A few years ago, I was drafting some public comment letters to the FTC and DOJ in a series of cases where the regulators accused physician groups of “price fixing” during contract talks with third-party insurers. While reviewing three separate cases involving physician groups in different markets, I noticed that the defendants all retained the same defense lawyer. Further research revealed that said lawyer previously worked at the FTC, where he developed the very theory of antitrust liability now being used against his clients. Indeed, this lawyer authored a book on the policy.
At first glance, you’d assume that such an “expert” would help steer his clients to a favorable outcome in their tussle with the regulators. That assumption would be correct, if by “favorable outcome,” you mean that the defendants agreed to all of the government’s demands and waived their right to trial or even proof that their actions injured consumers. As is the case with over 90% of federal antitrust prosecutions, the three groups of defendants signed “consent orders” awarding the government total victory by default.
Imagine a criminal defense lawyer who “successfully” led all of his clients charged with capital murder to quick guilty pleas and immediate execution. Few accused murderers would retain such an attorney, expertise notwithstanding. But it’s common for companies to retain ex-prosecutors-turned-experts to defend them against antitrust and other regulatory charges. Consider this article published yesterday by CNET’s Declan McCullough on Google. The internet giant is fast becoming the “next Microsoft” in terms of attracting antitrust scrutiny. In response, McCullough notes, Google retained a slew of Washington lobbyists, including ex-DOJ antitrust official Makan Delrahim.
Hiring ex-regulators is justified as a cost of doing business. But it’s bad business. An ex-regulator may recite your public relations copy for money—witness ex-AG John Ashcroft’s selling himself to the highest bidder in the XM-Sirius merger fight—but a hired hack won’t criticize an underlying regulatory policy or framework, just the application to your immediate cause. At best, it’s damage control; at worst, companies strengthen the most destructive forms of regulation by giving current regulators every incentive to pursue new and broader “interpretations” of existing statutes.
In this sense, regulatory and litigation reform must be considered part and parcel of corporate governance. Firms need to take greater responsibility for their own interests by shunning ex-regulators and cultivating relationships with attorneys and lobbyists who reject the basic premises of destructive regulation. Free-market think tanks and tort reform groups provide great infrastructure, but until company executives resist the siren song of ex-regulators, the status quo will persist indefinitely.