Seven states suing to overturn President Barack Obama's health care law have nonetheless claimed subsidies available under the law for covering retired state employees, the Associated Press reports.

The states, Arizona, Idaho, Indiana, Louisiana, Michigan, Nebraska and Nevada, are among 16 approved, along with about 2,000 private employers, for funds to defray the cost of early retiree health insurance, according to a list released Tuesday.

Some 20 states are challenging as unconstitutional the health care law's requirement that individuals carry health insurance or face a fine. The administration has countered that the law is valid under the Constitution's commerce clause and its tax and spend clause.

A spokeswoman for Indiana Gov. Mitch Daniels said while Daniels disagrees with the law, he will nonetheless take advantage of provisions that benefit the state.

"Indiana will seek funds that help Hoosiers when there are no complicated strings or costs attached," press secretary Jane Jankowski told the AP.

HHS Sec. Kathleen Sebelius said individuals between ages 55 and 64, who do not yet qualify for Medicare, make up one of the most vulnerable populations in the health insurance market, and private companies have significantly reduced coverage of early retirees over the past 20 years. The retiree assistance is temporary relief until the health care law is fully in place in 2014.

For more analysis on the constitutionality of the shared responsibility provision, see this ACS Issue Brief by Simon Lazarus, public policy counsel for the National Senior Citizens Law Center.

You can also watch a panel discussion on the health care reform law's constitutionality from the ACS 2010 National Convention here. We talked with Lazarus about the states' challenges to the law following his participation on the panel.

The Social Security Act turned 75 on Saturday, and President Obama seized the occasion to remind the public that the United States cannot afford to privatize social security.

"I'll fight with everything I've got to stop those who would gamble your Social Security on Wall Street," President Obama said during his weekly address. "Because you shouldn't be worried that a sudden downturn in the stock market will put all you've worked so hard for - all you've earned - at risk. You should have the peace of mind of knowing that after meeting your responsibilities and paying into the system all your lives, you'll get the benefits you deserve."

Adds the Los Angeles Times in an editorial:

Conservatives have tried for several years to use the trust fund's long-term troubles as a rationale for privatizing Social Security. But allowing workers to take control (and responsibility) for all or part of their accounts would only exacerbate the problem. That's because, despite $2.5 trillion in reserves, the trust fund isn't large enough to finance the benefits promised to workers already in the system. Shifting payroll taxes from the trust fund to private accounts would make the shortfall worse.

The editorial calls instead for a combination of smaller steps, including raising the retirement age, raising payroll taxes, cutting benefits and changing cost-benefit adjustments.

Editorials in both The Washington Post and The New York Times also call for balanced reform, with a combination of benefit cuts and tax increases, but the Post calls the newest numbers a "warning sign," while The Times editorial board says "Social Security is holding up even in the face of a weak economy," due in part to savings Medicare will experience thanks to health care reform.

Paul Krugman writes that claims of a Social Security crisis rely on "bad-faith accounting."

"I'm not just talking about the fact that it's a lot easier to imagine working until you're 70 if you have a comfortable office job than if you're engaged in manual labor," Krugman writes. "America is becoming an increasingly unequal society - and the growing disparities extend to matters of life and death. Life expectancy at age 65 has risen a lot at the top of the income distribution, but much less for lower-income workers. And remember, the retirement age is already scheduled to rise under current law."

Derek Thompson writes in the Atlantic that Krugman's article is misleading, pointing out that modest cuts today will benefit the bottom 50 percent of Social Security recipients more than steep cuts in the future.

The Nation's Katrina vanden Heuvel suggests: "on this 75th anniversary, rather than fighting these Social Security-busters, we should celebrate what has been one of the nation's best anti-poverty programs - a lifeline for millions of Americans - and a reminder of what effective government can do."

She adds:

This anniversary is also a reminder of how major social reforms in this country have come about - in fits and starts. As former Clinton adviser Paul Begala observed in a Washington Post op-ed, "No self-respecting liberal today would support Franklin Roosevelt's original Social Security Act... If that version of Social Security were introduced today, progressives like me would call it cramped, parsimonious, mean-spirited and even racist. Perhaps it was all those things. But it was also a start. And for 74 years we have built on that start."

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By Scott Nova and Ben Hensler. Nova is Executive Director and Hensler is General Counsel for the Worker Rights Consortium, a university-based organization that investigates working conditions and promotes respect for labor rights in manufacturing facilities around the world.  

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Every year, hundreds of thousands of apparel workers around the world are cheated of legally-earned income when their employers fail to pay mandatory severance benefits. This pernicious form of wage theft, which costs workers the equivalent of at least several months' wages, has afflicted workers sewing clothes for just about every major apparel brand. However, since it is the brands' contract factories that directly employ the workers, the brands insist it's not their problem to fix. Factories close, bosses skip town, the brands wash their hands of the matter - and workers are left high and dry.

On July 21, Nike signed an accord under which it agreed, in effect, to accept financial responsibility for severance owed to workers by two contract factories (workers with the accord pictured left). This sharp break with business as usual by the world's leading sports apparel brand - the result of intense pressure from student activists and the company's university business partners - has significant implications for the global apparel industry.

Outsourcing and Accountability in the Apparel Industry

Outsourcing production to contract factories in the developing world, where labor law enforcement ranges from anemic to non-existent, yields a deregulatory double bonus for American clothing brands. Factories are able to violate worker rights with impunity, affording the brands big savings on labor costs. At the same time, outsourcing insulates brands from any legal accountability, since the lawbreaking from which the brands profit is committed by third parties operating outside the United States.

The primary goal of the contemporary anti-sweatshop movement has been to make it harder for the industry to play this game, by replacing the legal accountability that outsourcing has largely eliminated with accountability to civil society, generated through both consumer and political pressure, and, increasingly, private contractual relations. Activism in the 1990s compelled most apparel brands to publicly accept responsibility for working conditions at contract factories and to adopt private codes of conduct and monitoring regimes ostensibly designed to compel contractors to respect workers' rights.

Unfortunately, these corporate codes have been ineffective at protecting workers and, as a result, sweatshop conditions remain the norm throughout the industry. Brands have taken responsibility in theory, but have been highly adept at avoiding responsibility in practice. Achieving genuine improvements in working conditions would require brands to forego the savings extracted when labor standards are ignored and, instead, pay contractors prices consistent with producing in a lawful manner. Brands have refused to do this, continuing instead to push suppliers to accept prices that can only be met by running roughshod over the rights of workers. Yet despite this, brands have done an effective job of persuading many opinion leaders and consumers that their monitoring programs reflect a sincere effort to raise standards.

The Industry's Financial Firewall

A pillar of the brands' efforts to elude accountability is their long-standing insistence that their self-imposed codes of conduct, which require them to ensure that their suppliers obey the law, somehow absolve them of financial responsibility when they instead allow suppliers to rob workers of legally-owed compensation. The prime example of this self-contradictory posture and its consequences is the widespread failure of contract factories to pay statutory severance benefits and the consistent failure of the brands to do anything about it.

The laws in most apparel exporting countries mandate severance payments to workers in the case of factory closures. Because low wages make saving impossible, and because social safety nets are weak, this severance is often the only thing standing between laid off workers and outright destitution. Yet it is a routine occurrence for factories to shut down without paying severance. National governments generally do little or nothing in response. Although precise data is unavailable, anecdotal evidence suggests that the scale of this theft is massive, involving millions of workers over the decade and a half since codes of conduct were first adopted. To cite just one example: a survey of the operations of a single high-profile brand, in one Southeast Asian country, identified more than $40 million illegally withheld from workers in a three year period.

The apparel brands have been united in their refusal to accept any financial liability in such circumstances and, until last month, none had ever broken ranks. That changed when Nike agreed to pay $1.54 million in cash (and nearly a half million dollars in kind) to the employees of two Honduran contract factories.

A Radically Different Outcome

The garment factories closed last year and failed to pay more than $2 million in legally mandated severance. The Honduran government took very limited action, overseeing a process of liquidation of machinery and goods left at the factories which generated barely 20% of the money owed. Following the industry script, Nike lamented the workers' mistreatment, while insisting that it had no obligation to pay a penny to fix the problem.

On its website, Nike insisted that it was "absolutely concerned for the workers in Honduras and...deeply disappointed that the two failed sub-contract factories did not pay the workers their full severance pay. However," the company explained, "it remains [our] position that factories which directly employ workers are responsible for ensuring that their employees receive their correct entitlements and as such Nike will not be paying severance to [these] workers."

The story would normally have ended there, but several dynamics combined to produce a radically different outcome:

• First, the workers demonstrated extraordinary perseverance; they refused to go quietly to their fate and instead organized, protested and kept the issue alive in Honduras for well over a year after the factories closed (see photo, right).
• Second, Nike's own voluntary code is not the only labor code that applied in this case; Nike is also bound by the labor codes of universities across the country that license their logos to Nike and other apparel brands (who then make clothes bearing the universities' names and insignias). Unlike self-imposed corporate codes, the universities' codes are contractually binding on the brands. And, also unlike corporate codes, compliance is monitored by an entity, the Worker Rights Consortium (WRC), which accepts no funding from the industry. The WRC exposed the violations in Honduras and reported them, with extensive documentation, to Nike's university partners.
• Third, student activists, led by United Students Against Sweatshops, dedicated themselves to holding Nike accountable. The students refused to accept Nike's position that it had no financial responsibility. They organized on campus to urge aggressive university action and used a range of creative tactics to pressure Nike directly.
• Finally, universities are increasingly prepared to take strong enforcement measures when warranted - a reality that was illustrated last year when nearly 100 universities terminated the licensing rights of Russell Athletic, a subsidiary of Fruit of the Loom and Berkshire Hathaway, over labor rights violations at one of Russell's overseas factories. Russell responded, to its credit, by adopting sweeping reforms. When two of Nike's university partners - the University of Wisconsin and Cornell University - announced the termination of the brand's licenses this spring, Nike had to consider the prospect of a similar snowball effect.

A Groundbreaking Agreement

At the end of June, Nike entered into negotiations with worker representatives. These discussions produced the groundbreaking agreement signed on July 21. The accord marks the first time a major apparel brand has effectively assumed financial responsibility for labor rights violations committed by its contractors. (NB: Under the accord, Nike is not officially paying severance but contributing to a "Worker Relief Fund.")

Nike has set an example that other apparel brands will feel pressure to follow. As that pressure builds, brands will no longer be able to assume that they can easily evade financial responsibility for their contractors' misdeeds. Brands may thus begin to see the advantages of ensuring that their suppliers fulfill their financial obligations - providing the brands with an incentive both to police suppliers' behavior more aggressively and to ensure that the prices they pay suppliers are adequate to make compliance feasible. Weighed against the prospect of getting socked with millions of dollars in arrears, the short-term savings generated by underpaying for goods may no longer look like such a smart play.

For these reasons, last month's breakthrough may prove to be a watershed moment in the battle to impose the rule of law on the "wild west" environment of global manufacturing supply chains.

 

A federal judge today declined to dismiss Virginia's lawsuit challenging the health care reform law, The Washington Post reports on its Post Now blog.

In his decision, available here, U.S. District Court Judge Henry E. Hudson rejected arguments from Obama administration lawyers that Virginia has no standing to sue, and that the state could not prevail on the merits.

Thirteen other states have joined in a separate suit similar to that filed by Virginia Attorney General Ken Cucinelli, arguing that the law's mandate that citizens purchase health care by 2014 or pay a fine is unconstitutional.

The procedural ruling now paves the way for a full hearing on legal arguments before Hudson in October, The Post reports.

"This is a decision that I think conservative judges will find disturbing," said Walter Dellinger, chief of the appellate practice at O'Melveny & Meyers, during a Center for American Progress press call.

The state of Virginia cannot have standing to challenge a law that imposes no burdens or obligations on the state, Dellinger explained.

Dellinger added that, although the judge "clearly failed to understand how the necessary and proper clause functions," the judge's preliminary analysis of the substantive legal arguments was "not based on anything approaching a full consideration of the issues, which has yet to come."

For more analysis on the constitutionality of the bill, read an ACS Issue Brief by Simon Lazarus, public policy counsel for the National Senior Citizens Law Center.

See also a panel discussion on the health care reform bill's constitutionality from the ACS 2010 National Convention here. We talked with Lazarus about the bill following his participation on the panel.

While more and more people are facing bankruptcy, foreclosure and employment disputes as a result of the economic downturn, the availability and affordability of lawyers have decreased, reports The Wall Street Journal.

"Most legal-aid organizations, which provide free legal services to people at or near the poverty line, have cut back as they have absorbed cuts in the funding they rely on from governmental and private sources just as demand for their services has risen," the article states.

At the same time, "[t]he problem is growing for the middle class," many of whom have too much money to pay for legal aid, but not enough to hire a private lawyer, says Laurence Tribe, a Harvard law professor and constitutional scholar who now heads the Department of Justice's Access to Justice initiative.

The result, according to a survey of judges, is more pro se litigants.

During a panel at the 2010 ACS National Convention, Tribe called the access to justice crisis "dramatically understated," a comment on which the ABA Journal's Law News Now picked up, in a follow-up to The Wall Street Journal's report.

"The whole system of justice in America is broken," Tribe said during the convention. "The entire legal system is largely structured to be labyrinthine, inaccessible, unusable."

View Tribe's full remarks and his discussion with other experts during the ACS Convention panel, Legal Services for Low-Income People, below.

In its first filing defending the Affordable Care Act, the Justice Department questions the plaintiffs' standing to bring suit. The response also argues that the law is within Congress' powers to tax and spend and clearly within congressional prerogative under the Commerce Clause.

The suit, filed in a Michigan federal court by the conservative Thomas Moore Law Center, seeks to enjoin the provision mandating health insurance coverage for individuals from being enforced. The DOJ, noting that the individual mandate does not go into effect until 2014, says that the plaintiffs "demonstrate no current injury, and merely speculate whether the law will harm them once it is in force."

Even if the plaintiffs were found to have standing, the DOJ writes, the suit's likelihood of success is minimal. Echoing points that have been made by constitutional law experts on the legality of the individual health care mandate, Justice Department attorneys cite congressional authority to tax and spend, and under the Commerce Clause, arguing that the Affordable Care Act falls well within Congress' powers under Article I of the Constitution. Arguments to the contrary "are flatly wrong," the DOJ's brief states.

A copy of the Justice Department's filing is below.

Defendant's Response 210cv11156 ED Mich

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By Lee Harris, Associate Professor of Law, University of Memphis, where he teaches coporate law. Prof. Harris' most recent article, "Shareholder Campaign Funds: A Campaign Subsidy Scheme for Corporate Elections," can be downloaded here.

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Goldman Sachs has a stellar reputation. Even Warren Buffet, who recently plucked down around $5 billion to purchase a piece of the firm, trusts Goldman.

But, perhaps the Goldman magic is just that -- smoke, mirrors, a fancy outfit, a distractingly attractive assistant, a show built on illusion.

Consider the Securities and Exchange Commission's recent lawsuit against Goldman and the impending threat of criminal action against the firm for some of its conduct in allegedly deceiving investors and perhaps even helping instigate the mortgage meltdown and current financial crises.

With the lawsuit, Goldman joins the long list of other storied financial services companies that have been accused of misconduct recently, including AIG and Stanford Financial, among others.

According to the SEC, Goldman allegedly helped create, hype, recommend, and ultimately sell investments in housing that was doomed to fail. They charge that Goldman and the employee who allegedly helped size and package the doomed investment, Fabrice Tourre, a French national, committed fraud by failing to disclose details regarding the investment. One e-mail apparently from a Goldman employee, not the Frenchman, described such investments as "sh***y".

Excuse my French.

At the heart of the SEC's case, then, is disclosure.

Unfortunately, though, the SEC faces somewhat of an uphill battle and the Goldman cases highlight the need for financial services reform.

For instance, Congress has generally required significantly less disclosure for transactions, like the one in the Goldman Sachs case.

Investment instruments, like the ones at issue, are typically only available to a very limited set of sophisticated investors, a.k.a. accredited investors. As a consequence, these investments are typically unregistered and subject to significantly less disclosure obligations than investments available to the public at large.

The theory of less-disclosure has been that sophisticated investors don't need greatly enhanced protection.
Further, the SEC does not have the manpower to monitor disclosure obligations from everyone, so why have enhanced disclosure obligations for so-called accredited investors at all?

Because the disclosure hurdle is significantly lower, creating investments for sophisticated investors only can be appealing.
When they do, firms like Goldman can look down, put their hands in their pockets, and claim very little disclosure obligation, given the sophistication-level of their investor clientele and the absence of any public interest.

The problem, of course, is that defining the line between public and private has become increasingly difficult.

For instance, though on its face such a transaction looks private, the consequences can have wide-spread consequences. The Goldman Sachs transaction, for instance, may have helped contribute to the housing bust and financial crises. In their complaint, the SEC pulls no punches. In the first full paragraph of that document they allege that investments, like the one hyped by Goldman, "contributed to the recent financial crises by magnifying losses associated with the downturn in the United States housing market."

Regardless of whether this is overstatement, Goldman certainly helped create new ways to bet and profit from a housing disaster.
These deals, therefore, may have negative effects for many. This is not the just the case of a multi-billionaire who loses a measly few million. These deals have ramifications for the US economy and all of us.

Furthermore, some of the so-called sophisticated investors are pension funds and university endowments and other investors that are not necessarily very savvy at all. Such funds, like many of us, rely heavily on the advice and disclosures of their investment professionals.

And such funds are really just an approximation of the public at large. Pension funds, for instance, represent their contributors: thousands and thousands of regular, middle-class families.

In his pitch for financial services reform, President Obama recognizes these issues and has proposed enhanced disclosure of these currently lightly-regulated transactions. If Congress agrees, perhaps financial wizards like Goldman will finally be required to show investors, even so-called sophisticated investors, their cards.

[Image via The Rocketeer.]

More than a year after oral argument, a narrowly divided federal appeals court affirmed certification of the largest class action in American history. In Dukes v. Wal-Mart, more than one million potential plaintiffs are suing the retailer for gender discrimination. 

"The lawsuit, brought in 2001, accuses the retailer of systematically paying women less than men, giving them smaller raises and offering women fewer opportunities for promotion," The New York Times reports. "The plaintiffs stressed that while 65 percent of Wal-Mart's hourly employees were women, only 33 percent of the company's managers were." 

Considering the case en banc, the U.S. Court of Appeals for the Ninth Circuit sided with the plaintiffs by a vote of 6-5. Casting the deciding vote was Clinton appointee Judge Susan Graber, who wrote in concurrence, "If the employer had 500 female employees, I doubt that any of my colleagues would question the certification of such a class. Certification does not become an abuse of discretion merely because the class has 500,000 members."

The Recorder reports: 

Judge Michael Daly Hawkins wrote Monday's majority 9th Circuit opinion, joined by Graber and Judges Stephen Reinhardt, Raymond Fisher, Richard Paez and Marsha Berzon. All were appointed by Democrats.

"It would be better to handle some parts of this case as a class action instead of clogging the federal courts with innumerable individual suits litigating the same issues repeatedly," Hawkins wrote in Dukes v. Wal-Mart, 04-16688.

Judge Sandra Ikuta dissented, joined by Chief Judge Alex Kozinski and Judges Pamela Rymer, Barry Silverman and Carlos Bea. All of them are Republican appointees except for Silverman, a moderate Clinton pick much like Graber.

Wal-Mart is expected to appeal the decision to the Supreme Court. Considering some observers' assessments of the Roberts Court as hostile to justice accessibility, plaintiffs' victory this week remains far from final.

[Image via Dystopos.] 

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By Jennifer Burns, Assistant Professor of History, University of Virginia. Burns blogs about Ayn Rand, libertarianism, political history, and more at www.jenniferburns.org. 

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Of all the second acts in American lives, perhaps none is more remarkable than the recent conservative embrace of Ayn Rand, the long-dead doyenne of American capitalism. During the market nosedive of 2008 it seemed her version of free market capitalism had been discredited altogether; even former acolyte Alan Greenspan had his doubts, famously telling Congress he had found "a flaw" in his Rand-inspired ideology. Yet in 2009 sales of her books began a ferocious climb, with Atlas Shrugged alone selling more than 300,000 copies. Signs referencing her hero John Galt dotted the tea party protests, and she's been a staple of right wing talk radio and a new favorite of rising stars like Glen Beck. On the campaign trail, candidate Obama would sometimes criticize the virtue of selfishness, making a veiled allusion to Rand's ideas. Now President Obama has wrestled firsthand with the virtue of selfishness, for it is Rand's ideas that have undergirded conservative response to his economic proposals from the auto bailout to health care reform. Nor is she likely to fade away anytime soon; the Washington Post just declared Randroids "in" for 2010.

Though Rand's newfound popularity may have caught liberals and progressives by surprise, my book Goddess of the Market: Ayn Rand and the American Right, shows that Rand has always been a staple of political thought on the right. As I describe in the book, her ideas become especially prominent in eras of liberal dominance. She first caught the eye of business conservatives when she worked as a volunteer for Wendell Willkie's 1940 presidential run against Franklin Roosevelt, and she inspired legions of young volunteers who campaigned for Republican contender Barry Goldwater in 1964. The same cycle continues today, as the presidency of Barack Obama has energized and outraged his conservative opposition.

Ayn Rand was born Alissa Rosenbaum in 1905 in St. Petersburg, Russia. When she was twelve, Bolshevik revolutionaries seized her father's chemistry shop, an experience that left young Alissa with a bitter hatred of government and an abiding suspicion of any collective action justified in the name of social good. In 1926 she left Russia for America, where she changed her name and embarked on a remarkable career as a screenwriter, playwright, novelist, and political activist. She developed a Nietzschian-style philosophy of ethical selfishness, holding that traditional values like altruism lay at the root of totalitarian systems such as communism, socialism, and fascism. Rand called her mature philosophy "Objectivism," and it proved wildly popular among college students in the 1960s. Objectivism helped inspire the Libertarian Party, the Cato Institute, and Reason magazine.

Today, Rand's best known work is her politically charged 1957 novel Atlas Shrugged. The 1,084 page book is set in a future dystopian America, where overbearing government regulation and taxation have strangled the economy. In response, the country's top capitalists have gone "on strike," heroically refusing to work for an exploitative system that redistributes their wealth to the needy. Ever since it was published more than 50 years ago, readers have hailed the work as prophecy, seeing in Rand's villains the dim outline of liberal presidents from Lyndon Baines Johnson to Jimmy Carter.

This understanding of Rand as prophetess is widespread on the right today. "Read Atlas Shrugged before it happens" warned a sign at last spring's tea parties. Or as Rush Limbaugh put it: "Ayn Rand, she wrote ‘Atlas Shrugged.' The sequel: ‘Atlas Puked.' We're in the middle of it."

What's different now is that for the first time, conservatives are willing to overlook Rand's once-controversial atheism. Rand's materialistic philosophy is pivotal to her attack upon government, as both she and an earlier generation of conservatives understood. William F. Buckley, Jr., the founder of National Review and himself an avid fan of capitalism, tried to run Rand out of the conservative movement because she was an atheist. He rightly perceived her work as not just as a defense of capitalism, but an attack upon Christianity itself. For Buckley and other traditional conservatives, government charity might be wrong, but charity itself was to be applauded. That Rand criticized Christian morality made her anathema to believers like Whittaker Chambers, who wrote the message of Atlas Shrugged was "to a gas chamber - go!"

What matters most to Rand's latter day conservative followers, however, is how vividly Rand makes the case that government intervention in the economy and social welfare programs are morally wrong. In a clever sleight of hand, Rand's ideas have helped conservatives shift the terms of debate from the causes of the economic crisis to the Obama administration's proposed solutions. She offers a secular version of saints and sinners, for in Rand's world, there are two types of people: producers and looters, or those who work for themselves, and those who work for the government. It's the original version of Richard Nixon's "silent majority" or Sarah Palin's "real Americans."

Rand's acceptance into the pantheon of conservative thinkers is a sign that the libertarian wing of the movement is gaining strength as economic issues move to the fore of American politics. And though liberals expected that the market crash would discredit libertarian economics altogether, Rand's prominence signifies that the ideal of unregulated capitalism itself is becoming more firmly welded to the conservative world view. Whether Rand's popularity lasts into the new decade remains to be seen. But if the history I describe in Goddess of the Market is any guide, Rand and her ideas will be with us for many political cycles to come.

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By Lee Harris, professor of corporate law at the University of Memphis and author, most recently, of Mastering Corporations and Other Business Entities.

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Goldman Sachs, the former bailed out investment bank, wastes too much of the corporate wad on lavish compensation arrangements. Notably, for instance, the company recently announced that it was setting aside $16.7 billion for employee compensation. That's around $700,000 per employee. Really.

At a time when the economy is contracting and job losses expanding, such numbers have observers miffed. At least one pension fund, The Security Police and Fire Professionals of American Retirement Fund, which had invested in Goldman, has hired a lawyer and filed suit to try to put a stop the payout.

Fortunately, such suits raise the issues and send a message to leaders of public companies. But, unfortunately, there's little these shareholders or anyone can actually do to stop the Goldman-like bonanzas.

As it turns out, pay for performance at many U.S. firms is frequently anything but. Often executives at companies receive lavish incomes for average production. Worse, some get fortunes, even though their performance has been subpar. And, worse still, sometimes executives receive sheer windfalls, even while their performance has been awful.

In fact, the Goldman payout isn't the first time high executive compensation has raised shareholder ire.

One of the most egregious examples of this occurred thirteen years ago, when Disney agreed to pay Michael Ovitz, their poor performing company president $140 million dollars in severance package. And, the Disney board and CEO agreed to the payout, after Ovitz had performed just over a year's worth of work!

One of the well known reasons large payouts occur is because of the rampant conflicts of interests that are inherent in many executive compensation decisions. For instance, the CEO plays an important role in selecting the members of the board of directors, which, upon selection, entitles the appointees to very lucrative director fees, stock, and stock options. The CEO's salary, in turn, is determined, by whom-of course, those very directors who owe their appointment in part to the CEO.

Compensation consultants are brought in to figure whether compensation packages are at market rates. For instance, Disney had a compensation consultant to advise them on how to structure Ovitz's pay at the company.

But, the compensation consultants are appointed by whom-the very executives and directors for whom they will offer an opinion. If the compensation consultants want future work or, for that matter, board members want to stay in the CEO's good graces, then there are fairly predictable incentives to come back with a very high executive pay numbers.

Sometimes, as mentioned, stakeholders in US firms-shareholders and the public-fight back. Congress amended the tax code to take away the deductibility that companies who make large salaries receive. And shareholders, incensed by outsized pay arrangements, brought suit against Disney. The Disney shareholders argued to courts in Delaware, where Disney was incorporated, that the directors were uninformed-which they were-the severance was unconscionably large-which it was-and that Mr. Ovtiz was unqualified-which arguably he might have been.

However, it still remains very much a tough path, fraught with difficulties to try to beat back decisions to take on companies, like Disney, Goldman, or others. Firms can game and restructure compensation arrangements to avoid new changes to the tax code, as they have done with respect to the deductibility provisions.

And, with respect to a courtroom challenge, judges have been loath to hear shareholders out. There are well-known legal tropes that stop courts from intervening in such decision-making. The importance of "centralized management", the need to avoid "courtroom second-guessing" and so forth mean that courts are inclined to leave levels of compensation up to the directors of firms. It means plaintiffs in cases like Disney's have little legal standing to launch a suit and it means that, even if they take such suits to verdict, they too often lose.

As a consequence, plaintiffs, like the latest group that has decided to take on Goldman, are swimming upstream and fighting the good fight. Hopefully, this time the plaintiffs will fare better.

[Image via say.fromage.]