The Principal Problem: Towards a More Limited Role for Fiduciary Law in the Nonprofit Sector

Nonprofit law scholars have increasingly recognized that state fiduciary law developed to govern for-profit corporations does not readily translate into the nonprofit sector. A substantial body of literature has sought to strengthen nonprofit governance by modifying for-profit fiduciary law to better fit the needs of the nonprofit sector. No one has answered, however, the fundamental question of to whom nonprofit boards and directors owe their fiduciary duties. Without understanding whose interests fiduciary law should protect, attempts to strengthen it are premature.

Directors and officers of for-profit corporations owe their duties to shareholders. Nonprofit corporations lack shareholders but could theoretically be accountable to donors, beneficiaries, customers, the state, or their charitable purpose. This Note argues that nonprofit corporations in fact have no appropriate principals, and thus fiduciary law is a poor governance mechanism for the nonprofit sector. The legal toolkit available to reform nonprofit governance is thus more limited than has been previously acknowledged. In the future, legal efforts to reform nonprofit governance should focus on creating targeted rules to address specific abuses and on creating conditions that allow market-based governance mechanisms to flourish.

The Political Economy of Financial Rulemaking After Business Roundtable

In Business Roundtable v. S.E.C., the D.C. Circuit struck down the SEC’s proxy access rule. The court held that the SEC’s failure to perform an adequate cost-benefit analysis amounted to an arbitrary and capricious rulemaking that was not in accordance with law. The decision may be one of the most significant administrative law cases in a generation. If the D.C. Circuit adheres to its reasoning, federal agencies will no longer be able to satisfy their obligation to perform cost-benefit analyses by performing the sort of pro-forma analyses that they have been performing since the early 1980s when opponents of the regulatory state first started demanding cost-benefit analyses. Instead, they will have to perform serious cost-benefit analyses that can survive what appears to be a heightened form of hard-look scrutiny approaching de novo review. 

This note will explore the implications of the Business Roundtable decision by considering its application to rulemaking under the most important financial reform legislation since the Great Depression—the Dodd-Frank Act. This note surveys the impact that Business Roundtable will have on the gamut of political and private actors. In order to shore up their rules against court challenges, agencies will have to increase the number and quality of the economists on their staffs. This will increase the cost of rulemaking and reduce the range of rules that will pass through the new cost-benefit filters. It will result in a wide range of strategic behaviors on the part of private litigants and political actors since it raises the stakes for cost-benefit analysis mandates in statutes and executive orders.

Chevron and Constitutional Doubt

Federal agencies regularly sail in murky constitutional waters. Established principles of statutory interpretation, however, leave federal courts adrift amid these dangerous shoals. When faced with agency interpretations that raise constitutional doubts, courts are torn. On the one hand, the famous rule of Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc. instructs courts to defer to an agency’s reasonable interpretation of its own statute. On the other, cutting against deference, the longstanding canon of constitutional avoidance counsels courts, when possible, to choose a statutory construction avoiding serious constitutional doubts. Although the Supreme Court eventually resolved this dilemma in favor of the avoidance canon, the Court’s rationale remains somewhat of a mystery. Commentators generally tell a story of policy. This Note offers an alternative textualist account rooted in historical practice.