Legal News

Eliot Spitzer Pleased and Incredulous Over Recent Posner Opinion

By Ashby Jones

We’re not sure if we’ve yet found the words to describe how we feel about Eliot Spitzer’s new career as a columnist, most prominently for Slate. It leaves us feeling, in turns, flattered (he chose our career!), skeptical (what’s he really gunning for?), and just a tiny bit miffed (what gives him the right to soapbox after the events of last summer?)

In any event, he’s at it again today, with a piece about executive compensation and Richard Posner, prolific author, Seventh Circuit judge and noted free-market champion.

The former New York governor says that when he recently read an opinion authored by Posner in which he posited that market may be incapable of either setting CEO compensation or determining mutual-fund fees, “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.”

According to Spitzer, Posner concluded that while judges shouldn’t directly review corporate salaries, evidence of unreasonable compensation could be evidence of a breach of fiduciary duty — a conclusion that “reveal[s] a remarkable conclusion-courts should take a hard look at private-compensation issues-and demonstrate how far, and rapidly, the world has shifted. . . . It is remarkable that a leader in Chicago School thought would acknowledge that the market is so broken that it can’t be properly trusted on those two critical issues. Yet that is exactly what Judge Posner has concluded.”

So, asks Spitzer, where does Judge Posner’s reasoning take us? He calls the conventional remedy — shareholder lawsuits to curb compensation abuses — “retrospective and clumsy,” opting instead for the following solution:

[F]or boards, compensation consultants, and shareholders finally to awaken to their duties. If there is to be a revival in our corporate-management structure, it must begin with these stakeholders. They must insist on far greater transparency and far stricter evaluations of CEOs, eliminating the year-end congratulatory assessments that seem untethered to any economic reality.

Full post as published by Law Blog - WSJ.com on April 15, 2009 (boomark / email).