals subject to this law are by definition notinvolved in interstate commerce relative to healthcare, as they do not participate.  The government counters by saying that in fact all Americans participate at some point in time, this is a matter not of “if” but simply “when.”  If someone who is not insured requires healthcare, and he does not have insurance, by law he cannot be denied medical care and ultimately that care is paid for by all Americans as part of the interstate commerce of healthcare.

Shapiro noted that two popular provisions of the healthcare law clearly are within the constitutional powers of the Federal government: that insurers cannot deny coverage for pre-existing conditions, and that insurers cannot increase charges for insurance based upon one individual’s health history.  Since the Constitution grants to the Federal government all other power necessary to effect otherwise constitutional actions, the individual mandate perhaps can be backed into a convenient parking space of constitutionality through this argument, without reference to the Commerce Clause.

Query: let us say it is true that the Federal government can require an individual to buy health insurance because the Federal government supports a national healthcare system which in turn is part of interstate commerce.  Does that also mean the government can require all citizens to buy a General Motors car because we bailed out GM?  Shapiro suggests that the issues are analytically the same but the political ramifications vastly different.

How will the case come out?  As in the past, Justice Kennedy is thought to be the key.  But the general thinking is that if the healthcare law is to be stricken, the vote will be five to four.  If, however, there are in fact five votes to retain all aspects of the law (that is, if Kennedy votes in favor of the law), then the vote is liable to be six to three.  Why is that?  Because at that point the Chief Justice is expected to vote to uphold the statute, because then the Chief Justice will be entitled to write the legal opinion, and he would want to write the legal opinion in the narrowest possible terms.

II.  Immigration

The second leading and as yet undecided case before the Supreme Court is the Arizona “show me your papers” law which requires the police, upon any otherwise permissible detaining of a person (including for example running a red light), if that officer also has a “reasonable suspicion to believe” that a person is in the country illegally, to ask the detainee to prove his legality (green card or some such).  If you cannot, you are to be taken into custody and a call placed to Immigration.

The key question here is the basis for “reason to suspect” that someone is in the U.S. illegally.  Shapiro’s position is that this is an open door in Arizona to racial profiling to accomplish Arizona’s overtly articulated goal: attrition through forced immigration of minorities out of the State.

The fight over the Arizona Immigration Law is the exact reverse of the fight over the healthcare law: the cases are mirror images.  Why is that?  It is again a question of who has authority to take action.  Under the healthcare law the question is whether the Federal government has authority to act under its constitutionally specified powers (the Commerce Clause).  In the Arizona “show me your papers” case, the question is whether the State has the authority to take any action with respect to immigration which is clearly a primary Federal function.

Opponents of the law say that immigration is a Federal matter and the States are preempted from acting upon it.  And here the issue is compounded by history.  Historically, immigration indeed was a Federal prerogative both in terms of articulating the law and enforcing it.  In the last Bush Administration, the President’s legal office stated that the Federal government could share enforcement of Federal policy with the States, and that the States therefore could have concurrent authority.  The Obama Administration, although urged to reverse this position, declined to do so.  Consequently the Obama Administration now cannot maintain that the States have no power whatsoever to enforce in the area of immigration.  Now the Obama Administration is therefore required to take the following position: States cannot enforce Federal immigration laws inconsistently.  The response of the State is obvious and based on the facts:  “we do in fact consistently enforce.”

Shapiro suspects the Supreme Court may indeed uphold the “show me your papers” portion of the Arizona Immigration Law (other provisions clearly will fall), but will still leave open the issue of discriminatory application.  And in that regard, there ultimately may be a victory for the opponents of the law; business and agricultural interests in Arizona (and similar States that have adopted similar laws) have realized that clamping down on immigrants is bad for business, and the political will to enforce the law in a discriminatory manner may well have dissipated.

III.    Murderous Children

More consistent with the kinds of cases with which the ACLU generally deals are two pending cases involving whether imposing a criminal sanction of life in prison without parole, in cases of murder, can be applied to a minor.  The contrary argument is that it is cruel and unusual punishment violative of the Constitution’s Eighth Amendment.  The Supreme Court previously has held that a sentence of life without chance of parole constitutes cruel and unusual punishment for a minor in all non-homicide cases.

At this point two cases are pending under an Alabama law against two fourteen year olds (at the time of the crime), one of whom pulled the trigger in a murder and the other of whom was found guilty of murder under the time honored “felony murder rule” (any participant in a criminal act which is a felony, where that criminal act results in someone’s murder, is himself guilty of that murder).

Shapiro expects that the Alabama law will be determined to be unconstitutional because the Alabama lawrequires a life sentence without parole in such a case.  He expects that the Court will say that the judge must be left with some discretion with respect to sentencing.  Query whether the Court will go further?  Query whether the Court will establish an absolute minimum age with respect to which a life without parole sentence will always constitute cruel and unusual punishment.  Conveniently in the argument before the Supreme Court in the two Alabama cases, lawyers for the minors claimed that the appropriate absolute minimum age is fifteen while the State of Alabama claimed it was thirteen, artificial line drawing with respect to two defendants who happened to be fourteen years old.

IV.    Congressional Medal of Honor

Other interesting cases this term include:

United States v. Alverez (a pending case asking whether the statute which criminalizes lying about receiving a military honor such as the Congressional Medal of Honor violates the First Amendment right of free speech); and

Two decided Fourth Amendment search and seizure cases (United States v. Jones asked whether the police with no warrant can put a GPS tracking device on your automobile, answered in the negative by this Court in a rare nine to nothing decision; as compared to Florence v. Board of Freeholders, which asked whether a New Jersey jail can routinely strip search each person held in the jail, no matter how minor the offense and how short the incarceration, an exercise of police power upheld by a five to four vote).  Shapiro suggested that the difference between the decisions in the Jones and Florence cases is one of Court “empathy;” the Justices could imagine, and be shocked by, the government putting a GPS device on their own cars parked in the Supreme Court parking lot (they actually asked the government attorney during argument if the government felt it had the power to do so, and received an affirmative response!) while, it was suggested, the Justices simply could not imagine themselves in a position of being stripped and searched because they ran a red light).

V.  Coming Attractions

What is liable to come up in the next term?  (The Supreme Court operates on what is an academic year, the cases start getting heard in the Fall and all must be decided by the following June 30th.)

There is likely to be another case on whether affirmative action is supportable in university admission settings, re-examining the acceptance of such a criterion in the University of Michigan case several years ago.

There may be a challenge to Section 5 of the 1965 Voting Rights Act, which requires States with a history of voting discrimination to obtain affirmative Department of Justice pre-approval of any change in their voting rules (Obama’s DOJ has struck down two such laws, while allowing a change in Wisconsin voting laws without DOJ review because Wisconsin had no history of voting discrimination).

It is likely that California Proposition 8 (defining legal marriage as only between a man and a woman) will come before the Court (the statute had been stuck down by three judge panel of the Ninth Circuit [California] Court of Appeals).

ACLU hopes to bring up the case of Clapper v. Amnesty International, where ACLU raises the Fourth Amendment protection against unlawful search and seizure in a wire-tapping for national security purposes without judicial oversight.  This case presents an anomalous twist: generally you can only challenge United States Federal surveillance powers if you have standing because you have been under surveillance, but under the national securities regime you may well not know that you are under surveillance, and if you ask you will not be told because it is of course a secret national security matter.  This surveillance right was struck down by a three-judge panel of the Second Circuit [New York] Court of Appeals), but the en banc Second Circuit (a conclave of all the judges who sit on the Circuit) was divided six to six.

Finally, it was asked whether any more litigation was liable to reach the Supreme Court out of the Gitmo detentions.  While there is of course no definitive answer, Shapiro noted that at present all detainee cases go to the Federal District Court for the District of Columbia, which has granted the government broad license to detain a wide variety of suspects, and has determined that although a given detention may in fact be unlawful there is no ready remedy because the detained individuals cannot be set free in the United States and the courts cannot compel deportation.