In 1946, after ten years of study, Congress passed, and President Truman signed, the Administrative Procedure Act, a law that has been called the constitution of administrative law. During the Roosevelt Administration, many new federal agencies were created to implement FDR’s New Deal. These agencies regulated more private conduct than ever before. Congress deemed it essential to enact a statute governing how these agencies would operate, and to establish rules of conduct to protect the regulated persons and entities. U.S. Senator Pat McCarran of Nevada called the APA "a bill of rights for the hundreds of thousands of Americans whose affairs are controlled or regulated" by federal government agencies. During the 75 years since its enactment, the APA has been regularly invoked in litigation, as citizens challenge agency action on the grounds that the agency did not comply with APA’s requirements.
But what recourse do you have when the enforcement action against you is not being taken by a government agency, but by a private entity at the behest of the government? The government encourages “social media” companies to censor your speech. The Securities and Exchange Commission establishes a special enforcement unit to police public companies’ compliance with ESG (environment, social, governance) initiatives. The Biden Department of Labor reversed the Trump administration’s reversal of the Obama administration’s guidance that permitted fiduciaries to consider ESG in their management of certain retirement funds. In these and other areas of our lives, our activities are being governed, not by the government, but by its surrogates.
The U.S. Constitution established a national government consisting of three branches. The administrative agencies have been called a fourth branch. Now, with corporations, investment funds, and other non-government entities deputized to regulate our conduct, do we have the emergence of a “fifth branch” of government? Does this fifth branch operate free of the strictures of the APA? What recourse is available for those affected?
Our panelists will address these developments, bringing to bear their individual expertise regarding the serious issues raised by the use of regulatory surrogates and the consequences that could result from the emergence of a “fifth branch” of government.
Dean Reuter: Good morning. I'm Dean Reuter, Senior Vice President and General Counsel of The Federalist Society. Welcome to the 10th Annual Executive Branch Review Conference. And welcome to those of you in the room today, and to those of you joining the livestream and watching on video. Our conference is open to the public and the press, so you should feel free to forward the livestream link and video recordings widely.
And I have to say, I had an extensive introduction for the conference prepared for this morning, but you might have heard that last night it leaked out. But I'm going to deliver my remarks, nevertheless. [Laughter] It took a minute, but thank you. When we hosted the first Executive Branch Review Conference, we boldly called it the First Annual Executive Branch Review Conference. And I was cautioned that you can't have a first annual conference. But I assured the skeptics that there would be a second, a third, a fourth, and so on. And it turns out we have not solved the administrative state just yet, but we will continue trying.
In our defense, this administrative state began well over a hundred years ago. And there's an old saying about oak trees that might be applicable here. And it goes that oak trees take 100 years to grow, 100 years to live, and then 100 years to die. Now, I'm not advocating for the death of the administrative state, but maybe we're at the end of the period of growth, that first 100 years. Maybe some pruning is in order, or some forest management, if you will. But that's for the experts to decide. And we have plenty of them lined up today, coming at this from all angles.
Indeed, we always strive for balance on our discussions, featuring the perspectives of conservatives, libertarians, and progressives alike. And I want to make a note to say that we've struggled most this time finding progressive voices to participate today. But, in the end, we have succeeded. But for this conference alone, we invited over 50 progressives who were unable to participate today. So I begin by sincerely thanking those of our speakers who could make it today, very much. Thank you.
It's now my special honor to introduce the speaker for our opening address this morning, Senator Mike Lee. Mike Lee is Utah's 16th Senator, a number that always catches my eye and reminds me of just how young our country and its experiment with representative democracy really is. You all know him well, so I'm going to highlight just two aspects of his career.
First, he clerked for Justice Alito, who's been in the news a little bit recently. And, second, also relevant, Senator Lee is a renowned author of several books, each of them on founding principles and fundamentals of law and policy, each perfectly accessible, with helpfully descriptive titles like Our Lost Declaration, and Our Lost Constitution, and Written Out of History, the Forgotten Founders Who Fought Against Big Government. I recommend them all.
His latest book, Saving Nine, about proposed court packing, emerges next month, on June 7. Given last night's news, Saving Nine can't come out quickly enough. It's available now for preorder online everywhere. The full title again, Saving Nine: The Fight Against the Left's Audacious Plan to Pack the Supreme Court and Destroy American Liberty. So look for a Federalist Society event in the near future featuring Senator Mike Lee, where we can learn even more about his book and you can get a signed copy, hopefully in time for Father's Day. But you'll probably want to get multiple copies for your mother and your children and your loved ones, so you don't create discord in the family. But, with that, please welcome Senator Mike Lee.
Hon. Mike S. Lee: It's not just your mother who would enjoy reading Saving Nine, but also your children. What child doesn't want to read a book about court packing and the threat it poses to judicial independence? Thanks for that nice introduction, Dean. And I will say that I've never been more proud to be an Alito clerk than I am today.
But our topic of conversation today is an important one, administrative law. There's no easier way to clear a room or end a party than bringing up administrative law, especially with your non-lawyer friends. But it shouldn't be that way. In fact, this should be the most relevant topic on everyone's mind. In this day and age, when people, especially those on the left, continue to harp on what they perceive and continually want to characterize as "the end of democracy as we know it," nothing says, "the end of democracy" quite like administrative law, and quite like the way that administrative law has been abused.
This is, to be sure, something that's been around for many decades. I trace modern-day administrative law, of course, to the New Deal era. That's when this entire segment of our federal government came into being. But it goes in fits and starts. It hasn't been a steady progression throughout its 75-to-85-year existence. It's had a series of lurches, fits and starts. But there was a massive, massive lurch forward, or backward, or however you want to describe it, during the COVID-19 pandemic, at least in the sense that this is when many Americans became familiar, in one way or another, with administrative law, something that most Americans are blissfully ignorant of most of the time.
It gave the opportunity for the government to do things that it hadn't done before, and not always in a good direction. As my wife, Sharon, likes to point out, all moves toward totalitarian government are always rooted in an emergency. All totalitarian governments start out with a real or contrived emergency. It's what they do. Now, I'm not here to say that our government is a totalitarian one. It's not. It's just that it's moved away from representative government, away from freedom and liberty and toward more aggressive action, in a way that is unsettling.
But here's the dirty little secret that members of Congress rarely admit, and few would really even own up to, even if you caught them in a moment of candor, in which they thought no one else was listening. This is all Congress's fault. We did this. We set this in motion. And, so, any time you see a member of Congress disclaiming these things, disclaiming, bemoaning the overreach of the administrative state, remind him or her that we're really to blame. Congress is to blame, because we set this in motion.
It reminds me a little bit of an experience I had more than 25 years ago when my two oldest children, James and John — themselves aspiring lawyers now, James just graduated from law school, John will graduate next year, both FedSoc members, of course, and both have served as chapter presidents of the BYU Federalist Society, just as their father had a quarter century earlier — when they were babies, one day we were coming home from church and then driving up to my parents-in-law's house. There was a minivan that swerved into oncoming traffic and nearly hit our car. Here I was driving, as a young father with two babies, and this car nearly ended it for all of us.
I pulled over to figure out what had happened, because it appeared that whoever was driving this car was either severely inebriated or had fallen asleep or something. But when he pulled over, we figured out what the problem was. Some father had decided it was a good idea to allow his ten-year-old kid to sit at the driver's seat. And he thought, "Well, I can control it from the driver's seat." The kid couldn't reach the brakes. I guess, as part of the driver's license exam in Utah, they ought to start asking people whether they're smart enough to realize that a ten-year-old can't quite reach the brakes. Well, he couldn't.
I raise that example today because continuing on in our same course with administrative law would be a little bit like the governmental equivalent of allowing that kid to continue driving for the rest of the day or the rest of year, even when he had proven his inability to behave responsibly. It would be an act of reckless disregard for the safety of others, not to mention the law itself.
This is what administrative law has done to us, especially administrative law as it's manifested itself throughout the COVID-19 pandemic. It's given us some real-world examples of how this can run amok. Now, Congress, again, did, in fact, screw this up. It created this circumstance. It did so in a number of circumstances. A lot of the problems that we faced during the COVID-19 pandemic that are related to administrative law stem from the same provision of federal law, specifically Section 361(a) of the Public Health Service Act.
Now, Section 361(a) is really, really, broad. In fairness, I guess one could argue it's a model of specificity. Let me show you how specific it is. It says that the Surgeon General and the Secretary of the Department of Health and Human Services will have authority to "make and enforce such regulations as in the judgment of the Secretary are necessary to prevent the introduction, transmission, or spread of communicable diseases between states, or from foreign countries to the United States. It then goes on specify and to list as examples of things that might be regulated under this authority, the "inspection, fumigation, disinfection, sanitation, pest extermination, destruction of animals or articles found to be so infected or contaminated as sources of dangerous infection to human beings, and other measures as, in his judgment, may be necessary."
Just imagine the breathtaking breadth of that provision for a minute. Let it sink in. It reminds me of a time when, as a young prosecutor, I was in some kind of proceeding before a magistrate judge. I don't remember what the occasion was. But, for a moment, I forgot that I wasn't in a grand jury proceeding. And I had a witness, an agent of one of our federal law enforcement agencies on the stand. I had asked him all the questions that I was planning to ask him, and, at the end of it, I just said, "Anything else you'd like to add?" And, of course, the judge gently reminded me, "Counsel, come on. You can't do that." But, just as much as you can't do that with a witness on the stand, you definitely can't do that, you should never do that, consistent with the Constitution of the United States. Remember, the very first clause of the very first section of the very first Article of the Constitution says, "All legislative powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and a House of Representatives."
What's made pretty clear in Article I, Section I, is made doubly clear in Article I, Section VII, which says that to make a federal law, you've got to have bicameral passage, followed by presentment to the president. And yet, according to this, you don't really have to have that. All you need is just an authorization from Congress to do stuff. And don't worry, it's more specific than that. It's to do good stuff. This is literally the legislative equivalent of, "We hereby authorize you to make good law. Make it so." And they did. But it wasn't good law. It was just law that they claimed was good. And so they got away with it for way too long, way too much time, far longer than they should have.
Let's talk about a few of the things that they did under this provision. One involved the eviction moratorium. Now, there was, originally, an eviction moratorium created and put in place by Congress as part of the Cares Act. Remember, this was the measure passed in late March of 2020. It was a legislative enactment. But it put in place an eviction moratorium that lasted from the date of its enactment in March of 2020 until the end of July of 2020. But that's where it got tricky. It expired. Congress didn't act. And, once that authority had expired, then the Trump administration, at the time, decided to continue it by executive order. And what did they use? Well, it was Section 361(a) of the Public Health Service Act. Because, after all, it's right there: "And other measures as, in his judgment, may be necessary."
And so what do you do? Well, you have the Director of the Centers for Disease Control make a finding saying, "We think this is necessary. This is really important." And, bingo, there you have it. You've got an extension. That extension, while originally put in place by the Trump administration, was later continued and rather dramatically expanded by executive order at the very outset of the Biden administration. Whereas, in the Cares Act, and under the initial Trump administration iteration of the eviction moratorium, it had been limited to federal properties and properties purchased with federal financing mechanisms, the Biden-era CDC order related to the eviction moratorium was just open-ended, just saying, "Yeah, you can't do it."
Now this was a problem, as this was something that Congress had seen the need to enact legislatively. It then allowed that to expire. And, having allowed it to expire, you would think that would be the end of it. But not so. Now, initially, when this was challenged in court and it made its way all the way to the Supreme Court, the Supreme Court initially decided to let it stay in place. I'll never understand exactly what the Court's reasoning was in doing that. It doesn't make a whole lot of sense to me. There was some thought that the Court seemed to indicate, during the first round of challenges to that eviction moratorium, "Well, this is about to expire in a few weeks, anyway. And so we'll just let it sit."
But, even then, and even after the Court, in making that pronouncement, issued a pretty clear warning to the Biden administration, "You know, you really shouldn't be doing this. It looks pretty sketchy," they went ahead and did it anyway. And, so, weeks later, after the Biden administration blatantly ignored Justice Kavanaugh's rather clear warning in the initial challenge that was brought before the Supreme Court, they did it again anyway. So the Court stepped in and said, "Yeah, you really shouldn't be doing this."
And, in doing that, and striking down the moratorium during the second challenge, the Supreme Court struck it down, remarking that since the enactment of Section 361(a) of the Public Health Service Act in 1944, "No regulation premised on it has even begun to approach the size or the scope of the eviction moratorium." For that matter, in many respects, what we saw during the COVID-19 pandemic dwarfs just about any other executive branch overreach that we've ever seen.
Think about what we talk about in law school, or just as lawyers. What comes to mind when you think of the classic egregious example of executive branch overreach? Typically, for me, at least, it's Youngstown Sheet & Tube v. Sawyer. And that was significant. That was troubling. And yet, that was really quite minor. It was quite mild, by comparison. Truman acted, I believe, in April. By June, it had been shut down by the Supreme Court. The Court granted certiorari before judgment. So it went straight from the district court to the Supreme Court. And, by June, that thing was put to bed.
But the comparison is even more stark when you consider the fact that Truman's order seizing all steel production facilities in the United States in furtherance of the Korean War effort, while sweeping and contrary to, and unsupported by, any statutory command or constitutional grant of authority, it was at least confined to a single industry. There was one industry that was affected by this. Some of these things that happened through administrative law during the COVID-19 pandemic were sweeping, absolutely sweeping, and difficult to justify.
Section 361(a) of the Public Health Service Act was also applied elsewhere. It wasn't just limited, of course, to the eviction moratorium. It was also the basis for authority used to require you to wear a mask on all airplanes, trains, buses, and any facility connected to them. I don't know if you're like me, but every single time I flew on an airplane while that mask mandate was in place, it really grated on me every time they would announce something to the effect that this mask mandate is put in place by federal law. I always wanted to raise my hand and add a footnote to it, saying, "It depends on what your definition of the word 'law' is, and the definition of the word 'is' is," because we all know that Congress never enacted a statute saying that. Of course, it would be too much to ask the airlines to say, technically, they're relying on Section 361(a) of the Public Health Service Act enacted in 1944. But that's what they were relying on. And that stayed in place.
Thankfully, Judge Kathryn Mizelle of the U.S. District Court for the Middle District of Florida issued an order just in the last few weeks, getting rid of that. There's a part of me that wishes that I had been on a plane somewhere when they announced that. You've seen these videos of passengers celebrating as they ripped off their masks. This shows us something. As troubling as these developments are, it shows us that more Americans have experienced the horrors of executive branch overreach, of administrative law run amok, during and as a result of the COVID-19 pandemic, than ever before. And I think they realize that it does, in fact, mean something, that it does, in fact, matter.
Now, predictably, there will be some who, upon hearing those words, will say, "Oh, that's ridiculous. This guy's complaining about this de minimis infringement on liberty that is involved in wearing a mask during a pandemic. Oh horrors." Well, yeah. I get it. It's not the same as other intrusions that can take place, some of which we're going to talk about in a moment. But it's still significant. It still matters to the American people that when they're told they've got to comply with a law, and that failure to comply could result in significant fines or imprisonment, that law should be made by men and women of their own choosing, and subject to accountability to them.
Perhaps the broadest and the most egregious of all exercises of COVID-related authority occurred in connection with the Biden vaccine mandates. My wife and I were travelling at the moment these were announced, and my staff started texting me about them. I, at first, thought it was an elaborate practical joke. But he was dead serious about this, that he was going to order, basically, all Americans to get vaccinated or lose their jobs. The way he went about this, or, at least, the most significant part of the vaccine mandates through OSHA, was particularly bad. He relied on Section 655 of the Occupational Safety and Health Act. And, in those, it just allows OSHA to issue an emergency standard. And all OSHA has to do in order to get there is to find that, one, employees are exposed to a grave danger from exposure to substances or agents determined to be toxic or physically harmful from new hazards, and, secondly, that the emergency standard is necessary to protect employees from this danger.
Now, fortunately, the Supreme Court of the United States stayed enforcement of this mandate. It did so, finding it to be, "A significant encroachment into the lives and health of a vast number of employees, that far exceeded the authority that Congress had provided to OSHA. Unfortunately, to many Americans, this action came too late. A lot of people were forced to either get fired. And their employer really had no choice to do that, because any employer with more than 99 employees had to comply or face crippling economic penalties, penalties that no company, no matter how wealthy, could afford to survive. They couldn't just run that risk. And so they had to threaten to fire, and, ultimately, fire anyone who didn't comply.
Now, this may seem de minimis to some, to some people who got the vaccine, had no problem with getting the vaccine, had no bad reaction to the vaccine. But imagine if you were one of those Americans who has a religious objection to getting a vaccine. Or imagine if you were someone who has some type of health condition that it caused your primary care physician to advise you not to get the vaccine because it would cause problems. It becomes less academic at that point. And it becomes significant.
Or imagine if you were one of those Americans who got the vaccine, didn't want to, got it anyway, and suffered an adverse medical effect from it. You'd be pretty displeased. And I think we should all be concerned about the fact, here again, you had executive action taken that was an overreach. And it was a predictable overreach. Just like that idiot who put his 10-year-old behind the wheel of his minivan 25 years ago. This was a reckless act. And, just as it would have been beyond foolish for that individual to allow his kid to continue driving for the rest of the day or the rest of the week, it would be foolish of us to conclude that it's okay for us to continue to operate under these broad, vague, laws.
The fact is that these provisions, Section 655 of the Occupational Safety and Health Act, and Section 361(a) of the Public Health Service Act, these are the tip of the tip of the iceberg. The U.S. Code is replete with hundreds, if not thousands of instances of delegations of lawmaking authority that are at least as broad as, if not broader than these. They almost all have, as a central feature, that their worst manifestations can appear during the course of an emergency. But you know one thing about emergencies. They happen. And because they happen, we've got to be mindful of them, knowing that there will always be overreach.
So that's why it's an important time for us to bring about reforms. And one of the many reforms that I have long thought we need: we need to pass the REINS Act. It's a bill that's been out there for more than a decade. It stands for Regulations from the Executive in Need of Scrutiny. And it says that any time an executive branch agency issues a major rule, an economically significant, major rule, it shouldn't be self-executing. It can't be self-executing. It can't take affect unless or until you've got bicameral passage by Congress. The REINS Act proposal, itself, provides for an expedited fast-track procedure, similar to what we have with the anemic, but well-intentioned, Congressional Review Act: fast-track consideration in both houses of Congress, followed by presentment to the president.
It differs from the Congressional Review Act in one meaningful respect. With the CRA, the president can veto it. And then things continue. The party goes on as planned. That 10-year-old kid remains behind the wheel. But, with the REINS Act, failure at any end — failure in the House or in the Senate, or with the veto pen — results in the agency action not taking effect. This is the first of many reforms that we need. And members of Congress have got to be held accountable for not doing these things. Otherwise, we'll find ourselves back in the same position. Next time, it will be worse. Thank you.
Dean Reuter: The Senator's going to take one or two questions. If you could use the — if anybody has a question — the floor mics on the side. While we're waiting for that, let me ask you a question really quickly if I could, Senator. And that is, did the founders fail to envision the administrative state? And has the structural Constitution essentially failed when the Federalist 51 imagines the three branches using their power as expansively as possible, reaching a stasis? What's gone wrong with the legislative branch?
Hon. Mike S. Lee: The founders didn't fail. The Constitution didn't fail. The Constitution is pretty clear on this point, especially if you read the Constitution and you understand the words that they used and you understand the warnings that went into the use of those words, you understand that lawmaking is a non-delegable duty. And that's why they said that all legislative powers would be vested in this branch of government. Now, I want to be very clear. It's not that Congress is any smarter than the executive branch agencies. These are very hardworking, well-intentioned, highly-specialized people. It's not about their competence. It's about the fact that you can't fire them. My constituents get to decide whether to fire me every six years, my counterparts in the house, every two years. We're the branch of government most accountable to the people at the most regular interval.
So, no, I don't think the Constitution or the founders failed us here. I think we failed them. We failed the American people. And all of this started -- I trace all of this back to the moment the Supreme Court rewrote the Commerce Clause on April 12, 1937, and made all these activities like labor, manufacturing, agriculture, mining — activities that, while economic in nature, take place in one state at one time — made them all subject to federal regulation. That was the seed-corn that led to the modern administrative state. Because, all of a sudden, Congress panicked. And Congress said, "Oh my gosh. We're going to have to make all of these line-drawing decisions. It's going to be hard. We don't want to do it. So we're just going to outsource that task, saying we shall have good law in area X, and we give that authority to Commission Y."
Questioner 1: As you know, during Republican administrations, often there are very serious attempts to undo rules that were created, all the thousands, millions of rules that agencies have created. But a formidable obstacle seems to be the State Farm doctrine, which seemed to be gutted by FOX Television, but maybe not really. A lot of panels will still say you need to present special justifications for repealing rules. And I was wondering if there's any thoughts that have been given to making it easier just for agencies to repeal their own regulations and not have to provide elaborate justifications about how the feelings of a ten-year-old won't be hurt by removing him from the driver's seat, or how his limb size is a valid consideration in determining whether someone is fit to drive or not.
Hon. Mike S. Lee: I think there's something to be said for that. Generally speaking, you have fewer threats to liberty, it's almost axiomatic that you have fewer threats to liberty when you have fewer laws. And so it's not a bad idea for us to do something making it easier to remove a reg than it is to create a new one. And this was, essentially, the strategy adopted by the Trump administration, albeit informally by executive action rather than through statute. President Trump told me early in his presidency, "For every new regulation we issue, I want to get rid of at least two." We have to make that easier. That is a good idea, and something I'll look into as a legislative proposal. I will add here, it will catch up to us quickly if we still don't reform it elsewhere. But I think that is a very good start.
Dean Reuter: We're going to continue without a break if we could call the next panel up, please. Thank you.
Hon. Stephen A. Vaden: All right. Well, good morning, everyone. I'm Stephen Vaden. I'm a judge with the Court of International Trade. And I'm the moderator for our first panel today, which is entitled, "Regulation by Surrogate? Is the Government Evading the Administrative Procedure Act?" As we just heard, in 1946, after 10 years of study, Congress passed the Administrative Procedure Act, which was signed by President Truman. And it's a law that's been called the constitution for the administrative state. Congress deemed it essential to enact a statute governing how agencies would operate, and to establish rules of conduct to protect those who were regulated. But what recourse do you have when the enforcement action against you is not taken by a government agency, but rather a private entity at behest of the government?
The government, for example, encourages certain social media companies to censor your speech. The Securities and Exchange Commission is currently looking at a special enforcement unit to police public companies' compliance with ESG, that being environment, social, and governance initiatives. The U.S. Constitution established a national government consisting of three branches. Administrative agencies have frequently been called the "fourth branch" of government. Now, with corporations, investment funds, and other nongovernmental entities deputized to regulate our conduct, do we have the emergence of a "fifth branch" of government? And does this "fifth branch" of government operate free from the strictures of the Administrative Procedure Act? What recourse do citizens subject to these new regulators have? Those are some of the topics we're going to discuss today with three outstanding speakers.
Our first is Stephen Soukup, who is the Senior Commentator, Vice President, and publisher of the Political Forum, an independent research provider that delivers research and consulting services to institutional investors with an emphasis on economic, social, political, and geopolitical events that are likely to impact the financial markets, both here in the United States, and abroad. Mr. Soukup is the author of The Dictatorship of Woke Capital: How Political Correctness Captured Big Business. He holds a BA in political science from the University of Kansas, and a master's degree in the same from the University of Nebraska. Stephen, the floor is yours.
Stephen Soukup: Thank you very much. When Senator Lee just spoke, he traced the origins of our administrative state, essentially, to 1937. I would place the origins about 60 years earlier, in fact, in 1876, with the founding of Johns Hopkins University. Within five years, Hopkins had hired, as director of its Department of Political Economy, a man named Richard Ely. And within a couple of years, Ely's most trusted, most loyal, and most destructive student, a man named Thomas Woodrow Wilson, was hard at work helping Ely change the way administrative practice worked in the United States, and changing American's beliefs about what they can and should expect from their government.
My story, as told in The Dictatorship of Woke Capital, and then I'll try to briefly recount for you today, centers on four men: Ely, Wilson, a man named Dwight Waldo, and then a man named Edward Freeman. Ely was the primary proponent in the United States of something called the "social gospel." What that meant was that he believed that it was the states' responsibility to carry out God's duties or God's recommendations on earth. He believed that it was the states' duty to act Christlike and to try to solve all of man's problems, from drunkenness to racial tensions, to poverty, to slums, you name it. It was something that government should solve in the name of Christ.
Ely's primary student, Wilson, went on to add that the most effective way to do so, the most effective way to enact God's wishes on Earth would be to create a group of men and women who were distinct from legislators and distinct from the general public who had specialized training, specialized knowledge and scientific understanding of how best to administer these policies. Wilson, like Ely, was extremely dismissive of the public. He believed that the people were the problem. He believed that they were selfish, that they were stupid, and that they did not have the understanding of how best to manage the government. And so it was his idea to create this separate class of individuals who would take care of us: essentially, our guardians, if you want to go back to platonic terms.
When he was elected president in 1912, Wilson was able to act on a great deal of this — signing the Sixteenth and Seventeenth Amendments, by enacting the Federal Reserve Act — to move the needle on government administration. Wilson's primary focus was always what came to be called the "politics administration dichotomy," keeping politics and administration separate. Politics is for the people. Administration is for the guardians, for the people who know how to run the state.
Wilson's interpretation held sway in this country until probably the late 1940s, early 1950s, when a man named Dwight Waldo came along and said, "What we've learned over the last 50 years is that administration cannot be done scientifically. The idea of keeping administration and politics separate is ludicrous. It cannot be done." And so what Waldo did was encourage administrators to inject their own values into administrative practice. Essentially, he wanted them to be agents of change. "Progressive agents of change" is, in fact, the term that was used.
By the beginning of the 1970s, by the time that Waldo's ideas had seeped into public administration, what we had in this country was a belief in an administrative state that was manned primarily by experts, specifically trained, that was supposed to be beyond the reach of the government, that was outside of government practice, outside of the effects of the American people, but, yet, that was supposed to also instill its values into its decisions, thereby creating what it saw as an ideal state. It was introducing values into what had otherwise been a strictly scientific endeavor.
In 1984, a man named Edward Freeman — who was a PHD in philosophy, but was, at the time, a business professor, is now still a business professor — followed through on pushing similar reforms on business administration as those that were pushed on public administration by Dwight Waldo. And what he did was advocate for the use of values, the incorporation of values into business administration. What he created, essentially, was what we know today as "stakeholder theory," which has become the buzzword in American business, the buzzword in American capital markets, one of the most important developments over the past four or five years, this sudden rise in what's known as stakeholder capitalism, or stakeholder theory.
Now, again, with the administrative state, stakeholder theory began as a scientific principle. It was created by the Stanford Research Institute in the 1960s to try to teach business owners how to maintain a successful business. If you're going to run a successful business, you have to care about your customers, you have to care about your environment, you have to care about your neighbors, you have to care about your employees, etc. It's all common sense.
What Freeman did was to make this a normative argument, to make the claim that these stakeholders, depending on the values that the administrator, the executive, is trying to enact, could be considered more important than the virtue of the shareholders, that the stakeholders could matter more than shareholders, depending on the situation. And so we get the rise of this idea that shareholders are secondary in importance and that businesses should be enacting social policy, in addition to, and, sometimes, instead of simply trying to make profits.
Over the past several years, as I said, this has become an enormous part of the way American business functions and an enormous part of the way American capital markets function. Initially, I wanted to say that this was an idea that was consciously pushed by the progressive movement to achieve those goals that were unachievable through traditional public administration, but it's not really that. The way it works is that those people who run large companies, those people who have been inculcated with this stakeholder value theory of business administration believe that they have the ideas that can change the world, believe that they have the was to solve the problems that the administrative state or that the democratic republic state have been unable to solve.
And so what they have done is independently create what amounts to a quasi-regulatory state of their own, a quasi-government of their own, an institution that is determined specifically to address things like climate change and social justice and racial inequality, all without the consent of the people, all without the consent of the bureaucracy, and all beyond any sort of means by which the American people could have any sort of influence whatsoever. Only shareholders can have influence. And, in most cases, the largest shareholders are going to be large asset management firms, primarily, passive asset management firms who share these beliefs, who share the same belief in the virtue of business and the value of business to enact various different normative programs. So that's sort of the history of where we got to this point where we have regulation by surrogate, regulation by proxy, where American big business is now essentially trying to usurp the power of government and usurp the rights of the American people.
Hon. Stephen A. Vaden: Thank you, Stephen. Our next speaker is Jonathan Berry. Jonathan is a partner at Boyden Gray & Associates. Before that, he served as the Regulatory Officer at the Department of Labor during the Trump administration, where he oversaw the development and enactment of several rules, including some touching on this area. Jonathan also served at the Department of Justice's Office of Legal Policy, where he assisted with the confirmation of Associate Justice Gorsuch. Jonathan is a graduate of Yale College and Columbia Law School, and he served as a law clerk to Judge Smith of the Fifth Circuit and Justice Alito of the Supreme Court. Jonathan?
Jonathan Berry: Thank you so much, Judge. I really appreciate Steve's history as laying out for you the rise of what we can call the expert class, the technocratic class. James Burnham uses managerial class. And I want to talk about what the challenge is today. Here's how we've gotten to where we are. What's the objective today? I submit that the challenge is to align, as much as possible, this class's interests and incentives with the common good, instead of various kinds of rent-seeking and self-dealing, to which all mankind is tempted. I think we can start to understand this challenge through the lens of agency. In both the public and the private sectors, we have systems of accountability of agents to their principles. This was a theme that Senator Lee hit on repeatedly: accountability, accountability, accountability, and rightly so.
These systems of accountability — again, both in the public sector and the private sector — these are structural protections that, arguably, do much more to protect liberty and self-government than do judicially enforceable individual rights. So, for example, in the public context, all federal laws that create, modify, or rescind private rights or obligations must be enacted with the concurrence of the House of Representatives, whose members are numerous and constantly up for reelection. I can know who my congressman is, and I can know how he votes. But that accountability can be threatened or blurred. Obviously, as Senator Lee talked about, the delegation of legislative power to the executive branch is one huge way for elected legislators to avoid that accountability. But here's another. The larger the electorate, the harder it is for an individual voter to effectively monitor the elected agent. So it's a challenge that Congressional size is capped at 435, or that we now vote for senators directly, instead of via small, state legislative elections, or that — my personal hobbyhorse — presidential electors never really got cultural traction as an independent office, albeit an ephemeral one.
Corporate law and securities law is similarly structured to make officers and directors accountable agents of their principles. Shareholders get to vote on directors. They have a right to accurate information from the corporation. And corporate agents are forbidden to divert common corporate assets for their private benefit. And, again, many forces can blur, lengthen, or even cut those lines of accountability between corporate principles and agents. As with government, part of the problem is size. For any public company, there are so many other shareholders that I, individually, have no real ability to hold management accountable.
But the challenges of delegation crop up here in the corporate context, too. Today, as a retail investor, I'm a lot likelier to hold shares, not in a company that actually makes stuff, but, instead, hold shares through some kind of institutional investor, a large asset manager like BlackRock or Vanguard or State Street. And their incentives, as Steve has already alluded to, might not be to maximize my returns so much as get as many other people as possible to buy their investment products, and thereby spread asset management costs across as large a pool as possible, and maybe propagate some kind of 21st century social gospel along the way.
So here we've got two streams of power: public and private. And each, on their own, presents serious challenges for principals wanting to monitor their agents downstream. But, here, the accountability program actually gets worse if you defy the ghostbusters and cross the streams. When you have private actors striving to set public policy, which accountability structures are you even supposed to use? Here's an example. BlackRock is the world's largest asset manager, $10 trillion under management. CEO Larry Fink of BlackRock has been leveraging that capital for years to push companies to align their greenhouse-gas emissions with a net zero goal. Even if you were doing that at the express instruction of President Biden, I'm not sure that there's a coherent way to directly invoke the Constitution, or even the Administrative Procedure Act to hold Fink accountable, even though he is, de facto, driving national climate policy, in conjunction with other large asset managers.
The government, for its part, would like to point the finger back at private investors. Again, this is big in the ESG space. A major part of the SEC's justification for its proposal to require new disclosures of greenhouse-gas emissions is that investors are asking for it. This is, likewise, the same move the SEC used last year to justify approving the NASDAQ stock exchange's diversity quotas.
One last layer to this accountability problem: these public sector and private sector agents are, in fact, of course, the same narrow class of people. And their real accountability mechanism is not responsibility to shareholders or to voters, but, to themselves. I think a lot of what gets called "virtue signaling," colloquially, with, for example, institutional investors or CEOs touting ESG practices, is really messaging directed to one's colleagues in the managerial class to broadcast, and, hopefully, bolster one's own status.
So, that, at last, brings me to a little sketch of a way forward, something I'm happy to flesh out in our discussion. So if I'm a CEO, heaven forfend, and I take my corporate jet on a frolic to Lucerne in Switzerland for a ski trip, I have diverted corporate assets for private benefit, and I have breached my fiduciary duties. But if I take that jet to Davos, in Switzerland, so that I commit my company to new climate change policies, and maybe also go skiing, I may still be diverting corporate assets for private benefit. That's because I may be inflating my own stature among the smart set, at the expense of my company's long-term interests, which may or may not include those climate commitments.
But if we had a more robust appreciation of the corporate fiduciary duty, for that structure of accountability, an appreciation of the duty that resists self-dealing when it comes to reputation, and not just tangible assets, I think we would have fewer CEOs crossing those streams and wading into contentious policy debates. To state it more generally, if we paid as much attention to the accountability structures for private power as we do for public power, if we had a fifth branch review conference alongside this executive branch conference, we just might start untangling the accountability problems that arise when private and public powers cross. Thanks.
Hon. Stephen A. Vaden: All right. And for those of you in the audience, before I introduce our third and final speaker, please be thinking of questions. I'm certain Jonathan just triggered a lot with his remarks, there. But, after a little crosstalk, we're going to turn it off to you. And I hope we have some good questions to challenge and stimulate debate.
Our third and final panelist is Mr. Adam White. Adam is a Senior Fellow at the American Enterprise Institute, where he focuses on, among other things, the administrative state. He also co-directs the C. Boyden Gray Center for the Study of the Administrative State at the Antonin Scalia Law School at George Mason University. He started his legal career as a law clerk for Judge Sentelle on the U.S. Court of Appeals for the D.C. Circuit. In 2017, he was appointed to the Administrative Conference of the United States. And, in 2018, he published a particularly relevant article to today's panel, on the power of Google over information and disinformation. And that article was entitled, "Google.gov," published in the tech policy journal the New Atlantis. He holds a JD from Harvard, and he got his Bachelor's in Business Administration from the University of Iowa. Adam?
Adam White: Thanks, Judge. Is it okay if I stand? I feel like I'm looking at half of the room. When I wrote that piece, "Google.gov," I didn't mean for everybody to take it so literally. I was really struck by Dean's opening introduction and Senator Lee's opening remarks. Dean spoke of the administrative state in terms of centuries, hundred-year periods of history. And Senator Lee spoke of fits and starts over the same historical trajectory. Maybe another way of putting it would be "Rome wasn't built in a day." And it won't be unbuilt in a day either. But, of course, some days are more important than others. There are turning points in the history of administration: if not days, then, at least, moments or eras. It sort of feels like we're in that kind of moment now, for reasons that have been discussed so far, and then reasons that I'll get into.
I've been thinking a lot for the last couple of years about two trends, which we've touched on. One is the outsourcing of policy-making to the private sector. We saw some of that in recent years. First of all, with efforts by regulators to not force social media companies to take down content, but, at least, to sort of publicly encourage them. "Who will get rid of this meddlesome tweet?" But also, during COVID, on measures that I personally was very, very sympathetic towards, on masking, on vaccines, and so on, in the moments where government thought it didn't have power to do these things directly, you often saw President Biden sort of muse aloud, "Well it would be nice if companies would just impose these requirements". And companies did, often, for very, very good reasons. Again, I'm very much in favor of those measures. But it was a little unsettling to see everybody snap to attention so quickly and in the same direction.
So that's one trend I've worried about, is just the public discussion of policy suddenly becoming real-world fact, through the private sector. The second trend that I'm very worried about — and this bubbled up in late 2020, beginning at the SEC — was discussions among financial regulators — the SEC, then the Fed, the FDIC, and so on — to start changing bank regulations and capital market regulations to redirect capital away from disfavored industries, in this case, carbon-heavy polluters. But it wasn't through normal rulemaking. They made very clear from the start they wanted to do this through regulator's softer powers, particularly bank supervision powers, prudential oversight of financial institutions. Really the most unchained, powerful, discretionary powers in the federal government.
In both of these things, we see government acting indirectly to make changes in the real world that aren't really directly accountable back to government, for many of the reasons that Jonathan just described. And I've been thinking about these trends towards the outsourcing of policy and the attempt to turn the financial regulators into the everything regulators. And I see a number of reasons, probably too many reasons to count. Some of them are obvious. One is just a continued trend — a century-long trend or more, now — away from checks and balances.
When you look at the arguments that the New Dealers made almost a century ago about constitutional government, you read not just Woodrow Wilson, but James Landis, and their frustration with checks and balances. You would see the exact same arguments that are made today about the notice-and-comment and process. We're sort of defining constitutional government down. Before, it was "Congress is too slow." Now it's "Notice-and-comment is too slow." And so there's just this continued trend towards government's softer, yet, sometimes, more swift and more discretionary powers.
Of course, they have the ongoing problem of delegation, which exacerbates all of this by just giving government policy-makers more power to begin with. And we see just a basic breaking down of norms, throughout government. But, here, in this case, for example, financial regulators never would have dreamed, even just a decade ago, to turn financial regulation to such broad issues, removed from the direct concerns, the traditional concerns, of financial regulators. The reason why the Fed, the FDIC, and others have so much power is because they stayed in their lane for so long. And now we're seeing that norm break down.
There's two other themes I want to point to, reasons why I think we're coming to this point. The first is that the Administrative Procedure Act. And last year we celebrated its 75th anniversary. What a great party that was. I joke, for the nerds who actually did throw a party. But the APA is just fundamentally ill-suited towards the most significant debates we're having now. For example, the soft power of agencies. We've been debating guidance documents for years now. Before long, we'll look back to the good old days when they actually bothered to publish guidance documents, rather than just make speeches.
The APA really is not well-geared towards reining in agency soft power. But, also, it's not well-geared to rein in use of licensing or approval power. Whether it's infrastructure, or mergers, and so on, the APA is very, very, good at stopping agencies, or, at least, creating judicial review for agencies when they try to do things. It's not good to oversee agencies when they're not doing things, or when they're making unreasonable demands as a condition of granting a license or approving a merger or approving the continued listing of securities on public markets. The APA just isn't well-geared for that. And I think we're now seeing the limits of the APA.
But the last, and, I think, the most important cause that we really need to consider is the role of regulatory instability underneath all of this. We're now decades into a trend of radical swings in policy from one administration to the next. One administration makes a rule. The next administration undoes it. The next administration redoes it. It's just reg, rinse, repeat, over and over again. And I feel sorry for the people, the companies, the individuals who are regulated in this environment. Justice Gorsuch wrote about this in some of his Tenth Circuit opinions about regulatory instability.
I have great sympathy for the Davos class we were just talking about. I aspire to be one of them. But just imagine what it's like to lead a large public company right now. When one administration makes a rule, you have no confidence that rule will be around for very long. It will probably be changed within years. You'll have this sort of fog of judicial review around it for years. What's a company in that context, in that situation, going to do? They're going to look for the long run. They're going to look long-term stability. They're going to try to figure out where the policy equilibrium is going to be, over the horizon. And they're just going to go to that point. They're going to prize stability. And, frankly, I think what a lot of companies are doing right now in the policy space just reflects that. They are swimming to where they think the pup will be. They're being nudged along the way by the things I just described.
But a lot of this, I think, is just companies trying to find stability in an era of great instability. And I think administrative law for the last few decades, having prized — and this was something I always admired with Justice Scalia — the virtue of Chevron deference, was it allowed agencies to change their minds, to let elections have consequences. But in his famous Duke Law Journal article, when he argued in favor of Chevron, he did point out change is good, but you can have too much of a good thing. And there might be real due process concerns that arise if policy-making flip-flops too much. He never really spelled that out. I wish he were still here to explain it now, because I think we're in that moment. And I think we're seeing companies grapple with that problem.
Now, what I just described, in terms of outsourcing of public policy to companies, and, also, the turning of financial regulators into the everything regulators, there's a couple of concrete issues we're going to grapple with in the next couple of years. And I know there's CLE credit for this panel, so I want to, at least, partly, do my job here. So here's two specific issues to look out for. One is judicial review. Judicial review is going to get much more difficult in upcoming years, because some of the trends we're discussing are going to really complicate the causal links between government action and real-world outcomes. And so it's going to be more and more difficult to actually prove standing to have judicial review of some of the government actions that underly the eventual policy outcomes.
The second has to do with cost-benefit analysis. And I'm not just sucking up to Brian Mannix and Susan Dudley, here. But imagine this. Right now, the financial regulators are telling companies, "You need to worry about swift transition in policy." They call it transition risk. In the future, if we have a climate crisis, policy might need to change very quickly. And you need to prepare right now, or explain how you're preparing for the possibility of radical policy changes in the future. They're, in effect, trying to get companies to pre-comply with rules that haven't been written yet. When it comes time to actually write those rules, what's the cost-benefit analysis going to look like? If companies are already pre-complying with rules that haven't been written, when the rules are written, the costs of those rules are much lower. The costs go way down, the perceived benefits stay the same.
And so I think it's important to start intervening in these issues now, and flag the cost-benefit issue, because I think it's lurking out there in the future. I'll just say — I guess I've gone on a bit long — just one thing, one last thing. It is The Federalist Society after all. And, as I was doing my mandatory five Federalist Papers last night, I keep circling back to Alexander Hamilton on execution. We all read "Federalist 70," energy in the executive. But, in the papers that bookend that paper, he talks about what he calls the "true test of government." He says, "The true test of government is its tendency and aptitude to produce good administration." And that's amazing. For everything he wrote about executive power, for everything he wrote about judicial review, he says in The Federalist, "The true test is whether your constitutional system produces good administration." He actually says it twice. He says it in "Federalist 68," and he quotes it in "Federalist 76." He's like a law professor who cites himself.
I think that quote is becoming the great question of our time. Of course, constitutional issues are key. And, of course, today, as we're debating the fate of Roe v. Wade, that's in the forefront of our minds. But we need to take administration seriously. Hamilton recognized that you needed not just good laws, but good administration to create stability, so the rest of us can just get on with living our lives, whether it's individuals, companies, and so on. And everything we're describing today, there's no shortage of problems with it. But maybe the greatest problem is just the sheer uncertainty that it's going to foster, preventing people from innovating, from creating, or just getting on with their lives. And I think that might be -- I think we may be failing Hamilton's true test. Thank you.
Hon. Stephen A. Vaden: We've got two microphones. So if you have a question, please move to one of them. But, before we turn to that, I have a question that I'd like to throw out to our panelists. I know you were talking about what are we to do, and the wide swings in regulation. And, Jonathan, you had a proposal for, perhaps, using our corporate accountability measures to handle corporations who, from some points of view, might get away from just profit and loss and act as kind of free-wheeling bureaucrats who no one elected out there.
I guess my question for the panel is if you were in government right now, it seems to me there are two models that are being thrown out there, a somewhat active government role to counteract some of these trends in the private sector. A good example of that might have been what we recently saw in Florida with the bill that took away the Reedy Creek District from the Disney Corporation. And then there's another model out there, which isn't discussed as much, that I think is based on Calvin Coolidge's admonition that four-fifths of our problems could be solved if we would all just sit down and be quiet. And that is to have the government do nothing. And by that I mean that, frequently, the government acts as the handmaiden of big business.
For example, the United States Trade Representative Catherine Tai spent most of her first year in office doing diplomacy on behalf of some of our largest tech corporations, by reaching deals to encourage foreign countries not to tax them. Now, the value of that personal lobbying effort is incalculable. It would start with the gigantic tax savings that those corporations are going to receive. Nothing that she did is illegal. It's entirely appropriate for her to do that. But, on the flip side of the coin, there's nothing in law that requires her to do that on behalf of those corporations. So one could foresee an executive in the future sitting in the oval office and ordering his cabinet officers, "Take no action on behalf of," pick whatever corporate realm you want, "Don't get in their way. They're free to lobby the French government, and say, 'Please don't tax us.' But we will express no opinion on that. And, by the way, we also won't, when we're dealing with trade things, spend quite so much time on intellectual property. They're free to defend it with their own private lobbying efforts. But I want you focused on other policy matters."
So I'm curious, when it comes to what our panelists' thoughts are, is a more activist role of government to stop this perceived problem? Is an inactive role the better? Or is it a mixture of the two, from your perspective? Jonathan, I'll turn it over to you first.
Jonathan Berry: Great. I hesitate to paint with a broad brush beyond the -- I think the categorical statement I'm personally comfortable making is that we ought not to, we shouldn't refuse to consider activist options. Sometimes I think there is a very fine, very strong presumption, and I think this is reflected in our Constitution. Our Constitution, in fact, has a substantial bias in favor of inaction when it comes to legislation. For example, you've got to get through these distinct and different hurdles with bicameralism and presentment, get the concurrence of these three different political branches that are all elected separately. They all have to concur in order for new law to get made. And that reflects very deep wisdom. Adam, not I, can provide quotes from The Federalist to back that up.
I think the challenge today is that I think it's true that a lot of the problems we're seeing with big business today arise, at least in part, from the growth of government itself. So I'm hesitant about jumping from the frying pan into the fire. But, to bring it back, the fact that it is possible for, even common for government intervention to make things worse, is not reason to refuse to consider, almost as an article of faith, that intervention is never appropriate. Sometimes it is. And I guess I would add, to use the Florida example, recall that, as I understand it, the law that Governor DeSantis signed did not create a -- to channel opposite world Ibram Kendi, or something like that. He didn't create a Department of Anti-Wokeness in Florida State government. They did something relatively targeted, and rifle-shot. So, sometimes that could, potentially, be appropriate.
Stephen Soukup: One of the things that I find difficult to support government action, for example, what Governor DeSantis did, is that in sort of the philosophy I've developed around woke capital and the other influences of progressivism on business is this idea that the biggest problem is the politicization of everything. This was the warning given to the West, given to liberal democracies by Carl Schmitt, the Weimar-era philosopher-jurist from Germany, who warned that liberalism tends to create conditions in which we bifurcate into friend and enemy groups. And then, as these friend and enemy groups continue to escalate their fight, eventually, society looks for an authority of some sort to end the squabbling. And then Schmitt went on to prove that correct by becoming a Nazi and supporting Hitler, etc. Hitler was his person who stopped the squabbling, who ended the total war of the total state, where everything is politicized. For Schmitt, that's what he saw. And we saw how that turned out: 12 million dead, just in the concentration camps.
When I see government, for example, taking action to punish Disney for its attempts to overturn democratically elected law, I worry that this is part of that escalation. I don't blame Governor DeSantis. He didn't bring Mickey Mouse into the political realm. Bob Chapek and Bob Iger brought Mickey Mouse into the political realm. And he's simply trying to push back against it. But, yet, there is some escalation involved. And that discomforts me a little bit, because the total state and total war amongst the participants in the total state is one of the things I think we have to guard against.
At the same time, as Jonathan said, I think that there is a danger in inaction, as well. We've talked a lot about people involved in administrative law and its crossover with business, have talked a lot, recently, about the SEC's proposed new rules on climate change disclosures, that the SEC has proposed, and is taking comments right now on forcing companies to disclose their climate change plans, their emissions, all sorts of different things related to sustainability and climate change. If the federal government does not act, that doesn't mean that companies are not going to be able, or are not going to be required to do that.
Brian Moynihan, who is the CEO of Bank of America, is the president of a group, speaking of the Davos group, that is part of the world economic forum, that has been working on their own disclosure requirements for the last five years. If the SEC doesn't require these disclosures, this world economic forum group and all of its affiliates are going to require these disclosures privately. They're going to require companies, if you want, for example, to get funding, if you want access to BlackRock to put your company in its index funds, if you want the S&P to give you decent ratings, if you want any of the access to the financial capital markets in the world, particularly in Europe or the United States, you're going to have to comply with these disclosure rules anyway, which is, essentially, the idea of these private entities acting as quasi-regulatory agencies. So I think that it's a delicate balance. We need to have some pushback so as to not allow the world economic forums of the world to dominate this sphere. But, at the same time, I think we need to be careful about how we execute government action, in order not to escalate the total war and the total state.
Prof. Adam White: And I'll just say, very briefly, I'm very wary about these sorts of things, myself, and not just in Florida. I'm sympathetic to what Republicans in Florida wanted to achieve. I'm not sympathetic to them deciding that their method of pushback would be not through their own sort of political action outside of government, but to actually use the levers of government in a targeted way to retaliate against companies that were speaking. I think that's very, very, dangerous. I'll say the themes I was touching on, they aren't limited to Democrats. I want to be very, very, clear. This past year in Texas, what we saw on abortion, I'm very sympathetic to Texas on their wanting to push back against the Court and its abortion jurisprudence. I hope the Court overturns Roe v. Wade. But when Texas outsourced the execution of abortion law in their state to trial lawyers, I think that's very, very dangerous. I think it breaks the lines of accountability between the execution of government, the writing of laws, and the people that elect them.
And so one of the most troubling things about the themes we're talking about today, about government accountability and these issues, is that it's not a strictly partisan issue. I think we're going to have great, great, temptations from both sides to use these tools. When I talk about the climate finance issue, and turning climate regulators into everything regulators, I often say if this approach on climate finance works in this administration, the next administration will not -- they might change the policy, but they won't change the toolbox. You can just cross out "climate" and write "China" in there, and you'll see the exact same thing. Now, that's when a lot of my friends say, "Well, now you're talking." And I kind of agree. But I think this is very, very worrisome. And so I think we ought to worry about retaliation on the right.
Hon. Stephen A. Vaden: All right. Let's go to some questions. To my right.
Questioner 2: Adam's concern about regulation, that one administration puts it in and the other one puts in the opposite, and having to be regulated that way, my question is as follows; we heard Mike Lee say this morning that the REINS Act comes in. The REINS Act comes in, whichever administration has it, all those regulations are baked in the cake. And that administration is weaker than the one preceding it. And everything we have is there. And all of this bicameralism then bakes those into the cake, except for one thing. And I want to know if the panel thinks that this might be a way to stop that seesawing, without bicameralism. And that is collusive use of the Regulatory Review Act, in such a way that you have the SEC, you control Congress, you control the presidency. You have the SEC put in a regulation that there shall be ESG reporting by all the companies. And then you use the Regulatory Review Act to strike it down, because you've already talked to Mitch, and you've already talked to whoever the head of the House is. And, then, not only does that regulation get struck down, but all those similar to it can't come back. That's my question.
Prof. Adam White: I wrote a piece on this at the beginning of the Biden Administration, when there were some proposals from a couple of law professors at Harvard to do this, for agencies to basically tee up CRA resolutions in bad faith in order to knock down, and permanently knock down, conservative policies. It's been a while. I can't remember. There were technical reasons why their theory just didn't work, actually, on a plain reading of the CRA. But let's not miss the forest for the trees, here. It's the most pathetic and passive-aggressive thing that we've ever seen, seeing government, especially at the beginning of an administration, when they have the most possible time, teeing up CRA resolutions to lock in the agency on things. I'm grateful that I think the law doesn't hang together, and that it would actually have failed if they'd tried it. But I think it's a pretty sad sign of the times.
Hon. Stephen A. Vaden: Jonathan, you are a former regulatory policy officer for a cabinet agency. Do you have time to tee up phantom regulations?
Jonathan Berry: There wasn't a ton of time for this. We did do the first post-CRA disapproval reg that I'm aware of, on unemployment insurance eligibility issue, while we were there. But part of the challenge there is also just the scope of the effect of the resolution. Disapproval is relatively narrow. I believe the words are substantially similar. And so the gauge of that slug is pretty small.
Hon. Stephen A. Vaden: All right. I think we have a question over here.
Questioner 3: Jonathan pointed out that it's generally inappropriate for a CEO to spend money on his own private ski vacation, but it's generally now considered appropriate if he goes to the same ski resort and gives a talk at the World Economic Forum. But should that be the case? If that CEO spends $1 million on himself, or his wife, or his son-in-law, that's clearly wrong. But if he donates it to the National Resources Defense Council, or the Black Lives Matter Foundation, as a way of elevating his own public persona, furthering his own career, should that be considered a financial conflict of interest, in the same way that more traditional conflicts of interest are recognized in corporate governance?
Jonathan Berry: Definitely not an expert in this space, but I think there is a good argument to be had that the scope of the corporate fiduciary duty, as already understood, does, indeed, box out self-dealing that is not strictly pecuniary. Your example is somewhat pecuniary, because it does involve donation of money. But it's not money that goes to the private bank account of someone, of a corporate officer, or something like that. But, in reality, the duty is for the officer or for the director to serve the best interests of the corporation. And there are various ways that that can be subverted.
And one, I think, that does need more attention, in this era of woke capitalism, is corporate officers, essentially, bolstering their own reputation, standing, stature, sort of within that professional managerial class, at the expense of business interests. This is an example, by the way, of sort of paying more careful attention to the structural issues in a way that may prevent or reduce some of those downstream issues of companies doing crazy woke things, where you are at least tempted to do what was done in Florida, contra Disney.
Stephen Soukup: Yes.
Jonathan Berry: That was a better answer.
Stephen Soukup: The example that I always use, which you probably know, Richard, is Mark Benioff, the CEO of Salesforce, who, for a period of eight years, awarded himself, and then sold, 10,000 shares of his company stock every single day for eight years, 10,000 shares, every day. He's worth $8 billion now. And, as part of his plan to reform capitalism, to make it work for everybody, he gives away hundreds of millions of dollars of shareholder money every year, not of his own money, but of shareholder money, every year. And I think that the term is "modern-day robber baron," is what he is. And, to do that, I think, is both unethical and should be considered criminal, as well.
Questioner 4: Excuse me. Some of us do not know the corporation or CEO to whom you're referring.
Stephen Soukup: The company is Salesforce, and the CEO is Mark Benioff.
Questioner 4: Salesforce?
Stephen Soukup: Salesforce, correct.
Adam White: Actually, Steve, can I say something?
Hon. Stephen A. Vaden: Yeah, go ahead.
Adam White: A little over a century ago, Louis Brandeis sort of made his historical legacy, before he was even on the Court, by writing a book called, Other People's Money. And that book would be very different today.
Questioner 5: Good morning. So let's kind of start it out saying the APA is the constitution for the administrative state, a common phrase I always find faintly ridiculous, faintly sinister, actually. But let's kind of go with that. And then we also have the idea sometimes floating around that we should have a constitutional convention to reform the Constitution, which I might be okay with if we can just come up with equivalents for Washington and Hamilton and Madison. But, on the other hand, I think maybe we do have the equivalents — flatter ourselves — for the Congress of 1946. Isn't it time — and kind of summarizing some of the things it said — for us to have a substantial revision of the APA, or call it something else? And what do you think that would look like, if we kind of re-found the administrative state and put in a new constitution for it, a new APA?
Adam White: I'll just say, in 1946, when Congress made the APA, it was a large project in making execution look less like execution. It was an exercise in making some execution look like adjudication, make some execution look like legislation, but keep changing what we think of as actually executing the laws. And they did it because they were mapping new processes onto broad delegations. They also, in the same year they passed the Congressional Reorganization Act -- Joe Postell, from Hillsdale, did a great paper on this recently, looking at how Congress changed itself to become more of an oversight body than a legislation body. And so I've been sympathetic over the years to APA reform. I mean, who could be against reform? But, I think, at the end of the day, what really needs to be fixed is the delegation problem. And, until you fix that, you're really just -- you're doing a lot of things, but not really getting at the core problem. And you're not really getting back to real execution of real laws.
Hon. Stephen A. Vaden: Anybody else?
Allison Ball: I've got a question, too. So, a lot of what you've been describing is my actual life. I'm the state treasurer of Kentucky, so I deal with our investments. And, I'll tell you, there is a move afoot. And it's very strong right now among conservative treasurers across the country, and people who deal with this, that we need to have government action. It's only government action that can solve these problems. And I find it to be a little concerning. And you all have just identified some of the problems of looking at it that way. But a couple of you have said there may be a place for government action in some instances. Could you, as you think about that, could you elaborate what that might be?
Jonathan Berry: So, I think, one example -- and I've been an admirer of the work of lots of upstate treasurers and other financial officers who are starting to really alert to this issue -- from that position, if you are aware that there are major swaths of the financial sector, for example, that are acting to essentially cut off the lifeblood of your state, then, arguably, there's an obligation on the state officers entrusted with that to, at minimum, make sure that state pension funds and the like are not being used to actively finance that kind of work. That seems like a layup, honestly. And I think that's why we're starting to see so much traction.
Stephen Soukup: Yeah. I agree. The action taken by Treasurer Riley in West Virginia, the initial action where he took --
Allison Ball: -- Which we just did too.
Stephen Soukup: Pardon me?
Allison Ball: We just did too, in Kentucky.
Jonathan Berry: Mazel Tov.
Stephen Soukup: Yes. Take the operating budget out of investments with BlackRock, because BlackRock pushes policies that are contrary to the best interests of the people of West Virginia, and/or Kentucky. I think that's important, not just because it takes power from those — in this case, Larry Fink, the CEO of BlackRock — who would push a political agenda, using other people's money, but also because it puts control back in the hands of those who are closest to the people. If we look at our federalist state, if we look at the way it should be set up, if you look at the way capitalism functioned prior to the Civil War, it functions best when those closest to the people have the ability to look out for the people's interests most aggressively.
Jonathan Berry: I would add to that, just briefly, it's not as if -- with these gigantic asset managers, it's not as if these are, their sort of growth is some sort of untrammeled success story of capitalism, or something like that. Just to give one example, their size and scope is, in part, a by-product of our tax laws, of tax-advantage savings vehicles that causes these massive aggregations of wealth. So it's not like -- Larry Fink is not a yeoman entrepreneur, out in the frontier, working at his tool and die shop, or something like that. I'll come up with a better metaphor next time. So, I think that's worth considering.
Hon. Stephen A. Vaden: Adam, a few moments ago, you expressed some concern, if state governments were taking actions that were targeted against specific political thoughts of CEOs. The treasurer of the State of Kentucky, do you have concerns with her investment decisions? Or is she acting as a normal market participant, investing her own money, and can do what she wants with it?
Adam White: State pension funds, state funds, obviously, are different in a variety of ways, in no small part because you have a variety of obligations, both to your funds, and also to the people of the state. I want to just say for the record, I'm not against corporations being involved in politics or policy. They always have been. They're often a force for good. I'm worried about sort of coordinated efforts, especially at the government's own behest.
I will say, in your situation, or any similar situations, I wouldn't know what to do in your shoes. If you could actually get, like, a much better return on your investment, in the long run, with BlackRock, I don't know what you would necessarily say to your pensioners. You're making a difficult sort of balance between short- and long-term. And I really think one thing the states can do particularly well, is point out the problems, here. You have a unique platform, both individually and collectively, across states, to sort of push back politically, not through government regulation or regulatory action, but through your platform. And so I don't know what to tell you, in terms of government action. But I certainly hope that you'll be a vocal contributor to these debates.
Hon. Stephen A. Vaden: All right. And with that, I think we can adjourn, and breakout panels are to follow. So let's just thank our panel.