Sunday, February 19, 2023

Corporate Speech and the Omnipresent Specter of Political Bias

This post was originally intended to be submitted as a comment to Ann Lipton’s recent “Don’t Say Anything” post – so please read that post first before continuing. I ultimately decided to publish this as a free-standing post because it got a bit long for a comment and I’ll be better able to follow any subsequent comments here. As always, I remain open to changing my mind in the light of convincing feedback.

Ann’s post starts by referencing “Florida’s ‘Don’t Say Gay’ law, HB 1557.” For context, the following from Heritage Action's Executive Director Jessica Anderson (here) may be helpful:

While the Left and the corporate media continue to lie about Florida’s Parental Rights in Education bill, HB 1557, Florida Republicans haven’t stopped working to protect parents and children. Nothing in the bill bans the word ‘gay’ or censors schools — it simply protects grades K-3 from sexualized instruction and bolsters parents’ rights to know what’s going on in their children’s lives at school.

As for the substance of the case, I predict that Chancery will not dismiss the request. Why? Because it does not have to dismiss it in order to discourage “bullying” because this is not properly dismissed as bullying (i.e., an improper purpose). Simeone is certainly not the only shareholder to be concerned about Disney’s decision possibly being tainted by political bias – and this request is a proper way to try to get at the truth on that issue. What’s the most likely form of circumstantial evidence of political bias in a case like this? I believe it is failures of information-gathering that conveniently tilt in only one partisan direction. For example, if the decision-makers utterly failed to even consider simply firing the disruptive employees as a way to restore order at the company, or if they utterly failed to account for the completely foreseeable costs of backlash – in the form of state action or an even bigger PR nightmare – for trying to undermine the decisions of a democratically elected governor arguably doing precisely what he was democratically elected to do (cf. "Nikki Haley Says Florida’s Parental-Rights Law Doesn’t Go ‘Far Enough'"), then we start to get smoke suggesting a fire of politically biased willful blindness. Phrased more conventionally, if the corporate decision-makers failed to properly inform themselves in the course of reaching their decision, then they breached their duty of care, and if their information-processing failures rose to the level of consciously disregarding their known duty to become fully informed, then they engaged in non-exculpable bad faith. Given the highly politicized nature of this dispute, and the specter of political bias it raises, granting the request here seems perfectly in line with Section 220’s purpose and precedents. FWIW, I have previously written about the need for enhanced scrutiny in cases like this here, here, and here; Senator Marco Rubio has linked to some of that work here.

As for the concern that granting this request will somehow sanction improper or illegal “bullying” of corporations by political actors, I don’t think corporate decision-makers can ignore likely material impacts of political actions simply because they believe those actions may ultimately be deemed illegal. For example, should corporate decision-makers ignore the potential costs/benefits of President Biden’s loan forgiveness program because it may ultimately be ruled illegal? I think not.

Stefan J. Padfield | Permalink


FWIW, I believe Disney stock is down roughly 30% for the year compared to the S&P 500 being down only 6.2%.

Posted by: Stefan | Feb 20, 2023 11:08:12 AM

For plaintiffs, there is a fact in this case that strikes me as extremely inconvenient for claiming that Disney's position was due to the political bias of its top management. The CEO first told employees the company would take no position on the law, and only reversed that position after facing serious blowback from employees. Why would Chapek have taken that initial position if this was all about him being woke? The far more plausible explanation seems to be that Chapek was trying to balance the reaction of competing stakeholders (employees versus the state and conservative critics). Maybe he got that balance right, maybe he didn't, from the point of view of maximizing shareholder value. But if that isn't a case for business judgment deference, what is?

Posted by: Brett McDonnell | Feb 21, 2023 9:40:11 AM

Thanks, Brett. Some quick reactions:

(1) I see the books & records request as essentially a slam dunk for the plaintiff under existing law, and the fact you reference doesn’t change the analysis much if at all on that front IMO.

(2) I completely agree that if we’re talking about application of the BJR, then – absent finding some version of a smoking gun via the records request – there’s not enough here to rebut the BJR, likely even without those facts.

(3) If one wants to play around with hypos to assess the viability of the sort of enhanced scrutiny I’m arguing for in the case of decision-making that raises the specter of political bias, then my initial reaction is that the first “stick to business” decision shouldn’t provide a safe harbor for the subsequent decision to loudly step into the political fray. Analogizing to the anti-takeover context, I don’t think we’d let an initial decision to allow a hostile tender offer to proceed to shield a later decision to adopt anti-takeover measures from enhanced scrutiny under Unocal.

Posted by: Stefan | Feb 21, 2023 1:51:00 PM

Perhaps related:

(1) January 12, 2023: “For Disney this is the second time in six months that an activist shareholder has asked for changes.”

(2) Feb 8, 2023: “Disney+ lost a net 2.4 million subscribers in the last three months of 2022 — marking the streaming service’s first decline since launching in late 2019 ….”

(3) February 9, 2023: “Go Woke, Go Broke: Disney to Axe 7,000 Jobs as Company Faces Backlash Over Left-Wing Agenda”

Posted by: Stefan | Feb 22, 2023 6:46:07 AM

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