Author: Deborah DeMott


The Skeptical Principal

A bracing tone of skepticism directed toward transactional intermediaries and third-party advisers recurs throughout The Essays of Warren Buffett: Lessons for Corporate America, which intrigues me as a scholar of agency law and intermediation more generally. On reflection, I came to understand the author, Warren Buffett, and Berkshire Hathaway as unusual principals—willing to use the services of agents and advisors but only when circumstances require, able to discern which agents warrant trust, and uncommonly self-reliant in determining what objectives to pursue.

As the Essays note, Berkshire is unusual in several ways. These include the diverse range of businesses that it controls or in which it holds a significant ownership interest, its large proportion of non-controlling equity held long-term by individual shareholders, and its no-dividend pattern. These characteristics—plus the enduring management success of its controlling shareholders—may well be linked to the skeptical voice evident in the Essays.         

Consider first how the Essays recount the process through which Berkshire acquired Scott Fetzer. A “major investment banking house” had undertaken to sell it but failed despite offering Scott Fetzer “widely.” Learning of this failure Mr. Buffett wrote Scott Fetzer’s CEO (whom he had never met), expressing interest, and “within a week we had a deal.” But “[u]nfortunately, Scott Fetzer’s letter of engagement with the investment bank provided it a $2.5 million fee upon sale, even it had nothing to do with finding the buyer.” (Essays at 217).

To be sure, this account may slight the investment bank’s contribution because its unsuccessful marketing effort preceded Mr. Buffett’s awareness of Scott Fetzer as an acquisition target. Nonetheless the incident exemplifies the Essays’ skepticism of the value of external intermediaries and deal-facilitators, at least most of the time. Instead, identifying acquisition targets and determining the terms on which a deal might be possible can be handled internally and more simply. Read More


Reflections on Autonomous Artificial Agents and the law of agency

Many thanks to the organizers for asking me to comment on Samir Chopra and Lawrence White’s book, A Legal Theory for Autonomous Artificial Agents. I enjoyed thinking about the issues the book raises. My focus as a reader was the common law of agency. I served as the Reporter for the American Law Institute’s Restatement (Third) of Agency (2006), to which the book frequently refers. My immersion in agency law of course shapes my reading.

One concern I had as I read through the book is its possible conflation of two different kinds of claims: (1) the status of an autonomous artificial agent (hereinafter “AAA”) under present law; and (2) how the law should or could change in response to AAAs. At points I wondered whether the book implicitly flirted with a romance of the “ideal legal agent” (p. 23), an alluring prospect because “incapable of the kinds of misconduct associated with human agents.”As a scholar of the law, I was struck that the authors explicitly rejected the possibility that AAAs might best be termed “constructive” agents (p. 24) and that they do not explicitly engage with the large literature on fictions in the law. For one might read the book as an intriguing exercise in thinking “as if,” or as an extended construction of a metaphor or an analogy.

I’ll turn first to points concerning claims in category (1). The book might have benefited from a more robust account early on of the requisites for a relationship of common-law agency. Although agency does not require a contract between principal and agent, agency is a relationship grounded in mutual consent. It appears the book may discard consent as a requirement on p. 18, but mutual consent underpins much that follows in the specifics of agency doctrine. Indeed, the law recognizes non-consensual relationships in which one person has power to represent another and take action affecting the represented person’s legal position-such as the designation by statute of a secretary of state as an agent for service of process-but these relationships are not within the ambit of common-law agency. Consent, a concept that carries operative significance in many bodies of law, could be defined as an uncoerced expression of a person’s will. Thus, including AAAs within the ambit of present-day agency law requires that they be persons that can meaningfully said to have wills that can make expressions in an uncoerced fashion. Late in the book (p. 175) an AAA may be “said to possess” free will, but many assumptions precede this claim. Separately, AAAs are said to have duties to their principals early in the book (p. 21) but meaningful liabilities follow only much later, once AAAs hold dependent or independent legal personality.

To be sure, parallels can be drawn between AAAs and agents as the law conventionally understands them; one might delegate tasks to an AAA just as one might delegate tasks to a human agent or a legal-person agent such as a corporation (p.23). But the fact that task delegation is possible does not establish agency. I delegate the task of mobility to my car, much as the dog-owner in the Restatement illustration delegates to his trained pet the task of fetching beer1 (p. 55), but the fact of delegation does not itself make either my agent. I think this is so even if the car is equipped with computer-enabled functions and the dog can learn from experience (perhaps that beer has a delectable taste).

Chapter 2 on contracting problems, somewhat to my surprise, does not deal with the fundamental challenge of accommodating agency relationships within conventional accounts of how contractual obligations are formed. Just as it is difficult to understand how a contract could be formed via an AAA when the parties’ intentions are not referable to a particular offer and acceptance (p. 34), so it seems to be a broader predicament how a principal could be bound by a contract entered into by an agent when the principal was unaware of the specifics of the offer or acceptance. How could the principal be bound when the principal has not consented to the particular transaction? Agency resolves this predicament not by demanding transaction-by-transaction assent from the principal, but in characterizing the principal’s conferral of authority on the agent as an advance expression of the principal’s willingness to be bound which thereafter lurks in the background of the agent’s dealings with third parties. (Or appears so to do, when the principal can be bound only on the basis of the agent’s apparent authority). For a fuller account, see Gerard McMeel, Philosophical foundations of the law of agency, 116 L.Q.R. 387 (2000).

I turn now to (2), and how the law could or should change in response to AAAs. Many of the specifics detailed in the book. In particular, the questions in chapter 3 about attribution of knowledge are thought-provoking and novel. It’s not clear to me, though, why or how ascribing legal personality to AAAs would be a good solution. More generally, at points (explicitly on p. 43) the book may assume that increasing the usage of AAAs is self-evidently attractive, and thus that legal rules should be modified “to limit the potential moral and/or legal responsibility of principals for agents’ behavior.” Why this should be so is not clear. On this point, the history and pragmatics of ascribing legal personality to corporations could be informative. More pragmatically, would legal change through legislation be preferable to change though case-by-case litigation?

Of course, there’s much more I could say and much more in the book I admire. My reservations aside, it’s gratifying that agency law has found a lively and ingenious audience!


1   The hypothetical facts underlying this illustration were shared with me as present “in a real case” but diligent research never located a citation.