More on the Process of Legal Reasoning & Gold on the Business Judgment Rule
In a post a few days ago, still hung over from grading, I made an off-hand and slightly, I think, inscrutable reference to more to come on analogical reasoning. It’s in part what I am spending time reading this summer (going back and forth with very preliminary class prep for Securities Regulation) when I am not packing boxes, trying to do the Cesar Millan thing with our dog (Prozac is not a complete solution), or running unused household chemicals to the Indianapolis Tox Drop.
My reading and writing is iterative. If I think I will lose a thought, I will write a page or a paragraph, even though it may not link well or at all to the general thrust, and many times I figure out later that there was a connection. So it happened that I saw an article by Andrew Gold (DePaul, left) that attempts a deep dive into the process of reasoning from law to decision in a corner of the real world with which I have a more than passing familiarity, and I’ve decided to excerpt (edited and rearranged for the blog format) my little squibbet of writing about it.
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One of my recurrent themes is that all forms of judgmental or decision-making reasoning, other than the purely deductive, have a moment in which there is an indeterminate or intuitive or mysterious leap. To the extent we see ourselves as scientists, it is difficult to let go of the hope of explaining that leap in scientific (read: predictive) terms, yet we soldier on, looking for, analogically, a way to square the circle.
An interesting and readable example of the “soldiering on” is A Decision Theory Approach to theBusiness Judgment Rule: Reflections on Disney, Good Faith, and JudicialUncertainty by Professor Andrew Gold, the thesis of which isthat the rational basis test is still the best standard of review underthe corporate business judgmentrule.* As he observes, boards make decisions in the context of“intractable empirical uncertainty.” He thus turns to Professor AdrianVermeule’s discussion of institutional choice and decision theory as ameans, it seems to me, not of supplying a scientifically predictivemeans of decision-making, but of choosing which institution’s intuitionwill be given presumptive deference. I read the analysis to suggestthat, given enough time, the decision-making could be scientificallypredictive, but in the ex ante time frames decisions must be made, theissue is “trans-scientific.” (I am not sure how that differs from being“trans-cendental.”) In the decision theory model proposed here,uncertainty means that decision-makers know the payoffs of decisionsbut do not know the probability of those payoffs; ignorance means thatthey do not evenknow what the payoff will be. The purported value of decision theoryis that it “permits decisions to be made without resorting to randomguesses or raw intuition.”
If we cut through the jargon, the upshot is that there are analytical and reasoning tools – deductive, inductive,abductive, analogical – to approach or isolate the factors in a decision, or to weigh or quantify or anticipate or calculate, but ultimately the decision is a leap from what we know to what we do not, and in the moment of that leap all forms of reason (short of formal deduction) lead back to something that we seemonly to account for empirically as something like “intuition.” In a 1996 Harvard Law Review article, Professor Scott Brewer said the following about analogical reasoning: “The mystics [referring to aparticular group of scholars] are correct that there is inevitably an uncodifiable imaginative moment in exemplary, analogical reasoning.” We know the same to be true for rule-following. Has decision theory, a creation of economic models of behavior, really shed any light on the process? I’m not sure the theoretical solution is any more satisfying. And I would love to see, in follow-up perhaps, how Professor Gold’s interesting dive into theory would work as a board of directors actually pondered a merger, or a sale, or the firing of a CEO.
* Professor Gold’s abstract follows the fold.
Here is the abstract:
This Article presents an institutionalchoice perspective on the judicial role in enforcing corporate law, inlight of the Delaware Supreme Court’s recent formulation of a fiduciaryduty of good faith. The Court’s Disney decision allows for thepossibility that director decisions will be reviewed under a morestringent standard of review than the traditional business judgmentrule. This Article argues that shifting the standard of review coulddramatically alter the courts’ role in policing board misconduct.Furthermore, it suggests that courts do not have access to sufficientempirical data to calculate an ideal balance between boardaccountability and board authority. It is impossible to reliably weighthe complex variables that are relevant to this balance. Given thisuncertainty, this Article then uses decision theory to suggest that thebusiness judgment rule standard – a rational basis test – is the mostreasonable means for courts to review unconflicted director conduct.