Liberals argue with increasing frequency and intensity that the threats posed by global warming, systemic racism, and other forms of social injustice are so serious that directors and officers must cease to focus their corporate governance on the maximization of shareholder wealth and must instead redirect their business plans to incorporate meaningful efforts to advance the cause of social justice, including efforts that promote the interests and activities of third parties aligned with the progressive social justice movement.
Many corporate leaders have answered the call of the woke. Some have pledged to reduce their company’s carbon footprint drastically. Others have initiated mandatory training for their employees in critical race theory. Still, others have publicly declared their company’s support for organized efforts by third parties to curtail the states’ traditional role in elections, choke off financing for fossil fuel producers, or advance the cause of gun control. Media leaders have moved aggressively to suppress the speech of conservatives while promoting liberal narratives.
These efforts, righteously undertaken by corporate leaders to demonstrate their personal social responsibility, are, in fact, highly irresponsible. By acting as partisan political activists and usurping the role of public sector policymakers, these woke leaders are doing serious harm to their corporations and shareholders.
When corporate leaders decide that their companies will advance social policy goals by taking actions beyond those required to comply with existing law, they impose additional burdens on their companies. The added cost of these new burdens will inevitably result in some harmful combination of reduced returns to shareholders, increased prices to customers, or reduced wages to employees.
When corporate leaders join in collective efforts to compel other companies and state governments to adopt liberal policies, they force the policymaking process outside the institutions of constitutional government that we established to legislate and regulate, and they do great harm by undermining the status and effectiveness of those institutions.
By thrusting their organizations into the contentious political, social, and cultural disputes of a deeply divided nation, woke corporate leaders have significantly increased the business and political risks that confront their companies. They have alienated their traditional supporters without placating their traditional enemies. They have triggered calls by customers for boycotts and invited retaliation from conservative politicians. They have normalized the use of extra-institutional force to make public policy and thereby undermined the rule of law that is the prerequisite for the continued existence and successful operation of their corporations.
The uncertainty that now surrounds the current and future operations of politicized corporations increases the cost of capital for those corporations. This can be demonstrated by standard financial analysis and confirmed by countless empirical studies. By increasing their cost of capital, woke directors and officers have inflicted quantifiable harm on their corporations and shareholders.
They have also exposed themselves to personal liability for the harm they have done. The fiduciary responsibilities of directors and officers require that they always act with appropriate care to promote responsibly the best interests of their corporations and shareholders and never act in a disloyal fashion to promote their personal interests, or the interests of third parties, that are inconsistent with the best interests of their corporations and shareholders.
Directors and officers may be held liable for failing to fulfill their fiduciary duties of care and loyalty. The business judgment rule protects directors and officers from liability for their business decisions, but only if the decisions in question have been made with appropriate care and solely to promote the best interests of their corporation and its shareholders.
If any woke corporate leaders are sued for failing to fulfill their fiduciary duties of care and loyalty, it could be difficult for them to invoke the business judgment rule in defense. The partisan policy positions they have taken are so polarizing, so obviously disparaging of important constituencies, so far outside their areas of expertise, so easily refuted by readily available information, and so dangerously destabilizing of the legal order that it could be difficult to conclude that their actions were taken with appropriate care and solely to promote the best interests of their corporation and its shareholders.
The woke should wake and put aside their partisan activities before they do irreparable harm. That would demonstrate truly responsible corporate behavior.
J. Kennerly Davis Jr. is an attorney and a former corporate secretary and treasurer for a Fortune 500 electric and gas company.
