Tuesday, June 16, 2020
We have been having an on-going discussion about corporate responses to the protests and riots (see here, here, and here). A large chunk of that discussion has focused on my proposal (here) to add enhanced scrutiny to business decisions sufficiently raising a specter of political bias, and whether such enhanced scrutiny would be warranted for corporate decisions to strongly support “Black Lives Matter” while staying silent on the riots. The relevant posts have apparently been of interest to our readers, having been shared a combined 600+ times as of this writing. The discussion has many moving parts, and my views of the relevant issues have advanced as a result. Thus, I thought it worth updating and summarizing at least some of my current positions.
1. The idea that “black lives matter” is unquestionably correct, and it is appropriate and important to strongly affirm that idea in light of current events.
2. Perhaps the foregoing should end the discussion, but politically-charged controversy lurks just around the corner. Is “Black Lives Matter” an idea or a movement? If the latter, what are corporations endorsing when they emblazon their corporate banners with the phrase? Are they putting their weight behind the “defund the police” movement? What about blue lives? Google “police ambushed” and you’ll see that’s unfortunately a thing. Why aren’t we seeing corporations get behind “Blue Lives Matter”? Should those who connect the BLM movement with hatred of the police be simply dismissed as racists? Does endorsing “Black Lives Matter” mean corporations will now refuse to stand for the national anthem (metaphorically)? And while condemning the killing of George Floyd and inequality is obviously correct, where is the condemnation of the riots?
3. Having said all that, does allowing concerns like those expressed above to trigger enhanced scrutiny lead to too many false positives, even if one believes political bias in corporate decision-making is a problem and that enhanced scrutiny of at least some business decisions could be an appropriate response thereto? Co-blogger Ann Lipton did a great job in her prior comments of pointing out that political controversy can be found lurking around many business decisions these days. Uncertainty is costly, and perhaps the uncertainty regarding the identification of business decisions sufficiently suggestive of political bias to warrant enhanced scrutiny is simply too high.
4. Nonetheless, I continue to believe that political bias in corporate decision-making is a problem that warrants a response. Private ordering and market solutions certainly may be sufficient, but that doesn’t mean judicial or legislative responses shouldn’t be considered. Furthermore, it is important to not overstate what enhanced scrutiny, as proposed, implies. At the end of the day, it merely asks corporate decision-makers to confirm that they are doing what they are already supposed to be doing, which is to consider all material information reasonably available when making business decisions; it does not mandate any particular outcome, and generally leaves board discretion intact. Furthermore, protective devices such as heightened pleading standards and a safe harbor for viewpoint diverse boards at least promise the possibility of efficiently balancing the relevant costs and benefits. Finally, and as alluded to earlier, perhaps there is a way to distinguish decisions that have as obviously strong a starting foundation as set forth in item #1 above. Courts are good at using materiality determinations to dismiss what they deem to be frivolous litigation. Perhaps we just make room for a defense that amounts to saying that all the material information corporate decision-makers need here is that black lives matter.
ADDENDUM (11:15 AM): Another protection against frivolous claims we haven't mentioned is the need to plead damages. In my paper, I discuss Nike's decision to make Colin Kaepernick a face of the brand, but frame that entire discussion in the understanding that a viable claim is limited under my proposal given the stock market's overall positive response. To the extent this constitutes a modification of Unocal's enhanced scrutiny, I consider it appropriate. Cf. Corwin v. KKR Fin. Holdings LLC, 125 A.3d 304, 312 (Del. 2015) ("Unocal and Revlon are primarily designed to give stockholders and the Court of Chancery the tool of injunctive relief to address important M & A decisions in real time, before closing. They were not tools designed with post-closing money damages claims in mind ....").