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Thursday, January 12, 2006

Is Larry Ribstein a Conservative? On Eschewing Labels in Corporate Law

The last few days have seen a lively debate about the role of ideology in corporate law.  Gordon Smith got things rolling with his post, Ideological Wars Among Business Law Professors.  He described his experience in attending the AALS programs for the business associations and securities regulation sections, as opposed to the programs on corporate law that were part of the "law and socio-economics" section events.  Smith noted that the BA and Sec. Reg. sections were "dominated by free marketeers," while the socio-economics panels conveyed "a pervasive sense that the corporate governance system is corrupt."  He lamented the lack of exchange between these two groups and sensed that both spent a lot of their time reinforcing their own ideological paradigms.

In the comments, however, this ideological split was less in evidence.  In fact, most commenters described themselves as neutrals in this ideological battle.  Some examples:

  • Brett McDonnell: "As someone caught in no-man's land between the two camps"
  • Christine Hurt: "I think I also dip in and out of the two camps"
  • Darian Ibrahim: "Like Brett and Christine, I too think that both camps have merit"

And Vic Fleischer stated in a post last month that "Readers, please note that while I respect progressive scholars like Matt Bodie and Larry Mitchell a great deal, I do not count myself as one.  I try to keep personal meaning out of my research agenda."

When I first posted about the "progressive dilemma" in corporate law, I was hoping to touch on an issue that I think a number of junior corporate law folks are thinking about.  And that is: what is the purpose of corporate law?  The shareholder wealth maximization model is easy to understand and empirically testable, but there are a number of difficulties with this model.  However, the stakeholder approach is also problematic in a number of respects.  I intended the post for folks I considered more progressive in their leanings -- folks like Brett, Christine, Darian and Vic.

It turns out that the "progressive" label, like many labels, is itself problematic.  Perhaps the problem was best summed up by Bernie Black in his comments to Gordon's post:

I'm hardly reflexively anti-regulation. I have written a fair bit about why securities markets depend on good legal and market institutions, and done empirical work suggesting that mandatory regulation sometimes can increase firm values (in Korea, for example). The field of "law and finance," in which I locate much of my recent writing, is all about those interactions.

At the same time someone who doesn't understand markets and incentives, what economic problems they solve (and how well), what problems unregulated markets don't solve, and what we can realistically expect from efforts by imperfect government actors, with decidedly imperfect incentives, when they seek to fix market problems, shouldn't be writing about regulation of corporations, other business entities, fiduciary duty, and the like. Ditto for someone who isn't willing to read and deal with the available empirical literature on successes and failures in regulating corporate goverance, some in law journals, but much of it in economics and finance journals.

Sadly, in my view, both aspects of this pejorative description (doesn't understand markets, doesn't read and grapple with data) applies to a fair number of the practitioners of the "progressive" approach to these subjects. This leads me to ignore their writing, and unless the writing changes, I will continue to do so.

If a progressive is someone who "doesn't understand markets" and "doesn't read and grapple with data," then yikes! -- who wants to be thought of as a corporate law progressive?  The folks who place themselves "between the two camps" are all folks who incorporate economic thinking into their writing and, in fact, might describe themselves as law and economics scholars.  So if being a progressive means being economically unsophisticated, I can see why no one wants to be a progressive.  In fact, I was offended when Vic labeled me a progressive, because he implied that being a progressive meant that I had some sort of personal agenda which colored my work with political bias.

The same goes for the "conservative" label, however.  When I described Larry Ribstein as "conservative", I got blowback in the comments and from Stephen Bainbridge.  But if there's a progressive vs. conservative axis, then Ribstein isn't a progressive, is he?  It comes down to the label: "conservative" can mean a lot of things, and a lot of those meanings don't apply to Prof. Ribstein.  And "conservative" may not be all that useful when it comes to corporate law; for example, see this debate about the MCI-Verizon-Qwest tangle between Ribstein and Bainbridge.

Labels can be useful proxies.  But they can also be misleading.  Although Gordon Smith described two ideological corporate law camps, I have a feeling that most corporate law scholars, particularly junior scholars, would put themselves somewhere between these two camps.  And perhaps that bodes well for the future of corporate law as a discipline.

Posted by Matt Bodie on January 12, 2006 at 03:05 PM in Blogging, Corporate, Life of Law Schools | Permalink

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The corporate law blawgosphere is having one of its periodic progressive versus conservative debates. Gordon Smith started it, with lots of folks chiming in in the comments section, and now Matt Bodie has weighed in with a thoughtful post. I [Read More]

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Comments

Matt,

I agree with your post, and (like you) don’t want to be labeled a “progressive” corporate law scholar if that means someone who eschews all benefits the market has to offer – or worse yet doesn’t understand them. But I’m also skeptical that the market can solve all problems, at least in a timely manner. In my opinion, there should be properly-tailored regulations – ideally those that cause the market to function better (e.g., by increasing transparency and providing more information on which investors can base their decisions). That’s why I support Sarbanes-Oxley as a general matter; yet I find merit in the suggestions of those who contend that the costs for smaller businesses outweigh the benefits, or that certain aspects of the law are meaningless and costly formalities (e.g., wasn’t the Enron board a model on paper?).

Corporate law to me is not about advancing ideology; it’s about what makes sense given the objectives and realities of corporations. Although I think the distribution of wealth in this country is unconscionable, I’m sympathetic to those who think that corporate law may not be the proper venue for fixing this problem. Our capital markets have created the greatest wealth in history, and creating wealth in and of itself is not a bad thing. But corporations have become quite dominant in our society and do have negative effects on third parties; this bleed over has to be accounted for. Perhaps tax laws should be altered and social programs better funded for a more equitable distribution of the wealth that our markets create, or perhaps campaign finance laws should be tightened to avoid giving corporations undue influence over the legislative process. Of course these are nuanced and debatable propositions, and I certainly do not appreciate their difficulties in such simplistic suggestions. But my larger point is that corporations and markets are not completely the problem, nor are they completely the solution – so I try to avoid drawing such bright lines and look instead to the particulars of a given situation.

I also find that my scholarly focus on non-public corporations and other business forms allows – at least to some extent -- for a more politically-neutral analysis of interesting legal issues. While the question posed at the AALS on fiduciary duty vs. freedom of contract has political overtones, the issues that I’ve written on, such as the difference between corporate goodwill and a selling shareholder’s personal goodwill in small business acquisitions, or who the closely held business lawyer represents, are for the most part just interesting questions of law. There’s a certain thrill in that type of work.

Posted by: Darian Ibrahim | Jan 12, 2006 9:30:17 PM

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