An Advocate for a Culture of Integrity In and Out of the Boardroom

Kenneth Starr was thrust into the limelight when he was appointed Independent Counsel investigating first Whitewater and its successor, the Monica Lewinsky affair, which led to the unsuccessful impeachment of President Bill Clinton. Starr, never comfortable in the spotlight, now lives a quieter life as dean of the Pepperdine University School of Law and of counsel to Kirkland & Ellis. Still, he can’t seem to stay away from the D.C. courts. The jurist joined the Free Enterprise Fund, a conservative think tank that filed a lawsuit challenging the constitutionality of the Public Company Accounting Oversight Board (PCAOB), a mandate of the Sarbanes-Oxley Act. Starr spoke to Directorship during the magazine’s annual Boardroom Forum earlier this year about his lengthy legal career, his time in the public eye, the current make-up of the Supreme Court, and what all directors should know about the Constitution.

You’re arguing the case against the PCAOB. Tell us what the issue is and why you got involved.

I was asked to join a legal team that is looking into the composition of the PCAOB. This five-member board, very interestingly and exotically, has enormous power and is appointed by the commissioners of the Securities and Exchange Commission. At a minimum, we should have Congress, or the President, or Chris Cox, the current chairman of the SEC, appoint these individuals to this board. We’re not a parliamentary democracy. Congress cannot choose to do anything it wants and it cannot, in our view, deprive the president of the United States of the opportunity to appoint these individuals or, at a minimum, have the SEC chairman appoint individuals to this board.

In litigation, we say there are victories and there are developments. We had a development in the district court in March where the district judge ruled against us and also ruled in our favor. Only a lawyer would say something like that. What he said is that the plaintiff is on to something here; the decision should have been the chairman’s, but the judge saw no real injury to these particular plaintiffs. We have filed our notice of appeal and we’re optimistic that the D.C. Circuit, which tends to be very sensitive to these foundational issues of separation of power, will listen. We think the court will rule our way, which would declare unconstitutional the composition of the PCAOB.

Tell us about the current Supreme Court. What’s in store for business?

It is a new day at the Supreme Court with the leadership of this great, young 52-year-old John Glover Roberts, Jr. What I see happening is a greater sensitivity to common-sense issues of fairness and efficiency. In the last week, I have begun referring to this Supreme Court as our ‘Chicago School Supreme Court,’ cutting across the usual philosophical and ideological lines. This is a very business-sensitive court. You have Justice Souter, who tends to ride along the liberal wing of the court, writing an opinion that was so very strong. The ruling in the case was that if you’re going to sue a large company, you’re going to have to be very particular in spelling out a factual basis for the complaint. Why? Because these suits are protracted and costly. He went on at length to praise by name individuals in the Chicago School, [a brand of economic theory associated with Milton Friedman that favors free-market libertarianism]. Recent cases are illustrative of a very savvy, business-sensitive court that is much more skeptical about litigation in the civil arena.

You commented that “the Constitution is business’s friend.” Would you translate that for us?

Think about what Henry Paulson [Secretary of the Treasury] has said about class-action [lawsuits] and their dangers. The Constitution speaks to class action and it’s called due process. Think of punitive damage awards and the Constitution. One of the areas that the Constitution speaks to is what is quaintly called the dormant commerce clause or the somnolent commerce clause. A long time ago, in 1824, the commerce clause was important because it prevented states from closing down their marketplaces in order to protect local industries. It’s part of the genius of our Republic. Justice Robert Jackson said a half century ago that every farmer and craftsman has the assurance that his or her product can get to market. As vigorously interpreted, the Constitution protects businesses against protectionist legislation that state legislatures are very quick to enact.