Entrenchment, Incrementalism, and Constitutional Collapse

Entrenchment is fundamental to law. Grand documents like the U.S. Constitution, and mundane ones like city and corporate charters, entrench themselves against change through supermajority rules and other mechanisms. Entrenchment frustrates responsiveness, but it promotes stability, a rule of law virtue extolled for centuries. It does so through a straightforward channel: Entrenched law is difficult to change. Scholars have long understood this idea, which can be called the first status quo bias of entrenchment. This Article shows that a second bias lurks: Entrenchment makes changes that do take place incremental. As entrenchment deepens, the scope of potential change to law collapses on the status quo. To restate the idea, when we entrench law, we prevent change, at least for a time, and we confine any changes that do take place to small steps. This has implications for constitutional law, especially the debate about Article V and the separation of powers, both of which shield the Constitution from change more than scholars realize. It also illuminates several questions, especially in comparative constitutional law, such as why constitutions remain unpopular after amendment. Finally, it generates a theory of constitutional failure. When voters’ preferences evolve consistently in one direction, entrenched law eventually becomes as unstable as ordinary law, only less popular. Thus, entrenchment buys neither stability nor responsiveness. Because entrenchment confines legal change to incremental steps, amendment cannot correct the problem. This recasts questions of legal design in new light, and it may explain why some constitutions endure while others collapse.

The Untenable Case for Perpetual Dual-Class Stock

The desirability of a dual-class structure, which enables founders of public companies to retain a lock on control while holding a minority of the company’s equity capital, has long been the subject of a heated debate. This debate has focused on whether dual-class stock is an efficient capital structure that should be permitted at the time of initial public offering (“IPO”). By contrast, we focus on how the passage of time since the IPO can be expected to affect the efficiency of such a structure.

Our analysis demonstrates that the potential advantages of dual-class structures (such as those resulting from founders’ superior leadership skills) tend to recede, and the potential costs tend to rise, as time passes from the IPO. Furthermore, we show that controllers have perverse incentives to retain dual-class structures even when those structures become inefficient over time. Accordingly, even those who believe that dual-class structures are in many cases efficient at the time of the IPO should recognize the substantial risk that their efficiency may decline and disappear over time. Going forward, the debate should focus on the permissibility of finite-term dual-class structures¾that is, structures that sunset after a fixed period of time (such as ten or fifteen years) unless their extension is approved by shareholders unaffiliated with the controller.

We provide a framework for designing dual-class sunsets and address potential objections to their use. We also discuss the significant implications of our analysis for public officials, institutional investors, and researchers.

The Fox Searchlight Signal: Why Fox Searchlight Marks the Beginning of the End for Preferential Treatment of Unpaid Internships at Nonprofits

While the Department of Labor has said that unpaid internships at charitable nonprofits are “generally permissible,” Fox Searchlight signals that charitable nonprofits can no longer rely on Fact Sheet #71 for protection. The Labor Department is only entitled to Skidmore deference for this document, and its assertion of protection in Fact Sheet #71 contains no justification for the sweeping exception that it announces. The Fact Sheet is therefore unlikely to persuade courts that the Labor Department’s stance is correct.

This Note predicts that arguments for preferential treatment of nonprofits proffered by authors such as Tucci, Bianci, and Harthill will fail in the courts. This Note stands alone in forecasting massive liability for the 40% of unpaid internships hosted by charitable nonprofits in the United States today. Once a nonprofit or an employee is covered by the Fair Labor Standards Act, the clear intent of Congress as articulated by the Court (as well as the Department of Labor in the context of the volunteer exception) is to draw exceptions to coverage as narrowly as possible. On top of these textual and precedent-based arguments, plaintiffs have strong public policy arguments that the continued existence of the exception encourages inefficiency, distorts the labor market, creates uncertainty, and privileges whites and elite institutions at the expense of racial and ethnic minorities. At the very least, interns at charitable nonprofits should no longer have to fend for themselves in a completely unregulated market. This Note recommends that charitable nonprofits curtail their unpaid internship programs and calls on the Labor Department to withdraw its unsupported guidance in Fact Sheet #71. It would be as easy as deleting a footnote.