LEGAL OSCILLATION

Of late, this blog has been looking at the role corporations play as entities within a federal arrangement.  Yes, corporations, especially those that are listed as public, do take on a federal structure.  That is, they are owned by a group of investors who buy shares in that corporation.  While not every shareholder in relation to that corporation is equal, each share is and within certain regulations,[1] each person is free to buy as many shares as he/she wants and can afford to buy; only limited by the number of shares issued by the corporation.

          But as entities, corporations, due to their ability to accumulate inordinate amounts of capital – investment dollars – and other assets, they can command relatively high levels of influence within a nation’s political landscape.  One can argue that that is what constitutes what people generally mean by the political swamp characterizing the nation’s – and the individual state’s – capital.  There, the competing players go after zero-sum prizes.  That’s what happens when one lives in an environment with limited resources; i.e., this type of arena is ubiquitous.

          The last three postings look at the natural result of such a situation.  They address the question:  what, if any, are the responsibilities of corporations in a federated environment – such as that of the US?  The last posting left the reader with somewhat of a question.  In running a business, one dependent on shareholder investments, should that business be about doing – and spending to do – socially beneficial activities at the expense of shareholder dividends?  There is a debate over this question.

          The firm natural rights view is that they should not.  Shareholders are well able to make up their own minds as to what socially beneficial efforts they want to support.  They do not need corporations to make such contributions in their names.  On the other hand, defending the position that corporations should make such contributions are those that argue that by doing so, they bolster the image of a corporation and, in turn, up their esteem in the eyes of their consumers – their buyers – and that translates in higher sales, higher revenues, and higher profits.

          But in a way, this question steers the debate away from what this blog is really asking.  However, regardless of how one feels about corporations making contributions for public, social efforts, the real question posed here is:  should the interests of a corporation go contrary to the interests of the general or the common good?  And that decision can affect any public spending a corporation does.

          For example, a drug company that knowingly promotes an addictive drug – say an opioid – that results in scores of people addicted and dysfunctional – no amount of charity giving – probably done to offset negative publicity their business decisions cause – will change their anti-federal standing.  In such a case, that corporation is generally placing self-interest above the common interest.

          To be a proper federated partner, in other words, an entity – be it a corporation, a person, or some other body of actors – needs to, at least, not align its interests as being contrary or antagonistic to the general welfare of the commonwealth.  And within this context, what the American Bar Association (ABA) deems is a fiduciary duty, the obligation of corporate management and board of directors have toward shareholders as being atop all others, is anti-federal.

          Take the drug companies that made billions of dollars producing, promoting, distributing, and selling opioids to pain-suffering patients.  The decisions that led to such a policy and allowed such behavior was in the financial interests of their shareholders; but was it a way for a federated partner to act?  One can say, yes, it is, as long as the corporation obeys the law.  Really?  If the goal is to protect the commonwealth, such an expectation falls woefully short.

          To date, there have not been any prosecutorial action against these companies.  Apparently, they did not break any laws.  But one might add, they are subject to civil or negligent tort action.  In that realm there has been highly publicized court action that is proving to be highly expensive to, at least, some of these companies.  The highly esteemed company, Johnson and Johnson, was just hit with a court directed award against it for nearly $600 million in just one state, Oklahoma.[2]

          A day or two later, after the Johnson and Johnson decision was announced, another drug company heavily involved in the opioid drug market, Purdue Pharma, offered to settle all its pending legal liabilities for $10 to $12 billion dollars.[3]  In both instances, one can say, “all well and good,” but at what cost to the federation?  These parties did not come to these reckonings till untold damage had befallen whole regions of the country – particularly the Appalachian region, – the deaths of hundreds of thousands of people, and the ruination of millions of lives.

          This fiduciary view can be explained by what ABA states it is:

[T]hat as fiduciaries, corporate directors owe the corporation and its shareholders fiduciary duties of diligence and fidelity in performing their corporate duties.  These fiduciary obligations include the duty of care and the duty of loyalty … the duty of care consists of an obligation to act on an informed basis; the duty of loyalty requires the board and its directors to maintain, in good faith, the corporation’s and shareholders’ best interests over anyone else’s interests.[4]

To these untrained eyes – at least, in terms of legal language – this sounds fuzzy and subject to wide interpretations.  But this writer cannot see why the above statement could not, at least, add “within the parameters of criminal law” and “under the auspices of what reasonably can be construed to be the common good of the communities in which they operate as well as the states and nation.”

          But for the development of this main concept, some legal scholars fall back to what one sees in tort law, a concern for the “slippery slope.”  That is, according to Steven Bainbridge, for example, if corporate leadership were free to spend money on or otherwise support non-profit-maximizing activities, how does one impose any accountability in relation to those activities.  Bainbridge cites eBay Domestic Holdings, Inc. v. Newmark (2010)[5] decision to back up this concern, although this case has a mixed precedent.

          But this position is opposed by others.  One such criticism is offered by Lynn Stout.  Citing the Hobby Lobby case (mentioned in a previous posting[6]), she argues that that previous case allows one to consider what generally can be described as ethical rules, policies that do not damage the environment, and that do not harm employees, etc.  And that should include not doing medical harm to patients rending them dysfunctional in meeting federalist obligations.

          There seems to be oscillating opinions from the courts.  This blog chooses to describe that oscillation as between a natural rights position and a federal position.  In a time when natural rights view holds the upper hand, in terms of cultural beliefs and political biases, one can expect that that bias would more often be reflected in court decisions. 

This blog hopes the oscillation shifts and remains with a federalist bias.  Its whole train of argument points in that direction.  It does not see this argument as one of indoctrination to a foreign mode of thinking, but to reestablishing its original view – albeit updated – to better maintain and bolster the assumed beliefs of its founding agreement – i.e., the US Constitution.  And that, at its core, is to maintain and bolster a federated union.

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[1] Generally, corporations determine the number of shares its policymakers decide to make available.

[2] Katie Thomas and Tiffany Hsu, “Johnson and Johnson’s Brand Falters over Its Role in Opioid Crisis,” The New York Times, August 7, 2019, accessed August 29, 2019, https://www.nytimes.com/2019/08/27/health/johnson-and-johnson-opioids-oklahoma.html .

[3] Laura Strickler, “Purdue Pharma Offers to Settle Opioid Claims for $10 to $12 Billion,” CNBC, August 12, 2019, accessed August 29, 2019, https://www.cnbc.com/2019/08/27/purdue-pharma-offers-10-12-billion-to-settle-opioid-claims.html .

[4] “Business Ethics:  Corporate Law and Corporate Responsibility,” BC Campus, n. d., accessed August 19, 2019, https://opentextbc.ca/businessethicsopenstax/chapter/corporate-law-and-corporate-responsibility/ .  Most of the information of this posting is derived from this source.

[5] This convoluted and complex case does demonstrate how difficult corporate life can get when mixing profit motives with cultural ambitions.  eBay filed suit against craigslist for eBay’s attempt to steer that corporation away from its pro-social culture the founders of craigslist initiated.  Through various structural maneuvers, craigslist attempted to maintain its original corporate culture, but at the expense of its shareholder’s, eBay, financial returns.  Therefore, eBay sued based on the fiduciary duty craigslist had in relation to eBay.  eBay won on two of its claims and lost on another (the one relating to its legal fees).  This case, in sum, was decided to bolster the pro-fiduciary duty role directors and board members are expected to maintain.

[6] Robert Gutierrez, “Corporations As Good Citizens,” August 20, 2019, https://gravitascivics.blogspot.com/2019/08/corporations-as-good-citizens.html AND “Business Ethics:  Corporate Law and Corporate Responsibility,” BC Campus.