AMAC Exclusive – By Aaron Flanigan
In early June, Elon Musk wrote on Twitter that it “won’t be long before there are class-action lawsuits by shareholders against the company and board of directors for destruction of shareholder value,” referencing the rise of corporate wokeism and so-called “environmental, social, and governance,” or ESG policies.
The prospect held out by Musk is one that, according to former Assistant Secretary of State and experienced litigator and congressional counsel Robert Charles, could indicate a coming flurry of lawsuits against individual board members and directors for breaching their fiduciary duty to shareholders. In an interview with AMAC Newsline, Charles said that the recent spate of boycotts against woke corporations such as Anheuser-Busch and Target are not enough on their own, and litigation should also be on the table.
Shareholders should “pierce the corporate veil,” Charles said, by taking aim at members of the corporate boards themselves—arguing that in some cases, board members should be held personally liable for violating their legal obligation to act in the best financial interests of their shareholders.
As Charles explained, that process begins with a company’s Directors & Officer’s (D&O) insurance policy. “The board of directors is directly accountable to the owners of the company—and that includes the shareholder,” he said. “The irony is, having looked at many D&O insurance policies over the years… I would bet you two to one that there is not a protection in some of these policies” for directors who decide to use the pulpit of their companies to pursue their own ideological goals.
“As a shareholder, you have a right to knowledge about how the company is operating—because you are the party to whom the fiduciary duty is owed,” Charles said. “So, the first thing is: counsel for shareholders, or shareholders, should get a hold of the D&O insurance policies and study them… and see whether they realistically do or don’t protect the directors of the company from personal liability for acting in a way that is realistically interpreted as inconsistent with the way they acted previously, which was to make money for the investor.”
“The second thing is, then, to set out a colorable claim—or multiple claims—against both the company and the directors who have taken it upon themselves to essentially divert your resources into a political act that falls outside the bounds of reasonable expectations of an investor,” Charles continued. Although he noted that companies could make the legal defense that shareholders granted them consent to exercise their own judgment on behalf of the public good, Charles stressed that there are limits to a company’s freedom, comparing a company’s duty to its shareholders to a game of bowling.
“You can’t have a director bowl in the opposite direction or keep guttering the ball if the goal is to hit the pins. And so the bottom line here is if these directors—or any one of them—is vocal in board meeting minutes about the fact that they want to divert money to their personal political agenda, and this is not really being articulated to the investors, then I think you could make the [legal] argument that there’s been a breach of trust—that there’s been a breach of fiduciary duty.”
The next step, Charles said, comes down to finding the best jurisdiction to bring the case. “All you really have to do at that point is find the right jurisdiction that is sympathetic to shareholders, and then file to see if you can get some accountability on the part of these directors personally for their behaviors,” he explained.
Should these lawsuits succeed, Charles said, one of two things is likely to happen. “Once you get one or two directors to resign—or one or two directors to be held personally liable… there’s either going to be a rush by these corporate counsels to go get ESG integrated into their policies,” which could upset shareholders, or “you’re going to find [the companies] having to pay huge amounts of money” because they have breached their fiduciary duty to shareholders.
Though Charles emphasized that this approach has not yet been tested in the legal arena, he suggested it is likely worth trying—and even if initially legally unsuccessful, it could make a splash in corporate boardrooms. “Once one or two companies [or directors] gets sued that way,” Charles said, it could open up a Pandora’s box that sends corporate wokeism into a tailspin.
While Charles made clear that, at present, there is likely no “open-and-shut” case that would allow shareholders to hold left-wing companies and directors to account in a surefire way, carefully pursuing this innovative legal strategy could finally begin the process of restoring a politically neutral corporate culture.
The sudden prospect of shareholders targeting the private wealth of corporate bigwigs is sure to grab their attention. “I think the interesting part is that it really will cause A-frame decision-making on the part of these firms,” Charles said. “They will either decide that actually making money is what they were incorporated for… or, they will have to rewrite their D&O policies—which is going to cost them a lot of money—to avert lawsuits based on people disappointed in the way they’re behaving.”
Charles concluded: “Basically, what this boils down to is… a constant effort to keep accountable those in positions of authority”—and an effort to maintain trust that our nation’s centers of power are working to advance the cause of liberty rather than encroach upon it.
The future of American freedom could very well depend upon a restoration of this trust—and as the fight for freedom continues, shareholders will have a vital role to play.
Aaron Flanigan is the pen name of a writer in Washington, D.C.