When Eliot Spitzer, former marauding attorney general and horny Governor of the Empire State, was handed a slot at Slate to speak unfettered by the political chains that bound his future potential, I hoped he would prove that beneath that snarling out shell would be a razor-sharp mind, filled with incisive thoughts that might be enlightening. No such luck.
In his second appearance as cyberpundit, Spitzer takes on Judge Richard Posner of the 7th Circuit Posners in a battle of wits.
In an opinion dissenting from the “denial of rehearing en banc“—a sequence of words only a lawyer could love—Posner wrote that there are growing indications that CEO compensation “is excessive because of the feeble incentives of board of directors to police compensation. … Directors are often CEOs of other companies and naturally think that CEOs should be well paid. And often they are picked by the CEO.” He then examined the conflicts inherent in the process of CEO compensation determination, concluding that “[c]ompetition … can’t be counted on to solve the problem because the same structure of incentives operates on all large corporations and similar entities, including mutual funds” [emphasis added].
Chiding Judge Posner for what would appear to be his sudden and inexplicable liberal impulses, Spitzer views Posner’s dissent as saying
that the market is arguably incapable of either setting CEO compensation . . . , my first reaction was to put the document down, rub my eyes, and check the authorship again. Then I read on, with increasing incredulity—and pleasure.
That would be something,considering Spitzer characterization of Judge Posner as “one of the most respected and prolific conservative intellectuals. As a founder of the “Chicago School,” he is both a creator and defender of the free-market theory that has guided deregulation for the past 30 years.” At least one of the participants in this battle of wits can be called “respected” and “intellectual”.
The problem is that my former head of state has completely misread the dissent. The quotes employed about “excessive compensation” and “competition . . . can’t be counted” relate not to Judge Posners views, but rather to the three judge panel that originally decided the case in the 7th Circuit. In other words, Spitzer got it backwards. Judge Posner was describing the decision that he believed should be subject to en banc review, noting that his writing was in dissent to the refusal to rehear the case.
To the extent one can discern a judge’s position from a dissent on a rejection of a rehearing petition, Judge Posner appears to be concerned about the potential breach of fiduciary duty on the part of top executives in obtaining compensation packages that bear no relation to the services rendered.
This case merits the attention of the full court. The panel rejected the approach taken by the Second Circuit in Gartenberg v. Merrill Lynch Asset Management, Inc., 694 F.2d 923 (2d Cir. 1982), to deciding whether a mutual fund adviser has breached his fiduciary duty to the fund, the duty created by section 36(b) of the Investment Company Act, 15 U.S.C. §§ 80a-1 et seq. Gartenberg permits a court to consider, as a factor in determining such a breach, whether the fee is “so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm’s-length bargaining.” 694 F.2d at 928.
As a courtesy to my former governor, I feel compelled to explain that arm’s-length bargaining is a component of a free market. Posner was concerned that executive compensation decisions were set by conflicted members of Boards of Directors, and therefore not subject to market forces.
Directors are often CEOs of other companies and naturally think that CEOs should be well paid. And often they are picked by the CEO. Compensation consulting firms, which provide cover for generous compensation packages voted by boards of directors, have a conflict of interest because they are paid not only for their compensation advice but for other services to the firm—services for which they are hired by the officers whose compensation they advised on.
If I may offer an analogy to assist my gaunt yet combative former leader along, it’s as if young certain ladies had a steady stream of chief state executives to pleasure with huge sums of their daddies cash to spend for whatever relieved the tension of their high office, and thus ignored the pleas of the common man for the occasional street encounter for $20 and the price of a ribbed condom. Okay, that might not be a perfect analogy, but I would be remiss if I failed to note that Spitzer is a disingenuous, hypocritical slimebag.
On the other hand, I must agree with Eliot S. that the winds of change that have blown in a new regime have brought a smile to my face as well. It is not that Judge Posner has abandoned his Chicago ways, but rather that New York has abandoned Eliot Spitzer’s ways. One would think that former ADA, former Attorney General, former Governor, Eliot Spitzer could read a short dissent with sufficient care to figure out which side was which before going public in an attempt to take on a circuit judge in a battle of wits.
But Spitzer showed up for a battle of wits unarmed.