Executive Branch Usurpation of Power: Corporations and Capital Markets

Article excerpt



     A. The Executive's Power To Act Unilaterally
     B. The Disappearing Policy Window
     C. Participatory Democracy
     D. Procedure Versus Substance

     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




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. …