Corporate Governance and the Omnipresent Specter of Political Bias: The Duty to Calculate ROI

Abstract

Subject to important qualifications, corporate decision-makers are duty-bound to maximize shareholder value. However, there is reason to believe corporate decision-makers are allowing their political biases to corrupt their decision-making. This essay posits two related fact patterns that should concern advocates of good corporate governance. The first occurs when decision-makers expressly disavow any duty to maximize shareholder value, such as when Apple CEO Tim Cook told shareholders, “When we work on making our devices accessible by the blind, I don’t consider the bloody ROI [return on investment],” or when Ed Stack, the chairman and chief executive of Dick’s Sporting Goods, decided that Dick’s should “take a stand” on gun violence by foregoing the sale of assault-style weapons, and said in connection therewith, “I don’t really care what the financial implication is.” This type of situation arguably breaches at least the duties of care and good faith without any change to current law. Importantly, breach of the duty of good faith may not be immunized by the seemingly ubiquitous contractual waivers of the duty of care. The second relevant fact pattern occurs when a decision-maker does not expressly disavow shareholder wealth maximization, but rather points to other arguably political goals as the basis for the decision, and is silent as to the impact on shareholder value. For example, when Gillette launched its advertising campaign challenging “toxic masculinity,” it publicly justified the decision not on the basis of an expectation of increasing sales, but rather on the grounds that it wanted to spark "a lot of passionate dialogue" and get people "to stop and think about what it means to be our best selves." In order to address the corrupting influence of political bias to the extent it is manifest in this latter type of conduct, a change in the law may be required. This Essay argues that a ready blueprint for such a change already exists in the response of the Delaware judiciary to the omnipresent specter of directorial self-interest when adopting anti-takeover defenses. Specifically, cases like Unocal Corp. v. Mesa Petroleum Co. apply enhanced judicial scrutiny in such cases before granting decision-makers the benefit of the deferential business judgment rule. Finally, this Essay addresses criticisms of the proposed approach, including the view that the proposed approach would subject too many business decisions to an inefficient risk of enhanced scrutiny, and that the challenged proclamations should be treated as mere puffery or are perhaps even necessary to maximize shareholder value.