Dodd-Frank: Quack Federal Corporate Governance Round II
By Stephen M. Bainbridge. Full text here.
The question before us is whether Dodd-Frank’s corporate governance provisions, like those of SOX, are mere quackery. Part I of the Article focuses on the problem of quack corporate governance regulation in the abstract. What are the defining characteristics of a quack law? Why would Congress adopt such laws? What are the consequences of such laws for companies, investors, and the economy as a whole?
Part II examines the six provisions of Dodd-Frank listed above. It will argue that some of them are meaningless symbolism but that others are likely to have serious adverse consequences. Hence, Part II argues, Dodd-Frank is to corporate governance as quackery is to medical practice.
Part III concludes by asking whether there is anything that can be done to prevent future quack corporate governance laws. It argues that the best alternative would be some form of a prophylactic barrier pursuant to which Congress precommits to refraining from emergency post-bubble legislation. Part III concludes, however, that Congress is unlikely to do so. It seems likely that quackery in federal regulation of corporate governance is subject to a ratchet effect. State legislators therefore need to develop defensive strategies designed to limit the opportunities for further federal intervention.