Corporate Purpose in a Populist Era

• Publication year: 2021
• Citation: Vol. 98

98 Nebraska L. Rev. 543. Corporate Purpose in a Populist Era

Corporate Purpose in a Populist Era

Stephen M. Bainbridge(fn*)

ABSTRACT

In the wake of the 2016 U.S. presidential election and similar developments in parts of Europe, commentators widely acknowledged the rise of populist movements on both the right and left of the political spectrum that were deeply suspicious of big business. This development potentially has important implications for the law and practice of corporate purpose.

Left-of-center corporate social responsibility campaigners have long advocated the use of "boycotts, shareholder activism, negative publicity, and so on" to pressure corporate managers to act in ways those campaigners deem socially responsible. Right-of-center populists could use the same tactics to induce corporate directors to make decisions they favor. The question thus is whether they are likely to do so based on their historical track record.

Assuming for the sake of argument that right-of-center populists begin focusing on corporate purpose, the question arises whether modifying the shareholder wealth maximization norms to give managers more discretion to take the social effects of their decisions into account would lead to outcomes populists consider desirable. Populists historically have viewed corporate directors and managers as elites opposed to the best interests of the people. Today, right-of-center populists find themselves increasingly at odds with an emergent class of social justice warrior CEOs, whose views on a variety of critical issues are increasingly closer to those of blue state elites than those of red state populists.

Keywords: populism, corporate purpose, corporate social responsibility

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TABLE OF CONTENTS

I. Introduction.......................................... 544

II. Populists and the Corporation......................... 552
A. A Brief History of American Populism............. 552
B. Populists Versus the Corporation.................. 558
C. Populist Regulatory Proposals..................... 561

III. The Populists' Regulatory Agenda..................... 563
A. Populists and Corporate Purpose .................. 563
B. Prospects for Legal Change........................ 566

IV. Populists and Socially Responsible Corporate Elites.... 568
A. The Changing Nature of Work, Investment, and Consumption...................................... 569
B. Divergent Views................................... 570
C. The Probable Direction of Corporate Elite Social Activism.......................................... 573

V. Conclusion............................................ 577

It's a great honor to be with you to give the Roscoe Pound Lecture.(fn1) Although I can't help wondering whether Pound would have approved of my topic for today. After all, Pound was no fan of populism. But, on the other hand, Pound famously saw the law as a means of attaining a better society, using the law as a means of social engineering in the service of important values. The question I want to pose today is whether modern populists might use the law-specifically the law of corporate purpose-in service of what they regard as important social values.

At the outset, I must warn you that there is not a lot of law in what follows. I take some comfort, however, from the fact that Roscoe Pound's famous 1906 speech on The Causes of Popular Dissatisfaction with the Administration of Justice was much more concerned with the political and social roots of that dissatisfaction than with technical legal questions. As I think about it, perhaps I should have entitled my Article The Causes of Popular Dissatisfaction with the Corporation.

I. INTRODUCTION

Shortly before the November 2016 presidential election, United Technologies Corporation (UTC) CEO Gregory Hayes defended the firm's decision to close an Indiana furnace factory operated by its Carrier Corporation subsidiary and transfer production to a factory in

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Mexico.(fn2) In doing so, Hayes was responding to repeated public criticism of the decision by then-presidential candidate Donald Trump.(fn3) Although Hayes claimed the decision had not been taken lightly, the decision was part of Hayes's on-going pursuit of shareholder wealth maximization.(fn4) While the Indiana plant was profitable, it simply was not profitable enough to meet Hayes's goals, especially when compared to Carrier's highly profitable Mexican plants.(fn5) Once Trump was elected President, Hayes backtracked and agreed to keep the plant open, but continued to insist that, "as for the initial decision to close the plant, 'we did the right thing for the business.'"(fn6)

Would UTC's board have reached the same initial decision if it had considered the effect it would have on the plant's workers and the community in which they lived? What if the board had been required to do so? Put another way, does the purpose of corporations like UTC really require CEOs like Hayes to do whatever is necessary "to increase shareholder value ... no matter how difficult"?(fn7) If so, should it?

To be sure, the business judgment rule gives directors a substantial amount of discretion with respect to making decisions like the ones made by UTC's board.(fn8) Both the original decision to close the plant and the decision to backtrack on the closing doubtless would have been protected by the business judgment rule.(fn9) But while the business judgment rule may give the board legal protection, it does

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not define the scope of the board's fiduciary duty.(fn10) That task is the job of the law of corporate purpose.

At least in Delaware, the law of corporate purpose is well settled in favor of shareholder wealth maximization.(fn11) Directors have a fiduciary duty to sustainably maximize shareholder wealth over such time horizon as the board deems fit.(fn12) Numerous Delaware cases have so held.(fn13) True, many commentators have sought to explain away or otherwise distinguish these decisions, but as Delaware's sitting Chief Justice has explained in detail, "these commentators essentially argue that Delaware judges do not understand the very law they are applying."(fn14)

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The policy arguments cannot be described as well settled, of course, because numerous commentators have staked out positions on every conceivable side of the issue.(fn15) It is nevertheless fair to say that the policy arguments have been beaten to death. There is a voluminous literature on the subject to which every generation of scholars seems compelled to add their two cents.(fn16)

This longstanding debate, however, could now play out in a radically different political environment. On the right, the rise of the Tea Party began a shift in the Republican party towards populism,(fn17) which the 2016 election of Donald Trump as President strengthened.(fn18) On the left, Bernie Sanders's strong performance in the 2016 Democratic presidential primaries and the surging popularity of Senator Elizabeth Warren likewise signaled a populist shift in the Democratic

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party.(fn19) Given these political trends and the underlying economic ills driving them, the question arguably "is no longer whether populist pressure will have a strong influence on policy decisions but how.'"(fn20)

In the wake of Trump's election, The Economist magazine's Schumpeter column provocatively asked whether this new political environment necessitates rethinking corporate purpose:

As they slid down the streets of Davos this week, many executives will have felt a question gnawing in their guts. Who matters most: shareholders or the people? Around the world a revolt seems under way. A growing cohort-perhaps a majority-of citizens want corporations to be cuddlier, invest more at home, pay higher taxes and wages and employ more people, and are voting for politicians who say they will make all that happen.

. . . Should [corporate managers] fire staff, trim costs and expand abroad- and face the wrath of Donald Trump's Twitter feed, the disgust of their children and the risk that they'll be the first against the wall when the revolution comes? Or do they bend to popular opinion and allow profits to fall . . . (fn21)

The columnist proceeded to focus on how directors and managers will respond to the shifting political winds. Yet, because I assume the law both reflects and shapes social norms and attitudes, the column prompted me to wonder whether the populist movement might also impact the debate over the law of corporate purpose, which motivated this Article.

In thinking about the potential legal implications of Schumpeter's questions, three issues immediately presented themselves. First, what is the populist critique of business and corporations? Second, would populists regard changing the law of corporate purpose as a viable means of operationalizing that critique? Finally, would changing that law prove a useful vehicle for advancing populist goals?(fn22)

A significant obstacle to answering these questions is the lack of deep intellectual thought among modern populists {pace Senator Warren). This is especially true of populists on the right, of which anti-intellectualism has become a distinguishing characteristic. Indeed, as leading conservative thinker-and fierce critic of populism-Russell Kirk observed, modern populist movements are "a revolt against the Smart Guys."(fn23)

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It was not always so, however. In several prior populist periods, populist intellectuals devoted considerable energy to thinking about...