U.S. Presidents Buckle at Constraints: The Case of Obama's Recess Appointments

A constitutional system of checks and balances is premised on the assumption that government officials will seek to get as much power as they can. Constraint itself becomes a dirty word. Admittedly, the desire to resist or ignore constraints may be in human nature itself, though people differ in how much self-discipline they will bring to the task of restraining themselves from walking through constraints as if they were Chinese walls made out of paper. A constitutional system that checks ambition with ambition must not assume that some of the more beloved elected representatives can be relied on to resist the temptation to go too far. I have in mind the case of the U.S. president being able appoint officials without the confirmation by the U.S. Senate.

The President cannot decide that the Senate is on recess in order to be able to make recess appointments without  needing confirmation. This was the ruling of the federal court of appeals in Washington, D.C. The case involved the appointment of three members of the National Labor Relations Board. A three-judge panel of the court ruled that the appointments “were constitutionally invalid” because the U.S. Senate was not in recess on January 4, 2012 when President Obama made the recess appointments. If the president were free “to decide when the Senate is in recess,” it “would demolish the checks and balances inherent in the advice-and-consent requirement, giving the President free rein to appoint his desired nominees at any time he pleases,” the court opinion reads.[1] Of course, the Senate could also abuse its privilege by declaring itself in session when it is de facto in recess in order to prevent recess appointments. The balance in “checks and balances” implies that neither side is able to render the other impotent to act. In other words, neither side should try to game the constitutional system.
For its part, the White House viewed the ruling as applying only to the three NLRB appointments in the suit, rather than extending to Obama’s appointment of Richard Cordray as director of the Consumer Financial Protection Bureau (CFPB). That appointment too was made on January 4, 2012. Because the court ruled that the U.S. Senate was not in recess, it stands to reason that any recess appointment made by the president on January 4, 2012 was invalid. Even so, White House spokesman Jay Carney said that Obama’s appointment of Richard Cordray was not affected by the court’s decision. “The decision that was put forward today had to do with one case, one company, one court,” Carney said. “It has no bearing on Richard Cordray.” I contend that it did.
The ruling states that no recess appointment can be made by the president when the U.S. Senate is not in recess. Even if the Obama Administration disagreed with the ruling, to narrow it dogmatically to just three of the appointments made when the U.S. Senate was not on recess (as determined by the court) is nonsensical. Besides offending reason itself, the “reasoning” evinces a tendency then in the White House to evade the very notion of constraint. The same tendency could be discerned in the next president as well, suggesting that to protect the viability of the constitution it is necessary for Congress to keep a vigilant eye on the executive arm of the government. In other words, resisting constraint itself is likely in human nature itself and thus must be closely watched in cases in which a lot of power is involved. 

 1. Tom Curry, “White House Sees No Impact of Court Ruling on Finance Protection Agency,” NBC News, January 25, 2013.

GM’s CEO: Ridding GM of Its Dysfunctional Culture or Enabling It?

I suspect that we tend to vastly underestimate the amount of energy, or raw force, sufficient to rectify an organization’s dysfunctional culture. The typical assumption is that replacing the CEO is not only necessary, but also sufficient. “A fish rots from the head down,” one might say. However, the head of a fish cannot necessarily stop, not to mention reverse, an infection spreading somewhere in the body. A sordid mentality can easily spread once it has taken hold in an organizational body. Indeed, such a pathogen can develop defense mechanisms geared to the standard antibiotics. To rely on the body to heal itself involves considerable naiveté. Relying on GM’s CEO Mary Barra to exculpate the mentality behind the faulty ignition-switch lapse and ensuing cover-up is thus arguably based on a faulty assumption of sufficiency.

On July 17, 2014, U.S. Senator Claire McCaskill, chair of the Senate Subcommittee on Consumer Protection, Product Safety and Insurance, demanded of Barra, who was testifying before the committee, “How in the world did Michael Millikin keep his job?” Stating that Millikin should be fired, U.S. Senator Richard Blumenthal noted that lawyers on Millikin’s staff were involved in “cover-up, concealment, deceit and even fraud.”[1] In return, Barra defended GM’s top lawyer as having “high integrity.” Moreover, she said that Millikin is a key part of the legal department she wants at the company—the “new GM,” as she had previously described GM under her helm. Yet can having fired only 15 people for their roles in the faulty ignition-switch episode, which led to 13 deaths and a delayed recall of 2.6 million cars, possibly turn an “old” company into a new one? The assumption that the enabling of covering things up had been limited to the 15 people fired (with financial incentives to leave—hardly a message of deterrence) is as faulty as the problematic ignition-switch itself.

To take Barra’s opinion of Millikin as having high integrity as a given involves ignoring the possibility that Barra wanted both to present a picture of a “new GM” to the world and protect GM veteran employees—essentially having it both ways. Put another way, relying on Barra means ignoring her conflict of interest.

Taking into account Barra’s possible motives, McCaskill took a look at the support for Barra’s defense of her company’s top lawyer. Millikin had said that information lawyers in his department had in April of 2013 of the link between ignition-switch and airbag failures did not get to his desk; hence he did not know of the defective switches until February 2014. If this is true, the senator reasoned, then Millikin is guilty of either “gross negligence or gross incompetence.” Whether the head of GM’s legal department acted with integrity or not, his job description includes running his department. That Barra, a manager herself, somehow omitted this point is odd. To borrow a line from the film, Inglourious Basterds, the head of the American Nazi-hunters told a German informant, “Yeah, we got a word for that kind of odd in English; it’s called suspicious.” It was suspicious that the informant arranged a meeting place at a pub being frequented by Nazi officers.

In overlooking Millikin’s failure to keep abreast of important information reaching his subordinates, Barra was essentially protecting the “old GM” even as she was selling a “new GM” to the world. There’s a word for this; it’s called lying. Were she serious about removing the culture enabling unethical and incompetent management in the company, a wholesale replacement of personnel would be needed throughout the company. To be sure, such a mammoth effort would have to take place over some time, in stages (and without giving the old guard financial incentives to leave). “Crime does not pay” and “Incompetent management is not to be tolerated” would be the messages sent in word as well as deed, and this is what integrity is all about. Contrariwise, trying to have something both ways in line with a conflict of interest is just more of the “old GM.” Even though Barra came in after the ignition-switch cover-up, indications point to her having joined the old guard even as she gives lip-service to a new GM. 

The old will of course take care of the old, so a new spark must infuse considerable energy into a company gripped by the status quo as its default in order to move the entire entity to a new, higher orbit. That is to say, much ballast must be tossed over as the trust is engaged. We as a society tend to assume that the movement comes about from mere window-dressing by a CEO. We are naïve.

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1. All quotes in this essay come from James Healey, “Senators Tell GM to Fire Top Attorney,” USA Today, July 18, 2014.

Banks Coopting the Consumer Protection Agency

According to the Credit Card Act, which took effect in February 2010, credit-card issuers cannot charge fees equal to more than 25% of the borrower’s credit limit in the first year after the account is opened. A question confronting the Consumer Financial Protection Bureau was whether up-front fees charged before the account is open count toward the limit. The new agency decided against subjecting such fees to the limit. The question is why.

Bankers at First Premier bank, which issues credit cards to people with low credit-ratings, claimed that the bank’s “very existence” would be threatened on account of “the loss of millions of dollars in profits.”[1] That the threat was self-serving should at the very least make it questionable. However, if true, it could mean that the bank was depending on taking advantage of customers for its own survival—in which case it should not continue to exist. The bank was charging a $95 processing fee before an account is opened, plus a $75 annual fee. The annual fee itself is questionable, given the credit limit was $300. It is highly doubtful that the cost to the bank of processing a credit card application was $95. It can thus be argued that the bank was taking advantage of people who needed a credit card in order to rebuild their credit history. Depending on such a business model is not viable, at least ethically-speaking.

For an agency whose entire raison d’etre is to protect consumers to enable such charges by exempting them from the law’s limits for first year charges raises the question of whether “regulatory capture” had occurred.  Hardly unknown among regulatory agencies, the phenomenon occurs when the industry being regulated “captures” its regulators. Whether through the power of information that the agency needs or outright political pressure, industries can coopt or subvert their respective regulatory agencies from their formal missions. That the banks objected to Elizabeth Warren and she was replaced as the proposed director by Richard Cordray may suggest that his loyalties were not entirely behind the consumer. That is to say, the banks may have had too much influence on the selection of the director tasked with protecting consumers.

1. Tara Bernard, “Consumer Bureau Declines to Resist Upfront Credit Card Fees,” The New York Times, April 13, 2012.