Football fans, I'm talking about the Securities and Exchange Commission, not the other SEC. Yesterday the NFL denied the appeal of several key players in the New Orleans' Saints bounty scandal. I'm not surprised that some commentators are debating the fairness of the punishment to the fans, or wondering whether the Saints are unfairly being scapegoated. I don't follow football closely enough to opine on these matters (although, like Stephen Bainbridge, I am now part owner of an NFL franchise, but that's a topic for another day).
Rather, I see the bounty scandal through the eyes of a corporate law scholar. To generalize (acknowledging, as my father always used to say, generalizations are dangerous--even this one), we worry about two big kinds of dangers in corporate law. First, we talk a lot about agency costs, an economist's fancy way of describing the risk that the cashier is stealing from the till or sleeping on the job. Pulling a fast one on management. We think that's bad.
But then there's the other danger--the employee who isn't stealing, but rather is breaking the law in order to further his employer's interests. These actions produce a social cost--if one company profits from a government contract secured by bribery, society as a whole is worse off, even though the company employees approving the bribe were genuinely acting in their employer's best interest. What the Saints coaching staff was doing was perfectly logical and perfectly loyal to the team's interests--winning at all costs. But if each team pursued this strategy, the league as a whole would fail because the system as a whole would lose credibility and players would suffer too many injuries. And here's where the NFL is the SEC--it has to come down hard on the Saints precisely because each individual team's incentives are to crush its opponents at all costs, to injure, to destroy.
Michelle SIngletary makes the Greg Smith connection, observing that "In and out of sports, we should expect people to play fair and, if someone is hurt, it shouldn't be intentional. If it is, the perpetrators deserve to be thrown out of the game." She's right, although you don't need the moral opprobrium of the word "deserve" to get there. The point is, the game itself requires that this kind of agency be punished. Otherwise, everything falls apart. On Wall Street, on Main Street, and on Bourbon Street.
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