Sunday, June 26, 2022

The Duty of Care and Moving Operations Out of Pro-Life States

Abortion is obviously one of our most divisive political issues. Thus, when corporate leaders make decisions related to abortion laws, such as moving out of a pro-life state (see, e.g., CEO: Duolingo will move operations should Pennsylvania ban abortion), a specter of political bias is arguably raised. One normative question that then arises is whether such a decision is sufficiently conflict-prone to warrant enhanced scrutiny, as I have argued here. There is certainly a shareholder-wealth-maximization case to be made for moving out of a pro-life state -- specifically, the argument that high-value employees demand such action. But this determination should be supported by something more than trending Twitter comments or the personal biases of decision-makers. Corporate fiduciaries are required to consider all material information reasonably available, and where decision-making is sufficiently prone to conflicts of interest the accountability concerns of corporate governance should trump its protection of discretion.

As a perhaps related aside, one may compare the argument against state universities having official positions on whether the Constitution should be read as protecting abortion. As Prof. Leslie Johns noted in an e-mail she sent to the UCLA Chancellor following his related public statement asserting that Dobbs “is antithetical to the University of California's mission and values” (via The Volokh Conspiracy here):

As a faculty member in both the political science department and the Law School, I feel compelled to remind you that Americans (and even Californians) have diverse and complicated viewpoints on the issue of abortion. The legal issues involved in the recent US Supreme Court ruling cannot be simply reduced to a statement about restrictions on "women's reproductive rights."

Abortion is not a simple matter of access to health care. It is a complex moral and political question that involves balancing fundamental rights to life and physical autonomy. By denying this reality, you are asserting a political position. Yet your employment as a public employee explicitly prohibits you from using your office for political purposes. It is both inappropriate and illegal for you (and for me) to use our official capacity to make claims that specific abortion policies or constitutional interpretations are "antithetical to the University of California's mission and values."

Given UCLA's professed commitment to "diversity, equity, and inclusion," I respectfully ask you to carefully consider the implications of declaring that a conservative viewpoint is "antithetical to the University of California's mission and values."

Stefan J. Padfield | Permalink


I do not want to wade into this too deep here, Stefan--including by remarking on the UCLA statement and fallout. But the loss of a woman's right to choose to terminate a pregnancy inherently creates gendered issues in the labor market in various ways that most employers cannot ignore, given that those born with male reproductive organs cannot bear children. You are right that management, including boards of directors, cannot merely rely on Twitter comments or personal biases in making corporate decisions of any kind—including on hot-button religious and political issues. But women of childbearing age are likely to be valued employees of most business firms, especially in a labor market suffering from the great resignation, retirements, and other dislocations. Depending on the state regulation at issue, employers may find themselves bearing significant operational or employee benefits costs to keep women productively in their workforce—whether because a woman is bearing a child to term when she otherwise would not or whether because of the need for travel to end the pregnancy safely and legally. This is a nontrivial issue for corporations and all employers.

Posted by: joanheminway | Jun 26, 2022 2:48:26 PM

Thanks, Joan. The Duolingo CEO tweeted in part: “To all Pennsylvania politicians: …. If PA makes abortion illegal, we won't be able to attract talent and we'll have to grow our offices elsewhere.” In order for this corporate claim/threat to be issued in accordance with the duty of care, it must be fully informed. The CEO’s personal opinion, standing alone, shouldn’t be enough. And given the political passions triggered by this issue, I don’t think we should simply presume that the necessary supporting data was on hand and reviewed before this corporate threat was issued. The statement certainly provides a rational basis for a move – and your points support that conclusion – but that’s not the only issue on the table if enhanced scrutiny is applied. To me, this boils down to whether our increased political polarization and activism creates similar concerns about conflicted decision-making in cases like this as in the anti-takeover context, and I believe it does. Relatedly, Senator Marco Rubio’s proposed “Mind Your Own Business Act” provides in part for waiving the protections of the business judgement rule in cases where corporate action is “taken primarily in response to a law” and specifically singles out for this purpose laws “limiting the availability of services that include the abortion of unborn children.” Importantly, such proposed enhanced scrutiny no more precludes corporations from engaging in the covered conduct than Unocal precludes corporations from adopting anti-takeover measures. It merely recognizes the potential for disabling conflict and thus declines to presume the corporate action was fully informed.

Posted by: Stefan Padfield | Jun 27, 2022 4:04:20 AM

Thanks so much for posting the topic. Additionally, I greatly appreciate the above comments. It will be curious to see what actually occurs beyond "saber rattling." It seems every election cycle some entertainer or celebrity threatens to leave the US; and, sadly, few act on their position. Never having been one to bluff, I've always thought it was far wiser to "keep one's powder dry." I have, for years now, watched what I refer to as "Balkanization" based upon preferences and choices. I truly believe that Boards should consider a "online posting" policy where it implicates a business. I think this also ties into entities taking a political stance instead of focusing on quality, price, reliability of the product or service. Being old school, I truly believe that business entities should be "agnostic" as contrasted with business owners who should be free to express any position they may wish to espouse. It'll be fun to watch.

Posted by: Tom N. | Jun 27, 2022 4:49:40 AM

Thanks for the reply, Stefan, and for your additional comments, Tom N. I have a few quick thoughts.

First, Tom's right that there often is bluffing. Similar assertions about moving operations were made after California’s enactment of board diversity legislation. A few firms did move operations out of California, as I recall, but not as many as had threatened that action.

It also seems fair to note that firm management may try to use strong words in public statements for signaling purposes and not as an indication of corporate action. There are obvious advantages and disadvantages to that approach, of course. But that approach certainly can help gauge shareholder and stakeholder reactions that may be relevant to later board decision making.

Finally, there has been plenty of time for businesses to start contemplating the effects of increased restrictions on abortions. The released draft Dobbs opinion helped to clarify the situation and the possible timing and nature of the actual rebuke of the Roe decision. But firms have known about the risk for quite some time. Some may have been engaged in advance planning.

Overall, a single CEO public announcement of this kind does not surprise or alarm me when passions run high. Of course, as we agree, boards should look carefully at any significant decision—including one to move the firm's core offices. They do need to fully inform themselves of all material information reasonably available. Unlike you, I just do not see a particular cause for alarm here based on the public statements of a corporate CEO.

The Supreme Court’s decision to put abortion regulation in the hands of state governments invites individual and corporate citizens to consider geography more prominently in their residential decision making. Like state business governance rules, business and personal taxes, and other state regulation important to businesses and their stakeholders, state abortion rights will be part of the ongoing decision-making template. No doubt, some individuals and businesses will move to other jurisdictions because this issue changes their cost-benefit assessment in one way or another. No doubt some also will stay put because they are willing to bear the cost in light of other perceived benefits.

As for your argument that enhanced scrutiny should apply, well, I find that interesting. Again, I am just not as alarmist on this issue as you are. But I will look forward to you developing your arguments along those lines, should you choose to do that. The antitakeover cases are, of course, different in that director entrenchment in corporate power structures are at issue. The same is true for the shareholder franchise cases that invoke enhanced scrutiny—they relate to corporate power and control. Those matters go to the heart of corporate governance. This looks and feels different to me.

Posted by: joanheminway | Jun 27, 2022 8:08:05 AM

One thing I have noted recently has been the business exodus from Illinois. From what I can ascertain, these announced moves have been based on tax and "law enforcement" (or lack thereof) considerations. In fact, I "coined" the "Glen Funk Act" (Davidson Co. DA) passed last legislative session to statutorily enable appointment of a "special" DA for a District where they state and "do in fact" choose not to respect he law of the jurisdiction. I have little doubt that businesses will be considering a multitude of issues.


I am a big supporter of prosecutorial discretion; but, I also don't believe that wholesale signaling (e.g., "I wont enforce that law") is the product of poor judgment that detracts from the reliability of our legal system.

Posted by: Tom N. | Jun 27, 2022 11:36:38 AM

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