Against the Backdrop of President-elect Trump's Carrier Deal: the Breach of Fiduciary Duty Exposure Caused by Directing a Subsidiary to Undertake a Transaction for the Parent Company's Benefit
| Publication year | 2017 |
Against the Backdrop of President-Elect Trump's Carrier Deal: The Breach of Fiduciary Duty Exposure Caused by Directing a Subsidiary to Undertake a Transaction for the Parent Company's Benefit
O. C. Nwaeze
In February 2016, Carrier Corporation ("Carrier") announced to its Indiana workers it intended to move some of its manufacturing capabilities to Mexico, which would displace approximately 1,400 American jobs. Then-Republican nominee for President of the united States, Donald J. Trump, caught wind of Carrier's plans and began to dedicate a substantial portion of his campaign message to the promise that he would prevent American companies from sending jobs overseas. True to his platform, in late November, President-Elect Trump announced that he had struck a deal with Carrier to keep close to 1,000 jobs in Indiana.
By deciding not to move approximately 850 jobs to Mexico, Carrier will be forfeiting nearly $65 million a year in savings. In exchange, the state of Indiana plans to reward Carrier with merely $7 million in tax incentives over ten years, as long as Carrier invests $16 million in its Indiana facilities. Based on these terms alone, one may question why Carrier would agree to this deal. The tipping point, however, was not what Carrier stands to gain, but the specter of what the new administration could take from Carrier's parent company, United Technologies Corporation ("United Technologies").
United Technologies provides high technology products and services to international customers in several industries, including defense. Notably, the Pentagon is one of United Technologies' largest customers. In 2015, 10 percent of United Technologies' $56 billion in revenue came from the federal
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government. Given that President-Elect Trump has repeatedly warned of "consequences" for companies that move jobs away from the United States, once he set his sights on Carrier, there was concern that United Technologies could lose over $5 billion in government contracts. Thus, in the interest of its financial wellbeing, United Technologies appears to have caused Carrier to forgo yearly savings of $65 million.
On a surface level, the Carrier deal raises serious questions regarding whether Carrier's board members breached their fiduciary duties by placing the interests of United Technologies ahead of the interests of Carrier. Absent the essential details of the deal, including the process employed, it would be improper to speculate on the...
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