One place where there may be a change in the legal regime associated with corporate governance is the role played by the federal courts. As this Blog has often discussed, the federal courts have not been particularly friendly toward corporate governance related issues.
The Supreme Court has embarked on a deliberate policy to restrict the use of Rule 10b-5 in the context of private actions. Janus is an example; so is Morrison.
The DC Circuit has been striking down SEC and other administrative rules while evidencing little concern with the requirement of agency deference. Shareholder access is the obvious example. Moreover, the trend has the potential to continue with industry challenges to the Conflict Minerals and Resource Extraction Rules. The use of cost-benefit analysis as a basis for striking down rules such as the access rule has effectively forced agencies to direct resources away from rule writing and enforcement to economic analysis. There is no evidence that this is the best use of agency resources and in any event it is not for a court to determine.
How important is the DC Circuit? According to an editorial in the WSJ, the DC Circuit:
provides the only check on the burgeoning regulatory state. Congress tends increasingly to write ambiguous laws, precisely to give regulators the discretion to impose far-reaching costs on the economy without the legislators having to take responsibility for the vote.
There are currently no vacancies on the Supreme Court but some could come open in the next four years. There are three vacancies on the DC circuit, with eight active judges. The Obama Administration has nominated two judges to fill some of the vacancies.
Four more years of the Obama Administration means four more years of judicial appointments. No one can predict with certainty what judges appointed for life will do. But new appointees will change the mix of views and opinions and, in the area of corporate governance, may result in more investor friendly decisions.