Investor case may link to corporate pay

Washington Post

WASHINGTON — The Supreme Court will hear a case today that raises bedrock questions about the ability of the market to set “reasonable” corporate compensation, and experts say its outcome could hold important clues about the judiciary’s view of extraordinary interventions in the economy by the executive branch and Congress.

At issue in Jones v. Harris Associates is whether investment advisers charged too much for their services to a mutual fund under their control. But it contains natural parallels to the current controversy over executive compensation at publicly held companies.

“The fact that the Supreme Court is looking at compensation again is in itself extraordinary,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, adding that the court’s history is to defer to the markets rather than to intervene.

It may also set up what could be years of judicial review of the measures that the Obama administration and Congress have taken — and envision — to deal with the worst collapse of the economy in 75 years.

“It’s like the thin edge of the wedge,” said William Birdthistle of the Chicago-Kent College of Law, who has closely followed the mutual-fund case. He said the economic solutions of the Obama administration and a Congress solidly in Democratic hands will be judged by “the last of the branches controlled by conservatives.”

This and other business- related cases will pose an early and interesting test for the court’s newest justice, Sonia Sotomayor, who was a corporate lawyer and has ruled on many business cases as a Manhattan district judge and as a member of the business-heavy U.S. Court of Appeals for the 2nd Circuit. “She may have more corporate experience than the rest of the court combined,” Birdthistle said.

In the compensation case, three investors in the Oakmark family of mutual funds have alleged that the funds’ manager, Harris Associates, violated its fiduciary duty by charging investors “excessive” fees — more than twice the amounts Harris charged for advising other clients. In one year alone, the mutual funds paid between $37 million and $58 million more in fees than they would have if they had been charged the same as other clients of Harris Associates, the investors said. Lawyers for Harris responded that the mutual-fund business is competitive and that investors are free to choose funds with lower fees. In fact, the size of the Oakmark funds has grown,