Donna M. Nagy (Indiana University Maurer School of Law) has posted Owning Stock While Making Law: An Agency Problem and A Fiduciary Solution (Wake Forest Law Review, Vol. 48, No. 3, 2013) on SSRN. Here is the abstract:
This Article focuses on Members of Congress and their widespread practice of holding personal investments in companies that are directly and substantially affected by legislative action. Whether entirely accurate or not, congressional officials with investment portfolios chock full of corporate stocks and bonds contribute to a corrosive belief that lawmakers can – and sometimes do – place their personal financial interests ahead of the public they serve.
Fiduciary principles provide a practical solution to this classic agency problem. The Article first explores the loyalty-based rules that guard against self-interested decision-making by directors of corporations and by government officials in the executive and judicial branches of the federal government. It then contrasts the strict anti-conflict restraints in state corporate law and federal conflicts-of-interest statutes with the very different set of ethical rules and norms that Congress traditionally has applied to the financial investments held by its own members and employees. It also confronts the parochial view that lawmakers’ conflicts are best deterred through public disclosure of personal investments and the discipline of the electoral process. The Article concludes with a proposal for new limitations on the securities that lawmakers may hold during their congressional service. Specifically, and as a starting place, Congress should prohibit its members (and their staffs) from holding securities in companies substantially affected by the work of any congressional committee on which they hold membership. But Congress should also explore the adoption of even stricter anti-conflict restraints, such as a statute or rule that would, subject to some narrow exceptions, prohibit members and senior staff officials from owning any securities other than government securities or shares in diversified mutual funds.