Article

The Monitor-“Client” Relationship

After the government discovers wrongdoing by a corporation, the corporation and the government often enter into an agreement stating that the corporation will retain a “monitor.” A corporate compliance monitor, unlike the gatekeeper, is not charged with “monitoring” the corporation in an attempt to detect and prevent wrongdoing. A monitor, unlike the probation officer, is not solely charged with ensuring that the corporation complies with a previously determined set of requirements. Instead, a corporate compliance monitor is responsible for (1) investigating the extent of the wrongdoing already detected and reported to the government; (2) discovering the cause of the corporation’s compliance failure; and (3) analyzing the corporation’s business needs against the appropriate legal and regulatory requirements. A monitor then provides recommendations to the corporation and the government meant to assist the corporation in its efforts to improve its legal and regulatory compliance—the monitor engages in legal counseling. The ad hoc structure of monitorships has, however, failed to facilitate the monitor’s function as a legal counselor. This failure is largely the result of structuring monitorships in an environment lacking binding rules and conceiving of monitorships as if a monitor’s only function is that of a governmental agent.

Yet the current monitorship structure is not necessary to achieve the monitorship’s goal, which is to establish a corporate compliance structure that deters and prevents future misconduct. This Article argues that providing a set of clear, enforceable, predictable rules regarding the scope of monitorships that facilitate a monitor’s function as a legal counselor will improve the long-term effectiveness of monitorships. This Article suggests one mechanism for achieving this goal—a statutory privilege—aimed at encouraging a formalized relationship amongst a monitor, the government, and the corporation, which re-conceptualizes the relationship as “The Monitor-‘Client’ Relationship.”

The Hidden Nature of Executive Retirement Pay

There are two competing theories of why public companies pay executives generous retirement benefits. One is that retirement pay is easier to hide from shareholders than other forms of compensation. The other is that retirement benefits align executives’ interests with those of long-term creditors, since the executives may not receive their payouts if the firm goes bankrupt. The latter view depends on the assumption that retirement benefits put executives in a similar contractual position as the company’s creditors. Yet no previous work has tested that assumption.

This Article provides the first systematic study of the contractual structure of executive retirement payouts. Using retirement pay data for thousands of executives, we show that a large proportion of executives link the value of their payouts to the company’s stock price and receive the bulk of these payouts immediately following their departure—features that contradict the incentive-alignment theory of retirement pay. The evidence also shows that the full amount and structure of retirement pay are undisclosed—findings consistent with the camouflage theory. While the structure of some executives’ payouts can be reconciled with the incentive-alignment theory, current rules do not give investors the information they need to tell the difference between payouts that align incentives and those that camouflage compensation. Lawmakers should require companies to reveal the structure of these payouts, and neither regulators nor commentators should assume that retirement benefits suppress top managers’ appetite for risk.

Improving Rights

Courts and commentators regularly assume that a single avenue for rights-making is both sufficient and unproblematic. For example, it is enough if a Fourth Amendment claim may be litigated either in suppression hearings or in civil suits under 42 U.S.C. § 1983. In previous work, I presented original quantitative and qualitative evidence that challenged this assumption, arguing that litigation in a single context tends to flatten and distort constitutional rights.

In this Article, I build on this critique by introducing cognitive psychology research suggesting that judicial rights-making is better undertaken simultaneously in multiple contexts. For example, on this view, Fourth Amendment rights would be better crafted both in suppression hearings and in civil suits under 42 U.S.C. § 1983. Such rights-making is preferable because it exposes judges to a broader range of governmental and private actors, factual circumstances, and social interests. In other words, multiple-context rights-making better captures the full array of considerations relevant to defining the proper contour of the right. Multiple-context rights-making would therefore result in better rights—that is, rights that more closely resemble the rights that judges would construct if they considered all the information relevant to the right itself and only that information, freed from bias, cognitive errors, and the influence of other contextual factors.

With this insight as a foundation, the Article then turns to the question of how to create the conditions necessary to improve constitutional rights-making. While previous commentators have wrongly treated rights-making conditions as inevitable, I explain that the conditions under which rights-making occurs are sensitive to factors well within governmental actors’ control, such as available remedies, incentives to litigate, and procedural hurdles. I conclude that government actors can and should take concrete and affirmative steps to improve the conditions of constitutional rights-making.

©Virginia Law Review Association. All rights reserved.