Someplace between philosophy and economics: Legitimacy and good corporate lawyering

Fordham Law Review

Volumn 75, Issue 3, 2006, Pages 1615-1628

  Langevoort, Donald C ^a  

^a GEORGETOWN UNIVERSITY LAW CENTER   (United States)

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EID: 33846565333     PISSN: 0015704X     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (54)

1. This has become a large enough subject now to have a casebook for itself. See generally Milton C. Regan, Jr. & Jeffrey D. Bauman, Legal Ethics and Corporate Practice (2005).
2. See generally Roberta Romano, The Sarbanes-Oxley Act and the Making of Quack Corporate Governance, 114 Yale L.J. 1521 (2005). I do not go anywhere near as far as Romano in doubting Sarbanes-Oxley, but suspect that at least some of it is of questionable efficacy.
3. See Donald Langevoort, Internal Controls After Sarbanes-Oxley: Revisiting Corporate Law's "Duty of Care as Responsibility for Systems," 31 J. Corp. L. 949 (2006).
4. Stephen L. Pepper, Counseling at the Limits of the Law: An Exercise in Jurisprudence and Ethics of Lawyering, 104 Yale L.J. 1545 (1995).
5. See Jeffrey Pfeffer & Gerald R. Salancik, The External Control of Organizations 258-62 (1978);
6. Amy J. Hillman & Thomas Dalziel, Boards of Directors and Firm Performance: Integrating Agency and Resource Dependence Perspectives, 28 Acad. Mgmt. Rev. 383, 388 (2003).
7. See generally Cynthia A. Williams & John M. Conley, An Emerging Third Way? The Erosion of the Anglo-American Shareholder Value Construct, 38 Cornell Int'l L.J. 493 (2005).
8. See generally Tom R. Tyler, Psychological Perspectives on Legitimacy and Legitimation, 57 Ann. Rev. Psych. 375 (2006).
9. Useful collections of materials on this subject include The Psychology of Rights and Duties: Empirical Contributions and Normative Commentaries (Norman J. Finkel & Fathali M. Moghaddam eds., 2005) [hereinafter The Psychology of Rights and Duties], and The Psychology of Legitimacy: Emerging Perspectives on Ideology, Justice, and Intergroup Relations (John T. Jost & Brenda Major eds., 2001) [hereinafter The Psychology of Legitimacy].
10. See generally Lauren B. Edelman & Mark C. Suchman, The Legal Environments of Organizations, 23 Ann. Rev. Soc. 479 (1997).
11. See generally George A. Akerlof & Rachel E. Kranton, Identity and the Economics of Organizations, 19 J. Econ. Persp. 9 (2005).
12. This oversimplifies, of course. A functionalist view of norms naturally runs into problems of stickiness and path dependency; it is doubtful that norms are truly efficient at any given point in time.
13. Psychologists are particularly interested in why so many people accept the legitimacy of structures and institutions that operate to their immediate disadvantage, particularly uneven distributions of wealth. See James M. Olson & Carolyn L. Hafer, Tolerance of Personal Deprivation, in The Psychology of Legitimacy, supra note 6, at 157.
14. See W. Bradley Wendel, Professionalism as Interpretation, 99 Nw. U. L. Rev. 1167, 1168 (2005).
15. See Milton Friedman, Capitalism and Freedom 133-34 (1962).
16. See Frank H. Easterbrook & Daniel R. Fischel, Antitrust Suits by Targets of Tender Offers, 80 Mich. L. Rev. 1155, 1168 (1982).
17. For additional citations and a critique, see Cynthia A. Williams, Corporate Compliance with the Law in the Era of Efficiency, 76 N.C. L. Rev. 1265 (1998).
18. For a recent criticism of this view using conventional economic analysis, see Einer Elhauge, Sacrificing Corporate Profits in the Public Interest, 80 N.Y.U. L. Rev. 733 (2005).
19. Or if one takes a more managerialist view, it is hard to explain why managers gain freedom from moral claims on their behavior simply because they have raised capital externally.
20. Meir Dan-Cohen, Rights, Persons and Organizations: A Legal Theory for Bureaucratic Society 78 (1986).
21. See, e.g., Henry Hansmann & Reinier Kraakman, The End of History for Corporate Law, 89 Geo. L.J. 439 (2001).
22. See Elhauge, supra note 14, at 756-62.
23. See Miller v. AT&T Co., 507 F.2d 759, 762 (3d Cir. 1974).
24. Principles of Corporate Governance § 2.01 cmt. G (1994). As Cynthia Williams has pointed out, there are certain aspects of corporate law (e.g., formulations of the duty of care and indemnification rules) that are inconsistent with a strong corporate obligation to obey the law. See generally Williams, supra note 13. These can be explained in two separate ways that do not lead to the conclusion that the Principles' main statement is disingenuous. First (and to me more plausibly), these other rules reflect views about protecting directors from personal liability that go beyond the specific context of illegality. Second, they may subtly reflect a Holmesian view in which both corporations and individuals have some freedom to act in a calculative way. All the text says is that the corporation's obligations are the same as the natural person's, not that the natural person's obligation to obey the law is necessarily absolute.
25. See Richard W. Painter, The Moral Interdependence of Corporate Lawyers and Their Clients, 67 S. Cal. L. Rev. 507, 525 (1994).
26. See Jonathan D. Cohen, The Vulcanization of the Human Brain: A Neural Perspective on Interactions Between Cognition and Emotion, 19 J. Econ. Persp. 3, 10-13 (2005);
27. Jonathan Haidt, The Emotional Dog and Its Rational Tail: A Social Intuitionist Approach to Moral Judgment, 108 Psychol. Rev. 814, 818 (2001).
28. See Don A. Moore & George Lowenstein, Self-interest, Automaticity, and the Psychology of Conflict of Interest, 17 Soc. Just. Res. 189, 195-96 (2004);
29. Ann E. Tenbrunsel & David M. Messick, Ethical Fading: The Role of Self-Deception in Unethical Behavior, 17 Soc. Just. Res. 223 (2004).
30. See generally William H. Simon, Whom (or What) Does the Organization's Lawyer Represent?: An Anatomy of Intraclient Conflict, 91 Cal. L. Rev. 57 (2003).
31. See Donald C. Langevoort, Opening the Black Box of "Corporate Culture" in Law and Economics, 162 J. Inst. & Theo. Econ. 1 (2006);
32. see also, e.g., Donald C. Langevoort, Resetting the Corporate Thermostat: Lessons from the Recent Financial Scandals About Self-Deception, Deceiving Others and the Design of Internal Controls, 93 Geo. L.J. 285 (2004) [hereinafter Langevoort, Lessons].
33. Donald C. Langevoort, The Epistemology of Corporate-Securities Lawyering: Beliefs, Biases and Organizational Behavior, 63 Brook. L. Rev. 629 (1997).
34. For a very thoughtful application to the work of inside counsel, see Sung Hui Kim, The Banality of Fraud: Re-situating the Inside Counsel as Gatekeeper, 74 Fordham L. Rev. 983 (2005).
35. Tom Tyler's work has emphasized this, in particular noting the fairness (procedural and otherwise) of the law's demands. See, e.g., Tyler, supra note 6; Tom Tyler, A Deference-based Perspective on Duty: Empowering Government to Define Duties to Oneself and to Others, in The Psychology of Rights and Duties, supra note 6, at 137.
36. See generally Edelman & Suchman, supra note 7.
37. This is often the product of the slippery slope. See, e.g., John M. Darley, The Cognitive and Social Psychology of Contagious Organizational Corruption, 70 Brook. L. Rev. 1177 (2005).
38. See generally David B. Spence, The Shadow of the Rational Polluter: Rethinking the Role of Rational Actor Models in Environmental Law, 89 Cal. L. Rev. 917 (2001).
39. See generally Donald C. Langevoort, Technological Evolution and the Devolution of Corporate Financial Reporting, 46 Wm. & Mary L. Rev. 1 (2004).
40. See generally Romano, supra note 2.
41. See, e.g., Robert Charles Clark, Corporate Governance Changes in the Wake of the Sarbanes-Oxley Act: A Morality Tale for Policymakers Too, 22 Ga. St. L. Rev. 251 (2005).
42. See, e.g., Neil Gunningham et al., Social License and Environmental Protection: Why Businesses Go Beyond Compliance, 29 Law & Soc. Inquiry 307 (2004);
43. Robert A. Kagan et al., Explaining Corporate Environmental Performance: How Does Regulation Matter?, 37 Law & Soc'y Rev. 51, 69 (2003) (discussing a mill manager's claim "that the sanctions it feared most for breaching regulations were not legal but informal sanctions imposed by the public and the media, and hence it was motivated less by avoiding regulatory violations per se as anything that could give you a bad name" (internal quotation marks omitted));
44. see also Williams & Conley, supra note 5; Jason Scott Johnston, Signaling Social Responsibility: On the Law and Economics of Market Incentives for Corporate Environmental Performance (U. Pa. Inst. for L. & Econ. Research, Paper No. 05-16, May 2005), available at http://srrn.com/abstract=725103. Business people's inclination to obey the law when the law's demands are properly framed is an important message of Ayres's and Braithwaite's well-known work on regulation.
45. See generally Ian Ayres & John Braithwaite, Responsive Regulation: Transcending the Deregulation Debate (1992).
46. See Kimberly D. Elsbach, The Architecture of Legitimacy: Constructing Accounts of Organizational Controversies, in The Psychology of Legitimacy, supra note 6, at 391.
47. This is, of course, not the only problem corporate lawyers face. They also face problems of information diffusion, which raise hard questions about lawyers' responsibility to "dig" for the truth when encountering cause for suspicion. See generally William H. Simon, Wrongs of Ignorance and Ambiguity: Lawyer Responsibility for Collective Misconduct, 22 Yale J. on Reg. 1 (2005).
48. See Kimberly D. Krawiec, Cosmetic Compliance and the Failure of Negotiated Governance, 81 Wash. U. L.Q. 487 (2003).
49. See William J. Carney, The Costs of Being Public After Sarbanes-Oxley: The Irony of "Going Private," 55 Emory L.J. 141 (2006).
50. See Langevoort, supra note 2, at 959-60.
51. See supra note 26 and accompanying text.
52. See Tanina Rostain, Ethics Lost: Limitations of Current Approaches to Lawyer Regulation, 71 S. Cal. L. Rev. 1273, 1336 (1998).
53. See, e.g., Moore & Lowenstein, supra note 23, at 195-96.
54. See Ronald J. Gilson, The Devolution of the Legal Profession: A Demand Side Perspective, 49 Md. L. Rev. 869 (1990).