Protecting Minority Stockholder Rights: On a Conflict of Interest at Revlon

The principle of majority rule is a staple of democratic theory. Typically the victor of a close election is quick to proclaim that “the people” have spoken. That “the people” corresponds to 51% of those who voted is beside the point. What about the 49% who voted against the victor? What about the minority’s rights? In the U.S. Senate, the fact that it takes 60 out of 100 votes to end a filibuster means that a large minority can halt a majority’s bill. In the European Council, the qualified majority rule means that for a bill to pass, the states in the majority must be at least 55% of the total number of states and must have at least 55% of the E.U.’s population between them.  A large minority can therefore stop a small majority. In both of these “intergovernmental” bodies, the implication is that 51% of a vote is not as significant as the principle of majority rule suggests. What about the rights of a minority of shares of stock in corporate governance? When a majority stockholder has control of management, the interests of the minority stockholders can be shirked. This is particularly true when a majority stockholder proposes a going-private transaction with the aid of management.

The full essay is at "Protecting Minority Stockholders."

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1. Peter Lattman, “To Perelman’s Failed Revlon Deal, Add Rebuke From S.E.C.,” The New York Times, June 14, 2013.

2. Ibid.

3. Ibid.

4. Ibid.

5. Ibid.

6. Ibid.

The U.S. Senate: What Is It Really?

In 1928, the Senate stopped the bill that would have given WWI vets their bonus then rather than in 1946.  Mass protests for weeks by thousands of vets on the U.S. Capitol may have swayed the U.S. House, but the Senate was undaunted: passage of the bill would be economically disasterous. Such a scenario is exactly what the delegates in the U.S. constitutional convention in 1787 would have predicted.  They designed the House to reflect the passions of the people, and the Senate as a check on such passion where it is intemperate.   Looking back at Shays’ Rebellion in Massachusetts, the delegates feared excess democracy.  No supporter of the Senate, Madison nonetheless points out that “a numerous body of Representatives were liable to err also, from fickleness and passion. A necessary fence against this danger would be to select a portion of enlightened citizens, whose limited number, and firmness might seasonably interpose against impetuous councils” (Madison’s Notes, p. 194).

The full essay is at "The U.S. Senate."

On the Allure of Popular Suffrage

In the European singing contest/show in which Susan Boyle competed, she lost the top spot to a teenage rap group. The method of selection made all the difference. Rather than having a three-judge panel of experts on singing determine the winner, the general public could “text” via cell phone or other device to vote. That one of the judges explicitly advocated for Boyle after her final performance (just before the voting) was no never mind to the general public that submitted a majority of the votes. To be sure, there were certainly non-music reasons to vote against her. Most notably, the suggestive comments she made on stage just before her first performance, including, “I’m 48, and that’s not my other half” (as she was swinging her hips as if she were sexy), were downright emetic, if not utterly bizarre. So it is possible that the voters put her personality defect above her excellent singing. It is also possible that the “texters” responsible for a majority of the votes simply preferred rap music. I do not like rap “songs” that include shouting and swearing; I do not even regard such “songs” as music. Otherwise, I could sing a song simply by yelling at you. From what I saw, the rap group in the competition was not swearing, but the “singing” did sound at times like shouting to me. Moreover, the group members seemed more oriented to dancing than singing. It is possible that the votes for that group went for any of the fads being represented rather than to singing per se.

The full essay is at "Popular Suffrage in Democracy."

On U.S.Senators Being Elected

According to David Firestone of The New York Times, a “surprising number” of the Tea Party members were calling for the repeal of the 17th Amendment of the US Constitution during the election campaign season of 2010. That amendment, which was ratified in 1913, provides for direct election by the people of each state of US senators. According to Firestone, “allowing Americans to choose their own senators seems so obvious that it is hard to remember that the nation’s founders didn’t really trust voters with the job. The people were given the right to elect House members. But senators were supposed to be a check on popular rowdiness and factionalism. They were appointed by state legislatures.” That it may seem so obvious to us does not mean that we have it right. Yet Firestone presumes so in writing, “a  modern appreciation of democracy — not to mention a clear-eyed appraisal of today’s dysfunctional state legislatures — should make the idea unthinkable.” Should it really?  Firestone seems biased in his dogmatism.

The full essay is at "U.S. Senators: Elected by the People."

Van Rompuy as the European Council's First Extended-Term President

“In a sense, Europe seemed to be living down to expectations. Earlier, the foreign minister of Sweden, Carl Bildt, warned against a 'minimalist solution' that would reduce the European Union’s 'opportunity to have a clear voice in the world.'"  Olivier Ferrand, president of Terra Nova, a center-left research institute in France, said, “It is quite astounding. . . . It is jaw-dropping. It is the end of ambition for the E.U. — really disappointing.”

The full essay is at "Van Rompuy as the First President."

Source:

Stephen Castle and Steven Erlanger, "Low-Profile Leaders Chosen for Top European Posts," The New York Times, November 19, 2009.

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. 

The full essay is at "U.S. Senators Falling Short."

For more on the U.S. Senate and the E.U. Council, see the book: Essays on Two Federal Empires, available in print and as an ebook at Amazon.com.

Brexit and Calexit: Excessive Democracy?

Ordered by Britain’s Supreme Court to get the state’s Parliament’s approval for the state to secede from the Union, the Prime Minister, Teresa May, faced the prospect of debate, amendments, and the votes themselves in the House of Commons and the House of Lords. In the latter chamber, May’s Conservative Party did not at the time have a majority. Some in her party “suggested that she should quickly appoint enough new lords to give her the votes she needs. But few say they expect that to be necessary: with little democratic legitimacy, the 805 lords are unlikely to dare to block” the referendum outcome favoring secession.[1] I submit that the democratic criterion is ill-fitting to the House of Lords.

The complete essay is at Essays on Two Federal Empires.

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1. Katrin Bennhold, “Ordered to Seek Approval on ‘Brexit,’ Teresa May Does So. Tersely,” The New York Times, January 26, 2017. 

Wallonia Threatens to Veto the E.U.-Canada Trade Treaty: Complicating State Sovereignty in the E.U.

"The European Union and Canada signed a far-reaching trade agreement on [October 30, 2016] that commits them to opening their markets to greater competition, after overcoming a last-minute political obstacle that reflected the growing skepticism toward globalization in much of the developed world."[1] The obstacle may indeed have reflected increasing resistance at the time to globalization, but this veil can be pulled back to reveal the underlying political obstacle--that of states' rights in the E.U., taken to a crippling extreme.

The complete essay is at Essays on Two Federal Empires.

1. James Kanter, "Canada and E.U. Sign Trade Deal, Bucking Resistance to Globalization," The New York Times, October 30, 2016.

European Council’s Budget Deal: Does the Parliament Have a Choice?

“Deal done!” Herman Van Rompuy, president of the European Council, wrote after the heads of the E.U.’s state governments agreed during a Council meeting to a ceiling of €960 for the E.U.’s budget from 2014 to 2020. This represents a 3 percent cut compared to the previous seven-year budget. Van Rompuy had proposed a €1.03 billion budget, but the governors felt that austerity should reach the federal level too. In other words, if the states had to cut their budgets, the E.U. should not be exempt. Put another way, the fact that the European Council represents the state governments is relevant to the outcome from the Council.

Van Rompuy (right) is tasked with facilitating agreement between the state officials at the European Council.  State interests dominate.   Source: timesofoman.com

The complete essay is at Essays on Two Federal Empires.

Conflicts of Interest in Europe’s Greek-Austerity Impasse

At the conclusion of the European Council session in March 2015, all 19 of the state governors in attendance still wanted the state of Greece to remain with the euro. As for whether Greece should continue its austerity program and reform its economy as per the ongoing agreement on continued bailout funds, the tally was 18 to 1. Although both federal and state officials in the E.U. overwhelming believed that the austerity program had been behind the growth in the Greek economy in 2014, the Greek finance minister and most Keynesian economists disagreed, pointing to the fact that the state had lost a quarter of its GDP under the austerity. Besides this honest difference of opinion on the effectiveness of the strategy, conflicts-of-interest compromise the “club of 18” and thus its position.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

The Scottish Referendum: A Political Analysis

Any political analysis of the Scottish referendum on secession from Britain should include not only the Scottish National Party (SNP) and Westminster, but also other large E.U. states and even the E.U. powers at the federal level. Such an analysis may leave the cynic wondering whether the question could even conceivably be decided by the Scots themselves—so much being on the line for state and federal officials and their respective institutions.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

Budget Austerity in the E.U.: Turning the Russian Invasion of Ukraine into an Advantage

With economic growth in the E.U. flat-lining in mid-2014 after a modest recovery, pressure mounted to relax the federal "austerity" constraints on the state budgets. According to The New York Times at the time, "(p)olitical and financial instability related to Russia's confrontation with Ukraine and the effects of escalating economic sanctions between [the E.U.] and Russia have further clouded the economic outlook."[1] Mired in the austerity vs. fiscal stimulus dichotomy, E.U. leaders may have been missing an opportunity here.

The entire essay is at “Budget Austerity in the E.U.”

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[1] Liz Alderman and Alison Smale, "Divisions Grow as a Downturn Rocks Europe," August 29, 2014.

European Parliament 2014 Election: A Gray Cloud with a Silver Lining

Whereas the European Parliament election in 2009 suffered from state-level issues and low voter-turnout, the legislative election in 2014 promises to be a super-charged one in the “super-nation.” Most notably, the electoral contests are “shaping up as no less than a referendum on the merits of continuing on with the European Union itself.”[2] With popular distrust of the E.U. at an all-time high, this bit of news seems rather bad for pro-E.U. Europeans. Any pessimism in anticipation of the election that exists is mitigated by “the bigger picture.”

From: "The 2014 E.U. Parliament Election"

Selecting the President of the European Commission: An Analysis

An amendment to the E.U.’s basic law came into effect in 2010 concerning how the president of the European Commission is selected. The process begins with the European Parliament voting. The person obtaining the most votes has the chance to build a coalition in order to achieve a majority of the vote in the legislature. In the event that the candidate is successful, the power then shifts to the European Council, which can confirm or reject him or her.

The complete essay is at Essays on Two Federal Empires.

Banks in Trouble: European Populism?

In reaching agreement on a proposal to deal with state banks in trouble, the E.U. finance ministers sent two messages: taxpayers would be protected from any open-ended obligation to bail out failed banks and those banks would not be allowed to capitalize on being bailed out. Given the furor that had been unleashed when the E.U. went after depositors in the two largest Cypriot banks, the E.U. ministers were careful to point out “that depositors with less than €100,000 ($130,820) in their accounts would always be safe, while small and midsize companies and bigger savers would only be hit during the most severe bank failures.” Systemically important banks whose failure could be expected to cause the E.U. financial system to collapse would be handled on a case by case basis.

Will the euro be fortified by a federal bank-bailout program?   Source: Estonia Free Press.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

European Central Bank As Supervisor: Conflicts of Interest

Wolfgang Schäuble, the German finance minister, raised additional concerns in April 2013 about a proposal to create a single banking supervisor for the European Union. About 150 large banks would be under the direct supervision of the European Central Bank, which would also have the power to intervene to oversee smaller lenders. This proposal had been set as a precondition for states to draw on the E.U.’s bailout fund, the European Stability Mechanism, to recapitalize struggling lenders directly. To analyze Schäuble’s potential stumbling blocks, it is necessary to understand the conflicts of interest that are involved.

                                                                                 Wolfgang Schäuble, the German finance minister, active at the E.U. level. Source: The Telegraph.

The full essay is at "Essays on the E.U. Political Economy." Available at Amazon.

Should Germany Prop Up the E.U.'s Southern States?

In April 2013, Deutsche Welle reported that the German central bank had “analyzed possible effect a domestic growth package could have on southern European economies. ‘By and large, it would have no impact,’ claimed Clemens Fuest, president of the Mannheim-based Center for European Economic Research. ‘We won't be able to fight recession in southern Europe with domestic growth incentives.’ He added that southern European states do not just have a demand problem. ‘Prices there have got out of hand,’ he said. ‘Wages and labor costs have spiraled out of control, and must be brought down again. If you were to implement a growth scheme, you'd only slow down the necessary adjustments.’”

The full essay is at Essays on the E.U. Political Economy: Federalism and the Debt Crisis, available at Amazon.

E.U. Budget Cuts: David Cameron’s Strategy

The budget deal reached by the state governments represented in the European Council in Feburary 2013 would mark the first decrease in the E.U.’s seven-year budget , pending approval by the European Parliament. According to The Telegraph, “the deal sets members’ total payments to the EU for 2014-20 at €908.4 billion (£770 billion). Payments were £800 billion for the previous seven-year round.” This was precisely what the conservative British prime minister at the time, David Cameron, wanted.  “I think the British people can be proud,” he said after the deal had been reached. “Every previous year these deals have been agreed, spending has gone up,” he added. “Not this time.”  Beyond the relevance of the prime minister’s rather obvious small-government fiscal-conservative ideology, his “victory” in the European Council is in line with his strategy to keep his state in the Union.

Britain's David Cameron finally at home in the E.U.? Negotiating with other state officials at the European Council. Source: thepressnews.com

 

The full essay is at Essays on the E.U. Political Economy, available at Amazon.

Is the E.U. More Than the Sum of Its Parts?

In the wake of David Cameron’s announcement that he would try to renegotiate Britain’s obligations in the E.U. then have an “in or out” referendum in his state on whether it should secede from the Union, Francois Hollande of France warned that state interests were in the process of usurping “the European interest.” According to the French president, Cameron was heading the E.U. down the path in which each state “looks for what is good for itself and only itself.” As such, the Union would simply be an aggregation of state interests. The question is perhaps the old one of whether the whole is more than the sum of the parts. In proffering different answers, the European federalists and anti-federalists (or Euro-skeptics) have fundamentally different conceptions of what the E.U. is.

The complete essay is at Essays on Two Federal Empires, available at Amazon.

Is the E.U. no more than an aggregation of its states, or does a distinct whole exist such that the E.U. is itself distinct from its states? 

The Filibuster: States' Rights or a Partisan Ploy?

Before 1917, senators could filibuster only by talking continuously on the U.S. Senate floor. There was no mechanism to stop them. Such filibusters were rare until entering World War I was debated. In 1917, the Senate passed its first “cloture” rule, whereby two-thirds of the Senate could cut off debate and force a final vote. Between that year and 1971, no two-year session of Congress had more than 10 such votes. Even so, in 1971 the rules were changed to allow other legislation to be taken up during a filibuster—relieving a senator of having to continuously talk to maintain one. Making it easier to filibuster quickly led to the predictable result of more filibusters. In the 93^rd Congress (1973-74), the number of cloture motions jumped to 31, from an average in the 1917-1971 period of two per Congressional session. In 1975, the number of votes needed to stop a filibuster was lowered from 67 to 60. However, this change did not curtail the use of the device, as it is rare for a party to control 60 votes out of 100 in the U.S. Senate. By 2010, the average number of cloture motions per two-year session had risen to 129, which suggests that the filibuster had become more typical in how senate business was to be conducted. In effect, legislation and even executive business, such as confirming presidential nominations, needed a supermajority (60 out of 100) in the upper chamber of Congress.


The complete essay is at Essays on Two Federal Empires, available at Amazon.