Sitting U.S. Presidents Are Not above the Law

Imagine the following hypothetical: a U.S. president, while in office, sneaks out of the White House in a tunnel, walks a few blocks further, and shoots a passerby in the head. The president returns to the White House as if the incident had not occurred. The only hint of the murder lies in the pardon that he gives himself for any crimes committed while in office. Would such a president be on solid legal grounds?

In 1998, Ken Starr, the independent counsel investigating President Clinton, assigned Ronald Totunda, a prominent lawyer who taught constitutional law, to write a memo on whether a sitting president can be indicted. “It is proper, constitutional, and legal for a federal grand jury to indict a sitting president for serious criminal acts that are not part of, and are contrary to, the president’s official duties.”[1] As the president is the chief law-enforcement officer of the U.S. Government, committing any federal crime would be contrary to the president’s duties. As for state crimes, they are not part of the duties and thus are fair game too. By implication, a president could not use the office’s pardon power to get around being indicted or even arrested outright. “In this country, no one, even President Clinton, is above the law,” Rotunda states in his memo.[2]

More than two decades earlier, President Nixon had stated that if the president does something, it is not illegal. Nevertheless, Leon Jaworski, the Watergate special council, had a memo (later being a court brief) arguing that he could indict the president while he was in office.[3] Yet in the end, he, like Ken Starr, “let congressional impeachment proceedings play out and did not try to indict the presidents while they remained in office.”[4] In an interview, Starr said “that he had concluded the more prudent and appropriate course was simply referring the matter to Congress for potential impeachment.”[5] I disagree.

In particular, the assumption of mutual exclusivity is erroneous, for Starr (and Jaworski) could have pursued both fronts—an indictment and congressional proceedings. The latter fall short in terms of criminal law, for congressional action at best is limited to impeachment and removal from office. These fall short from prosecution of crimes. For a president who murders a stranger to merely be removed from office is not to enforce the law; enforcement would mean that the president would face a prison term rather than a term in office. As a president in prison could not perform the duties of the office, resignation or removal from office would come into play. Perhaps the incapacitation-basis in the 22^nd Amendment would kick in too, for a president in prison would be incapacitated from the standpoint of being able to fulfill the duties of the office, which include attending governmental meetings abroad. At the very least, such a president would go to prison following the term in office, although delaying justice is generally not a good route. For example, a president could resign a few months before the end of the term with an “understanding” that the vice president would extend a pardon. In effect, the president would be above the law.

---

[1] Charlie Savage, “Can the President Be Indicted? A Long-Hidden Legal Memo Says Yes,” The New York Times, July 22, 2017.

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] Ibid.

The Unenforceable E.U. as Poland Legislates to End its Judiciary’s Independence

With a state government rapidly moving on legislation that would end the independence of that state’s judiciary, the E.U. Commission announced that it would invoke Article 7 against that state. An independent judiciary is a staple of democratic governance, and is thus required of a state (as well as at the federal level, in regard to the independence of the European Court of Justice from the other branches of the federal government).  If invoked, Article 7 of the E.U.’s basic (i.e., constitutional) law would deprive the state of Poland of its voting rights at the federal level. The independence of state courts is that important in the E.U., and yet for the article to go into effect, the European Council’s vote, excepting Poland, must be unanimous. Already, the governor of the state of Hungary had made clear that he would vote against invoking the article—that state having its own constitutional troubles with the E.U. Commission and being friendly with Poland.  In other words, two conflicts of interest came into play immediately, even as the Polish legislature was still voting on the proposed judicial reform.

The legislation “would force all the [state’s] top judges to resign, except those [the party in power] appointed.” In fact, the government would have “control over who can even be considered for a judgeship.”[1]  In response, Frans Timmermans, first vice president of the European Commission, said the legislation “would seriously erode the independence of the Polish judiciary” and in fact “abolish any remaining judicial independence and put the judiciary under full political control of the government.”[2] Such a condition would violate the basic principles of the European Union, which, like the United States, requires every state to have the republic form of government, which includes an independent judiciary to protect citizens from governmental tyranny at the expense of liberty.

Whereas it is easy to criticize the Polish legislature for its proposal to upend a vital element of a republic, the E.U. itself was culpable too. Specifically, to require that every state except the offending state agree before Article 7 can be enforced even on a matter as important as an independent judiciary in a state—in making it so difficult—the E.U. willfully makes itself vulnerable to its own defeat from a democratic standpoint. Common sense alone would say that very serious violations should not be subject to extremely high hurdles. Lest it be argued that unanimity can be expected if a violation is truly very serious, the Hungarian governor’s willingness to exploit conflicts of interest suggests that it is pure folly to pretend that alliances do not exist between states in a federal union. 

In general, such a union that permits itself to be hamstrung in enforcing its basic law is charity case befitting Nietzsche’s conception of weakness by abnegation. In other words, the E.U. looks pathetic in subjecting the enforcement of its basic law to such high hurdles that allow the exploitation of conflicts of interest to protect an unconstitutional state government. More generally, the self-inflicted wound in the federal enforcement powers—a wound stemming from still too much state sovereignty—blocks the check-and-balance benefit of federalism. In a healthy federal system, the federal level can provide a check on excesses on the state level, and vice versa. The “dual-sovereignty” in the system cannot be so unbalanced that one state can block federal enforcement against another state. If the E.U. state governments believe that the E.U.’s basic law is important to the Union in being able to function, let alone continue to exist, then those same governments should be willing to let go of unanimity in the enforcement of federal law. Put another way, the federal level should not have to rely so much on the state level—even one particular state—in being able to enforce federal basic law. Or is such law really not very important to the state government officials?

---

[1] Rick Lyman, “In Poland, an Assault on the Courts Provokes Outrage,” The New York Times, July 19, 2017.

[2] Ibid.

Essays on the E.U. Political Economy: Federalism and the Debt Crisis

The collection of essays comprising The E.U. Political Economy looks broadly at the E.U.'s federal system, with particular attention to the states, including the matter of "Brexit," which refers to the secession of Britain from the Union. The text then turns more narrowly to the government-debt and banking crisis that occurred in the wake of the financial crisis of 2008. The backdrop of federalism is meant to convey the point that weaknesses in that political system hampered the E.U.'s handing of its states and banks that were in trouble with debt. Lastly, several essays are presented on some more general aspects of the E.U.'s political economy. Rather than being heavily theory-oriented, the essays draw on contemporaneous news reports to quote from practitioners from business and government.

Essays on the E.U. Political Economy is available at Amazon.

U.S. Senators: Falling Short in Representing their States

Like the European Council of the E.U., the U.S. Senate has polities rather than citizens as represented members. That is to say, in both cases, the states are represented. In the case of the E.U., the chief executives of the respective states represent them. In the U.S. case, the citizens of the states elect senators directly, who in turn are tasked with representing their respective states. From the standpoint of representing the polities, the E.U. case is tighter, for a U.S. senator is susceptible to the temptation to vote in the interests of the state’s citizens who voted rather than of the state itself. The two interests may overlap, but they are not identical, for citizens of a member-state may or may not be interested in protecting the prerogatives of the state (government). The Republican legislative responses to the Affordable Care Act (i.e., “Obamacare”) are a case in point.

Under the Act, state governments could expand their Medicaid programs to cover anyone with incomes less than 138% of the federal poverty level, with the federal government picking up the tab through 2018 and 90% thereafter. Even Republican-controlled state governments saw that the deal was in their fiscal interests even if it meant giving up some sovereignty in the domain of health-care to the federal government. Nevertheless, a Republican electorate could vote for one of its U.S. Senators based on the sentiment that poor people should not get “free money.” Behind this is a sort of “survival of the fittest” philosophy wherein the weak should not be propped up. Additionally, prejudice or even animosity towards the drudge of society could be in the mix. From a European standpoint, such a sentiment must seem rather odious, and foreign. In any case, the majority of a state’s voters may at some point vote contrary to their state government’s interests. Being selected by the voters rather than the government, who do you think a U.S. senator is going to pay attention to, other than institutional campaign-contributors, in deciding how to vote on whether to retain Obamacare?

On July 17, 2017, Sen. Mitch McConnell, the Republican majority leader in the U.S. Senate, announced that his second attempt to repeal and replace Obamacare had failed for lack of votes. Back in March, the Kansas legislature had voted to expand Medicaid. Nevertheless, Sen. Moran of that state said in July, “There are serious problems with Obamacare, and my goal remains what it has been for a long time: to repeal and replace it.”[1] In coming out against the proposed replacement, he said it “fails to repeal the Affordable Care Act or address health care’s rising costs.”[2] By omission, we can discern from his statement that he was not opposed to rescinding the expansion of Medicaid even though his own state’s government had approved it.

Because the states as polities are members of the U.S. Senate, I submit that a senator’s discretion should not extend to such a point that it goes against the will of his or her state’s government. Accordingly, a state government should be able to direct the state’s U.S. Senators to take particular positions. A senator’s discretion would come into play when a government is of mixed opinion. For instance, the legislative chambers may disagree, or the legislature and governor may differ on the state’s interest on a proposed piece of federal legislation. State governments could of course legislate which offices (e.g., governor) and legislative chambers would have a voice in directing the senators on particular legislative measures before the U.S. Senate. Without such a tie to a state’s government, a U.S. senator could undercut the state’s representation in the U.S. Senate with impunity. This may in part be why the states have lost so much governmental sovereignty to the federal institutions, thus unbalancing American federalism at the expense of its checks and balances in defense of liberty and justice for all.

For more on the U.S. Senate and the E.U. Council, see the book: Essays on Two Federal Empires

---

[1] Thomas Kaplan, “Health Care Overhaul Collapses as Two Republican Senators Defect,” The New York Times, July 17, 2017.

[2] Ibid.

Essays on the Financial Crisis

The financial crisis that peaked in the United States during the fall of 2008 is an excellent case study of what can go wrong with leadership and corporate governance in business, financial ethics, government regulation directed both to the firm level and that of the financial system itself, and legal accountability for the culprits. The collection of essays begins with a series of essays on Lehman Brothers, with particular attention on its last CEO, Richard Fuld. Given the fraud surrounding subprime-mortgage bonds at numerous banks, the second part of the book looks at why legal accountability was so elusive in the United States. Weaknesses in the financial regulation, with particular attention to whether agencies had been captured by their respective regulated firms, comprises the third part. The fourth part examines the culpability of the Federal Reserve Bank, which had perhaps been too close to its regulated banks to anticipate the crisis. The book concludes with essays on why business ethics had been so very weak. The careful reader will take from the book a sense that the financial system remained vulnerable even after government attempts to reduce the systemic risks of a big bank going under. 

The book: Essays on the Financial Crisis

Essays on Two Federal Empires

This collection of essays suggests that the E.U. and U.S. are both cases of modern federalism at the empire political-level and scale. Distinct attributes and dynamics apply, which do not apply at the state level. Unfortunately, too often today, people treat a state in one union as equivalent to the other union rather than to one if its own states. This category mistake ignores vital differences, and thus is apt to result in sub-optimal public policy and even governmental design. To be sure, each union faces its own risks--dissolution being a threat for the E.U. and consolidation for the U.S. Though correcting for the passage of time, dissolution is/was a risk for both the early E.U. and the early U.S. Such a basis of comparison is optimal. Americans and Europeans can indeed learn from each other, with more perfect unions resulting. 

The book: Essays on Two Federal Empires

Bribery at Barclays: Can an Unethical Culture Be Changed?

Amid the financial crisis in 2008, Barclays raised $15 billion from Qatar and other investors. The infusion of capital saved the European bank from needing a government bailout. Unfortunately, the bank may not have disclosed the $390 million paid to the Qatari government for “advisory services” as part of the fund-raising, and the $3 billion loan facility that Barclays made available to that government.[1] The bank, along with three of its executives at the time were charged in 2017 with conspiracy to commit fraud by false representation, and providing unlawful financial assistance—in other words, paying a bribe to avoid needing an E.U. or state-level bailout. According to Amanda Staveley, a European financier, Barclays improperly favored the Qataris in the fund-raising. The relationship between the bank and the Qatari government rings of “mutual back-scratching.” Admittedly, any business deal involves both parties benefiting, and in much of the world bribery is de facto necessary cost of doing business. Nevertheless, Barclays may have had an organizational culture similar to that of Wells Fargo in which anything goes in pursuit of profit.

The full essay is at "Bribery at Barclays."

---

1. Chad Bray, “Former Barclays Executives Appear in Court Over Qatar Deal,” The New York Times, July 3, 2017.

The E.U. Goes After Google: Where Was the U.S.?

In fining Google a record 2.4 billion euros (2.7 billion dollars) in June, 2017, for unfairly favoring its advertisers in its online shopping service, E.U. officials went “significantly further than their American counterparts.”[1] At the time, Google held more than 90 percent of the online search market in the E.U. Why would the E.U. go further than the U.S. in pressing anti-trust violations against a technology company that could be expected to gain monopoly profits? Presumably Google was favoring its advertisers on searches in the U.S. as well. Americans would mind too when an advertiser’s higher-price product comes up rather than a comparable product at a better deal. Was the E.U. more interested in protecting consumers and less concerned about pleasing a large company? The company’s sordid, self-serving practice nullifies any contending claim that the government’s motive was to go after a foreign company. I submit that the E.U. government’s action unwittingly points to a pro-business bias in the corresponding American government.

With the demand that Apple repay $14.5 billion in back taxes in the E.U. state of Ireland, an investigation into Amazon’s tax practices in the E.U., and “concerns about Facebook’s gathering and handling of data,” the E.U.’s anti-trust division was “laying down a marker for more hands-on control of how the digital world operates.”[2] Why no such marker in the U.S.’s anti-trust division? Clearly, concerns about Facebook were not uncommon there. The E.U. “is setting the agenda,” Nicolas Petit said at a European university.[3] Suddenly America looks like the Old World.

Especially after the Citizens United decision by the U.S. Supreme Court in 2010 allowing unlimited spending by companies on political campaigns, the question of the power of large companies in the halls of Congress as well as in the White House at the expense of consumers became more important even if the media kept the issue largely off the public’s radar screen. Is what is good for GM good for America? The fallacy that what is good for a part is necessarily good for the whole is enough to settle that question. The problem, therefore, lies in certain parts having inordinate influence over the whole—more specifically, on the rules by which the whole operates. Insufficient regard for the public good by public officials who don’t want to risk offending corporate chieftains is like the captain of a ship steering according to the desires of certain wealthy passengers instead of looking out ahead.

So it is telling, I submit, that the E.U.’s anti-trust division essentially shamed its American counterpart in being willing to stand up to very powerful private interests. The “proof in the pudding” lies, I suppose, in the dearth of cases in which the U.S.’s government (and those of the member states) has spoken truth to the powers behind the throne and gone on to act on that truth in enacting laws and regulations that protect the public. All too often, American regulatory agencies are captured by the very companies that are to be regulated. Beyond the agencies’ reliance on their respective regulatees for market information and the regulatees’ ability to hire former regulators for lucrative jobs, a company’s monetary influence in electoral campaigns gives elected representatives a powerful incentive to pressure the regulatory agencies to go easy on even an entire industry. From a company’s standpoint, unwanted regulations can be softened or averted outright, or new regulations can be used strategically at the expense of typically smaller competitors that are less able monetarily to comply with stiffer mandates. So it is not simply more regulations that attest to a willingness to “speak truth to power.” Government officials with the courage (and fortitude) to protect the public cannot simply enact laws and regulations that are in a dominant company’s interest. Clearly, the E.U. passed this test in being willing to stand up to Google.

---

[i] Mark Scott, “Google Fined Record $2.7 Billion in E.U. Antitrust Ruling,” The New York Times, June 27, 2017.

[ii] Ibid.

[iii] Ibid.

Hedge Fund Set to Hack Nestlé Up: A Case of Sensationalistic Over-Kill

Does the fact that an earnings-per-share figure has not meaningfully improved over, say, five years justify an overhaul pushed by a hedge-fund activist investor?  Put another way, is a steady earnings-per-share tantamount to failure? Especially for an established company, steady numbers do not evince bad performance. An airline would only foolishly fire a pilot for not climbing once having attained a cruising altitude. Maintaining such an altitude during a flight is hardly a reason to turn a plane around or set it in a radically different direction.

With 40 million shares, which amounts to about $3.5 billion, in Nestlé, Third Point hedge fund urged the company’s management in June of 2017 to “sell its stake on L’Oréal and sell off nonessential operations as part of a broad shake-up.”[1] The conglomerate’s shares had appreciated nearly 15% over the preceding 12 months—behind Unilever but better than Mondelez and Kraft Heinz. So why a shake-up? 

Dan Loeb of Third Point.  Relax, Dan, Nestle is not on a nose-dive. 

To be sure, the conglomerate structure is itself arguably too much of a strain on the extant science of management, especially in the United States given the penchant for specialization over “big-picture” management. Selling L’Oréal thus may make sense so the management can concentrate on food. It was not as if such a focus would leave corporate managers with nothing to do.

In May, Nestlé announced a joint-operation with Amazon to offer a cooking companion with recipe instructions and other help for customers. At the same time, Nestlé set to work eliminating unpopular ingredients to its Maggi line. The company had been working to remove preservatives from its ice creams. Lastly, the company announced in June that it was the lead investor in a $77 million in Freshly, a subscription meal service. Such adaption to changing consumer tastes and changes in the industry is a solid means by which an established company improves its profitability. Slogans like “a bold strategy” and a “broad shake-up” make for good press, but they do not fit with a company that has achieved cruising altitude. In other words, severing arms and legs should only be attempted in the more dire of cases, rather than as business as usual.

---

[1] Michael Merced, “Third Point, a Hedge Fund, Sets Its Activist Sights on Nestlé,” The New York Times, June 26, 2017.

Apparent Gains in Corporate Governance Accountability as the U.S. Economy Shifts

In 2016, Sacred Heart University purchased G.E.’s headquarters in Fairfield, Connecticut for $31.5 million. Gone were the Persian rugs and lavish artwork. The property acquired included the “Guest House,” the company’s 28-room hotel “to serve visiting executives and others, with no expense spared on the parquet floors, wood-burning fireplaces and a Steinway piano.”[1] Jack Welsh oversaw the ornate construction, leading to the obvious question of just what his sense of fiduciary duty to the company’s stockholders was. An artificial distinction between managers—only some being styled “executives”—was doubtless behind the luxuriant excess only for those certain employees “in the club.” From the standpoints of a board and its stockholders, “executives,” managers, and other employees are all employees. Why then should some of them be associated with luxury while they are at work? Historically, the aristocratic luxuriated precisely because those people didn’t have to work, and more importantly, they viewed work (and even their own money) as not worthy of much attention—there being finer things in life. “Executive” employees are not aristocratic, for they labor even when they could live off their accumulated wealth and pursue loftier aims, such as aiding humanity, furthering knowledge, or engaging in the arts with an eye toward advancing civilization. Bill Gates got this memo; Warren Buffett did not.

The presence of extremely rich people in the executive ranks of large corporations interferes, I submit, with the accountability that corporate governance is designed to deliver for stockholders. Lavish business expenses run counter to such governance and the very notion of a corporation as the stockholders’ combined wealth.  In the era of American industrialization, the huge profits in the industrial sector gave cover to managers such as Jack Welsh, who felt free to exploit the obvious conflict of interest in spending lavishly for the upper-echelon managers themselves, as if the company were their own country club rather than a business. Doubtless managers themselves assumed that paid country-club memberships were necessary to get and even retain (well qualified?) fellow “executives.” The underlying conflict of interest was somehow invisible to sycophantic boards and even large stockholders who looked the other way. In the succeeding high-tech era, the same obliviousness has surely existed in that sector in spite of the rise of activist stockholders.

To be sure, indications can be found that suggest more activist pressure. Even as stockholder activists’ assets were increasing from 1997 to 2015, the number of publically traded U.S. companies decreased from 7,507 to 3,766.[2] Meanwhile, the activists were getting more, well, active, and they were finding it easier to win board seats as fewer companies staggered their elections over three-year cycles. More than 300 U.S. companies were targeted in 2015, up from about 100 in 2010.[3] Boards were better positioned, at least formally, to hold C.E.O.s accountable as the percentage of joint C.E.O.-Chair positions decreased. “In 2001, more than half of new C.E.O.s also assumed the position of chairman when they took over. By 2016, only 10 percent occupied both roles.”[4]

Yet the actual impact from activist stockholders may have only been in decreasing the average tenure of the C.E.O’s. Boards were “still willing to dole out huge golden parachutes to C.E.O.’s, even if they fail.”[5] Furthermore, even though G.E.’s swanky executive suites went from 44,000 square feet in Fairfield to 7,800 square feet in Boston, C.E.O.s of high-tech companies were under less activist scrutiny in spending from soaring profits and stock prices.[6] A study looking at shareholder proposals from 2003 through 2015 concludes that “managers often seek to avoid the implementation of legitimate shareholder interests.”[7] In 2017, the U.S. House of Representatives passed the Financial Choice Act, a deregulatory bill that would require a shareholder to own at least 1% of a company’s shares for three years to get a proposal on a proxy ballot. At the time, a stockholder needed to own only $2,000 worth of stock for at least a year. Clearly, the power of activist stockholders was quite far away from Congress, whereas that of corporate managements was very close by.

Even the increased power of activists to pressure the firing of a C.E.O. of an underperforming blue chip company may actually be a manifestation of frustration over stagnant revenue and profits in the sagging industrial sector; the real question, still unanswered in 2017, is whether activist stockholders would ever go after the lavish spending of “executives” of profitable companies. Even those managements, such as of Amazon, Apple, Google, and Facebook were obliged even in their hay-day by the legal doctrine of fiduciary duty to not be profligate, and to authorize spending for legitimate business reasons because cost management is in the stockowners’ financial interest. This interest, rather than those of “executives,” is legally hegemonic, rather than to be dismissed or even rebuffed. Luxury, in other words, does not go with the work inside a corporation, but, rather, with the ownership of wealth, even if some of the employees are themselves extremely rich. Their independence and association of themselves with luxury does not fit with the corporate model, especially as concerned the ability of corporate governance to exert accountability in the interests of stockholders. As for the apparent strengthening of corporate governance in the industrial sector, the alleged improvement may actually have been a function of a major sectoral shift within the American economy. It is only natural that the old guard would be frustrated at the shift, so what looks like better accountability may only be infighting. To gauge real accountability, we would need to look at the newly hegemonic sector: Are the “executives” in it taking liberties at their stockholders’ expense?  

---

[1] Nelson D. Schwartz, “The Decline of the Baronial C.E.O.,” The New York Times, June 17, 2017.

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] Ibid.

[6] Ibid.

[7] Gretchen Morgenson, “Meet the Legislation Designed to Stifle Shareholders,” The New York Times, June 16, 2017.