I am sure many readers saw Monica Langley’s front page Wall Street Journal article earlier this week about Salesforce CEO Marc Benioff and how he uses his position to advance social causes he favors, including most recently, his efforts to combat state legislation concerning transgender bathroom use. The Journal article suggests that Benioff has launched a “new era of corporate social activism.” As the article details, Benioff’s efforts have drawn praise in some quarters, criticism in others. In a May 3, 2016 post on his eponymous blog (here), UCLA Law Professor Stephen Bainbridge raises some interesting questions about the compatibility of Benioff’s activities with traditional notions of corporate officers’ duties to shareholders.
The May 3, 2016 Journal article describes Benioff as “a master promoter in the movement toward social activism among American chief executives,” and as “increasingly influential despite resistance from those in its focus and some disquiet from Salesforce’s investors and directors.”
Benioff justifies his activism by saying that “The next generation of CEOs must advocate for all stakeholders – employees, customers, community, the environment, everybody … not just for shareholders.”
As Professor Bainbridge notes in his blog post, “the implication here is that Benioff is willing to make trade-offs between stakeholder and shareholder interests.” If that is the case, then, Professor Bainbridge is (figuratively speaking) throwing a “flag” on Benioff. Professor Bainbridge says Benioff “is on the verge of admitting that he’ll put his own political and policy preference ahead of the interests of Salesforce’s shareholders.”
In support of his objection, Professor Bainbridge quotes extensively from a recent law review article by Leo E. Strine, Jr., Delaware’s Chief Justice. In the law review article, Strine writes that it is “injurious to social welfare to declare that directors can and should do the right thing by promoting interests other than stockholder interests.” He adds that “within the limits of their discretion, directors must make stockholder welfare their sole end, and that other interests may be taken into consideration only as a means of promoting stockholder welfare.” He concludes this line of analysis by saying that “Non-stockholder constituencies and interests can be considered, but only instrumentally, in other words, when giving consideration to them can be justified as benefitting the stockholders.”
To be sure, Benioff contends that his activities serve the company’s interests. In the Journal article, he notes that to attract promising young employees and to woo today’s customers, companies must project a corporate ethos that goes beyond profit.
The one thing that is clear is that Benioff has the opportunity to advocate and, more importantly, the clearance to do so because his company has been so enormously successful – as the Journal article states, “Mr. Benioff’s corporate bully pulpit is enabled by company results that keep most investors from questioning his extracurricular activities.” (Salesforce’s shares have risen roughly ninefold in the past decade.) This does raise the question of whether Benioff would feel so free to lead the charge on social issues if his company were struggling, and whether or not investors would allow him so much leeway if the company were not faring so well.
There is no doubt that Benioff’s activities do raise questions about the appropriate degree of social activism involving corporate executives. Professor Bainbridge is right that there is a fundamental tension between Benioff’s brand of activism and traditional ideas of corporate executives’ roles, as underscored by Strine’s law review article statements. The problem with discussing these kinds of issues is that the somewhat theoretical questions about the CEO’s role often arise in the context of the social issues in which the CEO is involved; the discussion of the issues often is influenced by whether or not the CEO’s social issues positions are popular. I happen to agree with Benioff’s positions on the issues, but where you come out on the questions of the CEO’s role shouldn’t depend on whether or not you agree or disagree with his or her positions with the issues.
I also think that the extent of Salesforce’s corporate success is an important factor here. Benioff’s activism would look very different to Salesforce’s shareholders if the company were struggling. Maybe this is just another example of the way that successful executives feel entitled to sound off. His company’s success may indeed give Benioff a “bully pulpit.” However, the shareholders who are unconcerned when the company is very successful might object if the company stumbled.
If the stumble were significant enough and if shareholders believed the CEO’s activities were a cause of or a contributing factor to the stumble, the shareholders could well assert that the CEO violated his or her duties to the company. In our litigious society, among the forms that that type of shareholder assertion could take is a complaint against the CEO alleging that his or her actions harmed the company.
In any event, Benioff’s activism raises some very interesting issues, and I think the questions Professor Bainbridge raised are interesting and worth consideration – regardless of whether or not you agree or disagree with the positions that Benioff is advocating.
Hat tip to Francis Pileggi for linking on his Delaware Corporate & Commercial Litigation Blog (here), to Professor Bainbridge’s blog post.