Volume 159

In The Partner‐Manager, Professor Mitchell praises their suggested executive compensation reforms and seeks to place those reforms in the larger context of the evolution of corporate management. He argues that excessive compensation is a recent phenomenon, and, as such, arguments that view it as “inevitable” must be viewed skeptically. He argues that the rise of the independent monitoring board of directors has created informational asymmetries and a power vacuum between the board and management, resulting in the rise of the “partner‐manager” whose significant equity stake created the agency problems we see today. While Mitchell accepts that the Bebchuk‐Fried reforms will help temper those incentives, he wonders whether they go to the heart of the problem, which he sees as corporate governance.

In Weak Solutions to an Illusory Problem, Professor Steven Kaplan argues that the Bebchuk-Fried analysis is fundamentally flawed because it rests on incorrect assumptions about executive compensation. Kaplan points to empirical work by himself and others that suggests there may be no compensation problem at all. The studies he points to show that compensation tends to rise and fall with the market and that managers are, in fact, rewarded for good performance and punished for poor performance. Kaplan argues that, if anything, the Bebchuk-Fried proposals will add only marginal protections at a high cost: he suggests that their reforms will discourage top talent from serving as executives because it will become significantly riskier to serve at public companies, particularly when lucrative alternatives are available with private-equity-funded firms.

In Attorneys' Fees and the Social Legitimacy of Class Actions, Professor David Marcus responds to Brian Fitzpatrick's proposals in Do Class Action Lawyers Make Too Little? Professor Marcus contends that while Fitzpatrick's proposal—that in certain class actions, attorneys should be permitted to take 100% of the class recovery—is intriguing and may be beneficial, it runs afoul of current law and may otherwise not be a prudent policy. First, Marcus argues that Civil Rule 23(h) cannot be construed to allow these payments within the terms of the Rules Enabling Act, as claim assignment law is substantive and not procedural. Next, Marcus doubts that the doctrine of unjust enrichment could be stretched to permit such fee awards. Marcus then turns to Fitzpatrick's utilitarian arguments justifying higher fee awards, and finds that merely adjusting the substantive law would not be likely to ensure optimal deterrence of bad actors, as Fitzpatrick suggests. As a result, Marcus argues, an explosion in fee awards would upset a careful substantive and procedural balance struck by current law. Finally, Marcus notes that “a spate of clientless cases” might undermine the legitimacy of class actions themselves. He concludes by acknowledging the attractiveness of Fitzpatrick's proposals but positing that to the extent that aggregate litigation is intended to preserve fundamental “day in court” ideals, current fee awards may be entirely appropriate.

In Financial Industry Self‐Regulation: Aspiration and Reality, Professor Schwarcz responds to Professor Omarova's recent article by applying the framework he has developed to analyze the financial services industry's systemic risk.  Two of the four elements of this model, he argues, inform Professor Omarova's article.  First, Schwarcz writes that Omarova's self‐insurance is a conceptually accurate response to the tragedy of the commons, by forcing the financial services industry to internalize systemic risk rather than leaving it to the government.  However, Omarova's model, he suggests, should be international in scope and not a “blanket substitute” for a public safety net.  Second, Schwarcz argues that Omarova's suggestion of a ban, or threat to ban, certain financial products reflects a concern for the problem of complexity.  While agreeing that complexity of the financial services industry is a serious concern, Schwarcz suggests it might be better addressed through standardizing financial products, and that there are too many unknowns to be certain about the outcome of Omarova's recommendation.  Ultimately, Schwarcz concludes that at the very least Omarova raises important questions, which may have been her primary intention. 

In Fateful Bankers, Professor Zaring describes the strengths of Professor Omarova's article, that it does not overly rely on heavy‐handed outside regulation of the financial industry but could still appeal to those who believe the industry needs “stringent oversight.” Zaring also notes the benefit of relying on regulation by those with the most up‐to‐date information about the industry—industry itself. Zaring then offers five critiques of Omarova's position. First, Zaring worries this model could lead to greater barriers to entry for the industry and have anticompetitive effects. Second, he suggests that unlike an industry where the community is based on concern that public condemnation of one firm leads to condemnation of the entire industry, here insolvency at one firm leads to insolvency at others—a real difference from the nuclear or chemical industries Omarova uses as examples. Third, Zaring is skeptical that a threat from government regulators will really create cohesion when in past crises the government has been perceived as unwilling to act on the threat. Fourth, Zaring criticizes Omarova's precondition of dividing the financial industry between wholesale and resale, and fifth, Zaring questions whether insurance will really deter behavior or be written off as a cost of doing business.