Select Issue

Volume 36, Issue 1

The analysis reveals that the Draft Restatement study’s numerical results obscure both the many judgment calls needed to code the decisions and their limited persuasive power. These results confirm the importance of transparency and replication in empirical case law studies. They also suggest that the closed nature of the Restatement process is perhaps ill-suited to producing reliable large-scale quantitative case law studies.

GADs are not an isolated phenomenon. Their potential economic impact is significant, as one in seven firms traded on U.S. exchanges are incorporated or cross-listed in foreign jurisdictions. Moreover, the impact of these devices could extend beyond the market for corporate control, as foreign firms could also enjoy additional insulation from activist hedge funds. The Article also locates GADs in the wider theoretical literature on cross-listing and offers policy recommendations for overcoming GADs’ insulation effects.

I evaluate this claim from a qualitative empirical perspective, drawing upon interviews I conducted with 135 individuals across government, industry, and NGOs in eight different regulatory fields. I make three findings. First, the critics have a genuine basis for their claim. Regulated parties often face overwhelming pressure to follow guidance, and agencies are sometimes inflexible. Second, pressure and inflexibility, though real, are not universal. One can identify regulated parties who feel little pressure and agencies who are open-minded. The degree of pressure and inflexibility can be predicted on the basis of certain organizational and legal factors that are present in some regulatory schemes but not others. Third, even when regulated parties are strongly pressured, or when officials are inflexible, this is normally not because agency officials are engaged in a bad-faith effort to coerce the public without lawful procedures. The sources of pressure on regulated parties are mostly hard wired into the structure of the regulatory schemes Congress has imposed and are beyond the control of agency officials who issue or administer guidance. And when agencies are inflexible in the face of a regulated party’s plea to depart from guidance, that is usually because (a) officials face competing pressures from other stakeholders to behave consistently and predictably— pressures that spring from rule-of-law values that agencies would be remiss to ignore; and (b) officials are trapped by organizational tendencies that cause rigidity, which the officials do not intend but cannot redress without costly reforms.

The problem with guidance, though real, is largely an institutional problem that calls for an institutional-reform response, not a problem of bureaucratic bad faith that calls for accusation and blame.

Today, the FSOC’s designation program and other supervisory programs like it require financial supervisors to draw from an ever-deeper reservoir of administrative discretion to make hypothetical and conjectural assessments of future events. These programs have come to resemble so-called “risk regulatory” regimes—programs that require the exercise of significant regulatory discretion to counteract future harms subject to non-trivial uncertainty. In response, affected regulatory subjects have seized upon this discretionary power, calling into question the legality of its exercise. This Article analyzes the legal sufficiency of the procedural and substantive constraints on the FSOC’s discretion embedded in the FSOC’s designation statute and its own rulemakings.

It uncovers several structural problems with the FSOC framework. Whereas some of these problems are susceptible to amendatory fixes, others are not. These more trenchant problems are ubiquitous in risk regulatory regimes, but financial supervisory regimes have yet to develop the institutional and doctrinal forms needed to reconcile such open-ended discretion with the rule of administrative law. In presenting this analysis, the Article fires a warning shot in the direction of financial regulators, policymakers, and scholars, cautioning them that other programs are likely to be contested in the near future.