Executive branch usurpation of power: corporations and capital markets.

• Author: Macey, Jonathan R.
• Position: Symposium on Executive Power

ESSAY CONTENTS INTRODUCTION I. SHARED POWER IN THEORY AND PRACTICE: THE EXECUTIVE AND SUPERIOR RESPONSE TIME A. The Executive's Power To Act Unilaterally B. The Disappearing Policy Window C. Participatory Democracy D. Procedure Versus Substance II. CASE STUDIES IN POLITICAL INFLUENCE A. The Delaware Courts Versus the SEC on Shareholder Voting B. Stock Exchange Governance and State Corporate Law Rules C. Sarbanes-Oxley: Usurping the Authority of State Judges and Legislatures III. MECHANISMS OF INFLUENCE CONCLUSION INTRODUCTION

This Symposium announces that the executive branch is "the most accessible, politically accountable force in government at the local, state, and national levels" (1)--and that statement is accurate, at least insofar as accountability is measured by the force of the response, rather than the long-term desirability of that response. Due to certain structural advantages, executive branch agencies are better situated to respond quickly and decisively to emergencies. As a result, they can expand their power base more readily than the other branches of government.

Basic political science shows us why this is so. Gridlock--caused by special-interest group pressures and the delays of bicameral decision-making--hampers Congress. The judiciary is no better off in terms of policymaking. Judges must wait until a plaintiff musters the initiative to file a lawsuit, and then they must further wait through the tedious processes of evidence-gathering, motions practice, and trial before they can formulate new policy (or confirm old policy).

Unlike the judiciary, executive branch agencies can take unilateral action by filing lawsuits, and unlike Congress, they can act quickly because of streamlined decision-making processes. In the realm of corporate law, the Securities and Exchange Commission (SEC)--the focus of this Essay--can institute civil litigation in the form of enforcement actions, while the Justice Department and state attorneys general can institute criminal litigation. Thanks to these structural advantages, executive action, particularly agency action, determines the course of law. Indeed, even when Congress acts by passing massive reform legislation, as it did in 2002 with the Sarbanes-Oxley Act, the ultimate result is an increase in the power of the executive to create policy, not a reallocation of power to the legislative or judicial branches.

The ascendancy of the executive branch in policymaking is an unintended consequence of the modern administrative state. The emergence of the executive branch as the fulcrum of power within the administrative state represents a deviation from the traditional balance of powers among the three branches of government. Only a concerted effort by the federal judiciary can rein in agencies that improperly usurp the authority of the legislative branch through the enforcement process.

Using the SEC as an example, Part I demonstrates how the flexibility and forcefulness of agency action has altered the traditional balance of power among the branches. Rather than sharing power, the SEC has become the locus of power in corporate law enforcement. The legislative and judicial branches, ostensibly charged with making law and interpreting the law, have taken on merely supporting roles. The result has been that the agency most willing to exercise power immediately appropriates lawmaking authority.

Part II illustrates the theory developed in Part I with three recent interactions between the executive and its rival branches. In addition to showing how the executive has seized power horizontally from the other branches, each example illustrates how the federal executive acts in a policymaking role parallel to that traditionally held by the states.

Part III analyzes the various mechanisms used by the branches to implement policy, with particular emphasis on relative efficiency, ability to control an agenda, and susceptibility to political influence.

The implication of this analysis is rather radical: It suggests a new justification for more activist judicial intervention to dampen the power of the executive. If the executive branch is more powerful than the Framers intended, then something should be done to redress this constitutional disequilibrium and reduce the probability that such concentrated power will be abused. A logical possibility would be for the judiciary to develop legal doctrines that are less deferential to the executive. Yet recent jurisprudential trends, which give ever-increasing deference to the facts as found and the law as interpreted by executive agencies, indicate that there is a vast distance between the judicial approach that is desired and the reality that is observed.

1. SHARED POWER IN THEORY AND PRACTICE: THE EXECUTIVE AND SUPERIOR RESPONSE TIME

   Traditional theory posits that the U.S. constitutional system is most accurately described as a power-sharing arrangement among the various branches of government. (2) Because the executive branch has a different agenda and different interests and powers from the judges and legislators who populate the other branches, this power-sharing is not always harmonious. (3) These structural differences inevitably lead the executive into conflict with the other branches. (4) Such conflict is healthy. It mitigates the onslaught of special interest group pressure for legislation during times of ordinary politics. (5) In addition, conflict is an integral aspect of the separation of powers, designed to protect limited government.

   This point has been powerfully made by Professors Terry Moe and Scott Wilson:

   There is nothing that Congress can do to eliminate the president's executive power. He is not Congress's agent. He has his own constitutional role to play and his own constitutional powers to exercise, powers that are not delegated to him by Congress and cannot be taken away. Any notion that Congress makes the laws and that the president's job is simply to execute them--to follow orders, in effect--overlooks the essence of separation of powers. The president is an authority in his own right, coequal to Congress and not subordinate to it. (6) It is probably true that the executive branch started out as (at most) coequal to Congress. (7) However, due to a variety of structural factors that probably were not anticipated by the Framers, the relationship between the executive and the other branches has evolved over time.

   This Part will consider four primary factors driving that shift: (1) the President's unique power to act unilaterally to implement policy; (2) the increased salience and brevity of policy windows (those periods of time in which it is possible to make new policy); (3) the rise of participatory democracy (in which it is considered legitimate for the groups most affected by new policy to influence its formation); and (4) the substitution of procedural rights for substantive rights.

   1. The Executive's Power To Act Unilaterally

      The executive possesses considerable power to affect policy unilaterally both in the implementation of laws and in the preemption of legislative activity through the use of executive orders, proclamations, and memoranda. One of the odd consequences of our lawmaking process is that it is virtually impossible for Congress to act without increasing the power of the executive branch, which must implement new statutes that the legislature produces. (8) The resources and discretion that accompany that task inevitably lead to an increase in the executive branch's power.

      Once a statute is in place, the executive has enormous discretion to decide how and when--or whether--to implement it. For example, the President can undermine the statute creating the Federal Emergency Management Agency simply by staffing the agency with political cronies, unless and until an outraged public demands that the situation be corrected. The SEC can take a hands-off regulatory approach with respect to corporate governance issues until it becomes politically expedient for the agency to inject itself into this arena. The Department of Education can take the view that education policy is best left to the states until it perceives that aggressively asserting its own policies is in its best political or institutional self-interest.

      With such wide-ranging control, as well as a streamlined system for choosing who wields that control, the executive has the power to act unilaterally when it implements laws. This power to take unilateral action can be seen as part of a "residuum of unenumerated power" contained in Article II of the Constitution, (9) which otherwise bestows on the President "the executive Power" and the authority to "take Care that the Laws be faithfully executed." (10) Moreover, this power is streamlined within the executive branch. As Professors Moe and Wilson observe, whenever the President feels so inclined, he can "review or reverse agency decisions, coordinate agency actions, make changes in agency leadership, or otherwise impose his views on government...." (11) The other branches, by contrast, are characterized by process, disagreement, and deliberation.

      Checks provided by the other branches have turned out to be weak in the face of the modern administrative state. While at first blush it might appear that Congress's so-called "power of the purse" is a significant check on the executive's power, (12) in reality it is politically costly for Congress to withhold funding from administrative agencies. Such political costs take the form of loss of support from interest groups, bad publicity, and loss of cooperation from agencies. Congress is also inherently constrained in its ability to take the initiative in making policy because the laws enacted by a legislature are not self-enforcing: They must be executed by the executive and the bureaucracy under its supervision. Courts clearly cannot take the initiative in making new policy. They must wait for cases to come to them, and even then...