Saturday, April 14, 2018
As most readers are likely aware, Donald Trump has no love for the Washington Post, which frequently publishes articles that cast him in a negative light. The Washington Post is owned by Jeff Bezos, who also is the founder, Chair, CEO, and largest shareholder of Amazon. Trump’s rage at the Washington Post in general and Bezos as its owner has led him to threaten Amazon, both publicly and privately, with suggestions that – for example – it should pay the Post Office more for shipping, that its taxes should be increased, and perhaps even that it should not have access to certain critical government contracts. Most recently, he even ordered a review of USPS finances, apparently as a mechanism for targeting Amazon. As a result, Amazon’s stock price has suffered.
Egan-Jones Proxy Services recently posted a comment on this state of affairs, ultimately arguing that Bezos’s responsibilities to Amazon’s investors include limiting the Washington Post’s coverage. As Egan-Jones put it, “Unless Mr. Bezos decides and is able to tone down, or better yet eliminate the content which is upsetting the President and his supporters he will continue to find he has created the most dangerous type of enemy for any type of company and its CEO, the politician… The job of a CEO is to act as a good steward for the funds investors have entrusted to him. The job of a CEO is not to promote a particular political path he or she may favor. Mr. Bezos needs to decide, does he wish to remain CEO of Amazon, or does he want to be a political player, Amazon’s investors deserve nothing less.”
Now, at this point I will say, from a pure policy perspective, I am horrified at the thought that any news organization could be bullied by a public figure into moderating truthful, newsworthy coverage. Additionally, by all accounts, Bezos has no input into the Washington Post’s editorial decisions. But putting these points to the side, I actually wish to explore the suggestion that a corporate fiduciary’s duty to shareholders extends to his private conduct, such that even entirely personal actions must be moderated if they might have an adverse effect on the corporation he oversees.
There can be no dispute that a corporate fiduciary’s personal information and behavior might be relevant to investors and to the quality of his/her stewardship. The health of corporate executives has frequently come under scrutiny (e.g., Steve Jobs, Sumner Redstone, Hunter Harrison); Martha Stewart’s private trading in an unrelated corporation ultimately impacted her own company; the private affairs of a partner could have company-wide repercussions; an executive’s drug habit may impact the company in unexpected ways; heck, even a CFO’s golfing habits may be relevant to the quality of corporate financial statements.
As a result, scholars – including Joan Heminway (hi, Joan!) – have tried to unpack the extent of a corporation’s duty to disclose directors’ and officers’ private facts, both under the federal securities laws, and under state fiduciary requirements, recognizing that due respect must be paid both to the informational needs of investors, and to the moral (and perhaps constitutional) rights of privacy possessed by corporate actors.
See, e.g., Joan Heminway, Martha’s (and Steve’s) Good Faith: An Officer’s Duty of Loyalty at the Intersection of Good Faith and Candor; Joan Heminway, Personal Facts about Executive Officers: A Proposal for Tailored Disclosures to Encourage Reasonable Investor Behavior; Ann M. Olazábal & Patricia Sánchez Abril, Celebrity CEOs: Disclosure at the Intersection of Privacy and Securities Law; Allan Horwich, When the Corporate Luminary Becomes Seriously Ill: When is a Corporation Obligated to Disclose That Illness and Should the Securities and Exchange Commission Adopt a Rule Requiring Disclosure?.
It’s an even knottier question when we extend that analysis not merely to disclosure, but to the original behavior. Do corporate fiduciaries have a duty to police their private conduct so as not to harm the company? And in this context, I use the phrase “private” not only to mean unknown to the public, but also to mean personal, unrelated to their jobs as fiduciaries.
When it comes to Bezos, for example, his ownership of the Washington Post is entirely separate from his control of Amazon. Amazon’s 10-K does not even mention the Washington Post, and its proxy statement only discusses the Post in order to disclose potential related-party transactions regarding advertising and digital services; they are entirely distinct companies.
It might therefore seem bizarre to declare that Bezos has a fiduciary duty to Amazon even when acting entirely in his unrelated capacity as owner of a newspaper. Yet the law already recognizes that for some executives, the personal and the professional are nearly impossible to disentangle; for example, I am reminded of corporate opportunity cases where an executive’s close relationship with his company made it impossible to distinguish opportunities presented to him in an individual capacity from those presented in a professional capacity – or, as the Delaware Supreme Court famously put it, “In the instant case Guth was Loft, and Guth was Pepsi.” We might therefore decide that certain controllers – like a Bezos, or a Musk, or a Zuckerberg, or a Gates, or a (formerly) Kalanick, or a Jobs, or a Stewart, or a Winfrey – are so intertwined with their companies, are such auteurs, that they cannot have private pursuits that are distinct from the companies they operate. All of their behavior may impact their companies, and thus all of their behavior must be scrutinized for compliance with the duties of care and loyalty.
Might the constitutional rights of privacy and free expression play a role here? Perhaps; fiduciary duties are obligations ultimately imposed and defined by the state. At the same time, though, there is no constitutional right to be a corporate CEO; unless fiduciary duties are viewed as the equivalent of an unconstitutional condition, there may be few limits to the state’s power to define standards of behavior.
Yet we might nonetheless decide that, as a matter of policy, executives must be granted space for private pursuits, if for no other reason than – as Joan points out – too many talented candidates may simply refuse the top jobs otherwise.