Free speech for Harvard and the SEC

Asitting member of the Securities and Exchange Commission co-writes an article accusing Harvard University of violating securities laws -- because, the article claims, a professor's biased research has been used to argue for eliminating staggered corporate board terms. The facts are so juicy that the article has drawn plenty of attention, and corporate law heavyweights from the bar to the academy as well as other former SEC members have all weighed in.

But a crucial question has been lost: Exactly whose free speech is at stake here? The answer may surprise you, especially if you live in the shadow of SEC threats. In fact, it's not only the university and the professor who have free-speech interests. It's also the commissioner himself, who shouldn't lose his right to express his view just because he occupies public office.

So let's start with that commissioner, Daniel Gallagher, who was joined in writing by Joseph Grundfest, a former SEC commissioner who is now a professor at Stanford Law School. And for the moment, let's leave aside the content of their argument, namely that the Shareholder Rights Project, led by my Harvard Law School colleague Lucian A. Bebchuk, has cited incomplete data in the course of pressuring corporate boards to abandon the staggered structure beloved of incumbent boards and hated by shareholder activists.

Critics say that Gallagher overstepped his bounds by charging in the article that the Shareholder Rights Project violated securities laws by misrepresentation and that the universi- ty may be liable for it. But even if Gallagher is wrong on the merits and law -- we'll get to that -- he still should have the free-speech right to say whatever he wants, provided he specifies that he isn't speaking on behalf of the SEC.

Preserving free speech for government officials is important for them and for the public at large. In recent decades the U.S. Supreme Court has made it hard for government employees to speak publicly about matters arising in the course of their employment. This development has been bad for public employees, and bad for the public's right to know. Luckily for Gallagher, he isn't an employee and so couldn't be fired for speaking out of school. But what's good for the employee is equally good for the principal: more freedom to speak means more public understanding of the thought processes and practices of government officials. Arguably the need for transparency is greater still at the SEC, where commissioners are unelected and can't be fired. In short, Gallagher may be a fool or a scoundrel, but he should be free to express his views and be criticized for their content, not because he has them.

The obvious counterargument is that when an SEC commissioner suggests a person or institution may have violated the law, he may in effect be threatening prosecution -- and chilling the free speech of the targeted party. This isn't quite right. The enforcement division of the SEC brings lawsuits, not the commissioners. Gallagher may be revealing to the world that he is encouraging the enforcement division to investigate Harvard, and that may be a terrible idea. But we're better off knowing it rather than having it happen in secret. And we're better off hearing Gallagher's reasons, so they can be addressed substantively and rebutted.

That brings us to the most troubling aspect of Gallagher's claims: the notion that Harvard might be legally responsible for the actions of the Shareholder Rights Project through the doctrine of respondeat superior. This claim drastically misunderstands the relationship between scholars and the university that employs them - - and in ways that deeply threaten free academic speech.

Harvard is a nonprofit corporation that has some employees who can act on its behalf and create liability for it, like the Harvard Management Co. that invests the university's endowment. If employees of Harvard Management broke securities laws, the university could rightly be found liable.

But professors and their projects are fundamentally different. In a research university, a crucial element of the design is that faculty research isn't directed or supervised by anyone in the administration, not even the deans. Faculty aren't doing Harvard's business like employees of a company.