December 19 marks the centennial anniversary of the Kingsbury Commitment, a monument to the misuse of governmental power and discretion.
The Kingsbury Commitment helps explain why, with government persuasion, businesses do things that do not seem in their interest. For example, part of last month’s record $13 billion J.P. Morgan Chase settlement with the Justice Department goes to NeighborWorks of America, a non-profit self-described as “one of the country’s preeminent leaders in affordable housing and community development.”
NeighborWorks issues several press releases each month. Curiously, none was released referring to the J.P. Morgan Chase settlement.
You may wonder why NeighborWorks rather than other groups was designated in the settlement. To understand how a community development group becomes one of the largest beneficiaries of a record federal settlement with a private company, and to understand why it does not trumpet the event, it is helpful to review the Kingsbury Commitment, an early example of government pressuring a company to fall in line.
What exactly is the Kingsbury Commitment?
“Kingsbury” is the code word for the federal government dropping an enforcement action against a large corporation in exchange for the corporation’s “volunteering” to promote “public interest” positions, sometimes unrelated to the enforcement action. Under Kingsbury, disputes with the government are resolved not by the rule of law but by the rule of “volunteering” to work in the government’s political interest, such as designating money for favored community development groups.
Kingsbury came from a letter from AT&T T -0.67% Vice President Nathan C. Kingsbury to the then Attorney General George McReynolds ostensibly to resolve an antitrust case previously brought by the Justice Department. In the letter, Mr. Kingsbury committed AT&T to a series of actions not required by law but rather presented under duress to avoid the further wrath of the Woodrow Wilson Administration. As Mr. Kingsbury wryly noted, the letter was “in compliance with your suggestions formulated as a result of a number of interviews between us during the last sixty days,” to make clear that the content was not freely formulated by AT&T. Mr. Kingsbury then spelled out exactly what AT&T would do to avoid further antitrust litigation, no doubt the “suggestions” of Mr. McReynolds. The list had little to do directly with the litigation and much to do with the Wilson Administration’s public policy objectives.
The Kingsbury Commitment was not a formal consent decree of the form commonly used today in which court approval is required. No third party blessed the Kingsbury Commitment.
As President Wilson soon thereafter penned to Mr. McReynolds: “It is very gratifying that the company should thus volunteer to adjust its business to the conditions of competition.” AT&T did not volunteer to adjust to conditions of competition; it volunteered to adjust to the threats of the government.
Fewer than five years later, the federal government nationalized AT&T’s telephone network. The Kingsbury Commitment, it seems, was not a permanent truce between the federal government and AT&T.
The year 1913 was simpler, if not a better, time than today. The backscratching of government and private sector played out visibly. AT&T published its letters on these matters in its annual reports. Today, the quid quo pro, tinged with at least the appearance of impropriety, is surreptitiously hidden. Thus NeighborWorks of America wisely chooses not to issue a press release on the J.P. Morgan Chase settlement.
To understand the importance of the Kingsbury Commitment, one must take a close look at how disputes between ordinary individuals and the government are resolved. Answers to problems are not always found in a congressional chamber, in a courtroom, or in the Federal Register. Sometimes they are found in an anonymous office building where a government official has enormous discretion on a decision that will not be reviewed by a court and may never be fully public.
It is here that ordinary people come with ordinary problems that should never have existed in the first place: an improper parking ticket; an unapproved 501©(3) application; a deadline that the government unlawfully changed; a journalist whose records have been improperly searched; an individual whose health insurance is at risk.
The individuals who go to the anonymous government office buildings seeking answers to unnecessary problems are not anonymous. They have names. We know them by their names. They are our neighbors, our friends, our family, ourselves. There are not necessarily laws or rules at issue, but rather governmental decisions and discretion outside the narrow boundaries of the law. The federal government often turns a cold shoulder to those who have little to offer in return.
Not so with large corporations such as J.P. Morgan Chase. They receive the attentions of the federal government today as AT&T received it 100 years ago. The reason is that large corporations can “volunteer” substantial sums of money and policy positions they would not rationally take without government persuasion.
Nowhere is Kingsbury invoked more often, or more fondly, than at the Federal Communications Commission. There the Commission often seeks public comment on “public interest” standards and obligations that should be imposed on businesses outside of the normal structure of law and regulation. There businesses routinely “volunteer” to “public interest” obligations or face the certainty of having transactions blocked.
The results, all too often, are governmental decisions with little resemblance to law. The decisions are the artifacts of ad hocery rather than rule of law. That is how $13 billion settlements are reached with some proceeds going to one community development group and not another.
On December 19, federal agencies, and perhaps a few community development groups as well, should toast the Kingsbury Commitment. It is an early example of the use of power, and the abuse of power, by a federal agency.