Forcing Shareholders to Take a Knee: Corporate Governance and Social Movements in Sports

By Anna Boyd*

Have Corporations Supported Social Movements?

The answer to this question is overwhelmingly yes.[1]  For example, Nike has historically supported women and people of color in social justice movements and the fight for equality.[2] More recently, Nike has used athletes such as Colin Kaepernick and Serena Williams in ads that are politically charged.[3]  Ford Motor Company, which produces the official truck of the NFL, spoke out in support of Kaepernick and the “Take a Knee” movement at the beginning of the 2017 football season.[4]  

Ford also has ties to the Detroit Lions through its majority shareholder and partial owner, Martha Firestone Ford.[5] Martha Ford fired back at President Trump regarding his divisive comments pertaining to the NFL’s kneeling policies.[6]

Are Corporations Allowed to Support Social Movements?

The analysis differs based on whether the corporation is public or private.[7] Private corporations are typically owned and operated by the shareholders.[8] Due to the dual identity of shareholders and board members in private corporations, it is unlikely that a lawsuit based on breach of fiduciary duties would arise.[9]

Public corporations are owned by shareholders but are run by officers and board members.[10]  The officers and board members who run the company are required to operate the corporation for the financial betterment of the owners (shareholders).[11]  When the actions of the officers and board members differ from the best interest of the shareholders, lawsuits may ensue.[12]

Public corporations must abide by these fiduciary duties.[13]  In most jurisdictions, corporations operate for the wealth maximization of shareholders.[14]  Some jurisdictions allow social benefit corporations to exist.[15]  These corporations impose slightly lessened fiduciary duties upon the board and officers.[16]  No longer is wealth maximization the only consideration in decision-making – fiduciaries in social benefit corporations can consider community, social, environmental, and other interests.[17]

What Rights Do Shareholders Have?

In ordinary public corporations, shareholders can sue the board or the officers for breach of fiduciary duties.[18] In a typical lawsuit, shareholders sue the board of directors when management invests funds that could have been distributed as dividends.[19] Courts are extremely deferential to corporations and businesspeople through different standards of review, with the business judgment rule being the most common.[20]

In social benefit (“B”) corporations, shareholders have less ability to sue.[21] If a B corporation invested in high quality, fair trade fabrics for its apparel line instead of choosing a cheaper material, shareholders would not have a meritorious claim.[22]  If a typical public corporation did the same thing, shareholders still might not have a claim, but the argument for wealth maximization over workers’ rights and humane product sourcing would be easier to make.[23]

How Do the NFL, Nike, and Ford Fit Into All of This?

The NFL is a trade organization that does not have shareholders.[24] Each of the thirty-two teams that are members of the NFL are privately held companies.[25]  The teams, then, have less of a concern with shareholder lawsuits.[26]

Therefore, Martha Ford’s comments opposing President Trump’s disapproval of the NFL do not subject her to shareholder scrutiny.[27]  In fact, her occupancy of both shareholder and board positions completely insulates Ford from typical shareholder lawsuits.[28]  

The concern is more veritable for public corporations like Ford and Nike.[29]  Nike’s ad, narrated by Kaepernick and starring several controversial athletes, could result in a downturn in shoe sales.[30]  If this occurred, Nike could be vulnerable to shareholder lawsuits on the premise of financial detriment to the shareholders.[31]

Ford faces a similar concern, especially because the company is a major sponsor of the NFL.[32]  If the NFL were to cancel its contract with Ford or choose not to renew in another year when the contract is up, and if this decision were based on Ford backing Kaepernick, shareholders could attempt to sue the company for breach of fiduciary duty.[33]

As publicly traded companies, Ford and Nike are taking a risk in supporting the kneeling NFL players.[34]  If these companies were social benefit corporations, they might not have to worry as much – but only time will tell if the social activism of these massive corporations will expose them to litigation.[35]

*Managing Editor of Outside Articles, Jeffrey S. Moorad Sports Law Journal, J.D. Candidate, Class of 2019, Villanova Charles Widger School of Law, M.B.A. Candidate, Class of 2019, Villanova School of Business

[1] See, e.g., Gerald F. Davis & Christopher J. White, The New Face of Corporate Activism, Stanford Social Innovation Review (2015), https://ssir.org/articles/entry/the_new_face_of_corporate_activism# (urging companies to implement social movements and policies based on employee feedback).  See also Jerry Davis, What’s Driving Corporate Activism?, The New Republic (Sept. 27, 2016), https://newrepublic.com/article/137252/whats-driving-corporate-activism (describing corporate involvement in social movements).

[2] See Gronda Morin, Dear Republicans, Both Nike and Ford Back Colin Kaepernick’s Right to Protest, WordPress(Sept. 10, 2018), https://grondamorin.com/2018/09/10/dear-republicans-both-nike-and-ford-back-colin-kaepernicks-right-to-protest/ (discussing history of Nike and Ford approval of Take a Knee movement).

[3] See id. (linking ad narrated by Kaepernick). 

[4] See Aaron Brzozowski, Ford Sides with NFL Players’s Protests, Ford Authority (Sept. 29, 2017), http://fordauthority.com/2017/09/ford-sides-with-nfl-playerss-protests/ (“Ford Motor Company on Monday declared its support for those professional NFL players who have chosen to protest during the national anthem by not standing, despite many NFL fans’ calls to put an end to the practice.”).  

[5] See Alana Glass, Is Martha Ford the Owner Detroit Lions Fans Have Been Waiting For?, Forbes (Nov. 15, 2015, 1:21 PM), https://www.forbes.com/sites/alanaglass/2015/11/15/is-martha-ford-the-owner-detroit-lions-fans-have-been-waiting-for/#7ea054f6194f (discussing Ford’s ownership of Detroit Lions). 

[6] See Kia Morgan-Smith, Ford Stepped Up to Support NFL Players Protesting Police Brutality, The Grio (Sept. 6, 2018), https://thegrio.com/2018/09/06/ford-steps-up-to-support-nfl-players-protesting-police-brutality/ (excerpting quotes from statement made toward Trump).

[7] See, e.g., Lisa C. Thompson & Brent A. Olson, Corporations, 9 Ariz. Prac., Business Law Deskbook § 1:6 (2017) (describing difference between publicly held and privately held corporations). See generally Robert R. Keatinge, LLCs and Nonprofit Organizations – For-Profits, Nonprofits, and Hybrids, 42 Suffolk U. L. Rev. 553 (2009) (describing how benefit corporations are a hybrid corporate entity).

[8] See generally Thomas Lee Hazen & Lisa Love Hazen, Punctilios and Nonprofit Corporate Governance – A Comprehensive Look at Nonprofit Directors’ Fiduciary Duties, 14 U. Pa. J. Bus. L. 347 (2012) (explaining fiduciary duties as limitations on board of directors in corporations in most instances).

[9] See id. (identifying differences between board and shareholder structure in public versus private corporations).

[10] See generally id. (describing fiduciary duties in publicly held corporations).  See 8 DGCL §§ 101 et. seq. (2017) (detailing corporate form, corporation rules, and steps necessary to create corporation).

[11] See Hazen & Hazen, supra note 8 (detailing fiduciary duties of board members to shareholders in public companies).  See also 8 DGCL §§ 101 et. seq. (describing fiduciary duties of board members to shareholders in public companies in Delaware, which is home to more than half of public companies).

[12] See, e.g., Legal Information Institute, Shareholder Derivative Suit, Cornell Law School (last visited Sept. 28, 2018), https://www.law.cornell.edu/wex/shareholder_derivative_suit (defining shareholder derivative suit).

[13] See supra notes 7-12 and accompanying text. 

[14] See Hazen & Hazen, supra note 8 (detailing fiduciary duties of board members to shareholders in public companies).  

[15] See generally Stuart R. Cohn & Stuart D. Ames, Now It’s Easier Being Green: Florida’s New Benefit and Social Purpose Corporations, 88-NOV Fla. B.J.38 (2014) (describing difference between benefit corporation and typical for-profit corporation).  See B Lab, About B Lab, https://www.bcorporation.net/what-are-b-corps/about-b-lab (last visited Sept. 28, 2018) (providing details regarding B Lab as a nonprofit organization as well as how to become certified).

[16] See, e.g., Md. Code Ann., Corps. & Ass'ns §§ 5-6C-01(c), 5-6C-06(A) (LexisNexis 2011) (listing potential specific public benefits allowed by statute in addition to typical fiduciary duties).

[17] Compare 8 DGCL §§ 101 et. seq. (providing essentially only fiduciary duty as wealth maximization) with Vt. Stat. Ann. tit. 11A, § 21.03(a)(4) (2011) (allowing corporations to choose several additions to typical fiduciary duties, such as protecting environment or promoting health in community).

[18] See Legal Information Institute, supra note 12.  See Hazen & Hazen, supra note 8 (detailing fiduciary duties of board members to shareholders in public companies).  

[19] See, e.g., Hunkar Ozyasar, Can a Shareholder Force a Corporation to Pay a Dividend?, Chron (last visited Sept. 28, 2018), https://smallbusiness.chron.com/can-shareholder-force-corporation-pay-dividend-61506.html (discussing right of shareholders to dividends and famous case Dodge v. Ford Motor Co.).  See also Fredrick P. Niemann, Is Refusing to Pay Dividends to Shareholders a Violation of Shareholder Rights?, NJ Shareholders Rights (Oct. 25, 2013), https://www.newjerseyshareholdersrightslaw.com/refusing-pay-dividends-shareholders-violation-shareholder-rights/#.W659LehKjIU (“The failure to pay dividends is not in and of itself ‘wrong.’  But, there is a law in New Jersey which holds that failure to pay any dividends whatsoever can [sic] constitute ‘oppression’. . .”).

[20] See, e.g., Smith v. Van Gorkom, 488 A.2d 858, 872 (Del. 1985) (defining business judgment rule as fundamental principle “that the business and affairs of a Delaware corporation are managed by or under its board of directors”).  See also In re Walt Disney Co. Derivative Litigation, 906 A.2d 27 (Del. 2006) (applying business judgment rule, whose presumption favors directors and board members over plaintiffs).

[21] See Keatinge, supra note 7 (describing how benefit corporations are a hybrid corporate entity).

[22] See, e.g., Patagonia, Beginnings and Blacksmithery, http://www.patagonia.com/company-history.html (last visited Sept. 28, 2018) (reporting Patagonia’s history including its switch to fair trade cotton fabric).  See also Keatinge, supra note 7 (explaining difference between benefit corporations and publicly held corporations).  

[23] See Keatinge, supra note 7 (explaining difference between benefit corporations and publicly held corporations).  See also, e.g., Hazen & Hazen, supra note 8 (explaining difference between benefit corporations and publicly held corporations).

[24] See Angela Lee, NFL: Non-Profit or Corporation? Which Team Are You On?, Rocket Lawyer (Jan. 29, 2015), https://www.rocketlawyer.com/blog/nfl-non-profit-or-corporation-which-team-are-you-on-916494 (reporting NFL’s status as trade association, which is classified as a section 501(c)(6) non-profit).  See also InvestSnips, Sports Teams Stocks: U.S. Exchanges, http://investsnips.com/list-of-publicly-traded-sports-franchises/ (last visited Sept. 28, 2018) (listing the seven publicly traded sports teams in the NFL, NHL, NBA, and MLB).  

[25] See generally Dave Zirin, Those Nonprofit Packers, The New Yorker (Jan. 25, 2011), https://www.newyorker.com/news/sporting-scene/those-non-profit-packers (noting Green Bay Packers have been organized as publicly traded nonprofit since 1923 with over 100,000 stockholders owning more than 4,000,000 shares).  

[26] See supra notes 18-23 and accompanying text for a discussion of public versus private companies and the respective rights for shareholders of these corporations.

[27] See Morgan-Smith, supra note 6 (discussing Ford’s pushback to Trump’s comments regarding kneeling in NFL).

[28] See supra notes 18-23 and accompanying text for a discussion of public versus private companies and the respective rights for shareholders of these corporations.  See also Glass, supra note 5 (noting Ford’s ownership of Lions and her interest in Ford Motor Company).

[29] See supra notes 18-23 and accompanying text for a discussion of public versus private companies and the respective rights for shareholders of these corporations.

[30] Compare Clay Travis, Why I’m Boycotting Nike: Get Woke and Go Broke, USA Today (Sept. 4, 2018, 12:24 PM), https://www.usatoday.com/story/opinion/voices/2018/09/04/colin-kaepernick-ad-boycotting-nike-column/1189989002/ (positing why Nike should stick to sports rather than entering political discussions) with Alex Abad-Santos, Why the Social Media Boycott Over Colin Kaepernick is a Win for Nike, Vox (Sept. 6, 2018, 10:47 AM), https://www.vox.com/2018/9/4/17818148/nike-boycott-kaepernick (discussing Nike’s corporate goals and business strategy).

[31] See supra notes 19-20 and accompanying text for a discussion of shareholder lawsuits based on lack of dividends.

[32] See Morin, supra note 2 (discussing Ford’s sponsorship of the NFL and its statements supporting Kaepernick).

[33] See supra notes 19-20 and accompanying text for a discussion of shareholder lawsuits based on lack of dividends.

[34] Id.  See supra notes 18-23 and accompanying text for a discussion of public versus private companies and the respective rights for shareholders of these corporations.

[35] See supra notes 18-20 and accompanying text for a discussion of public versus private companies and the respective rights for shareholders of these corporations.  See supra notes 21-23 and accompanying text for a discussion of social benefit corporations and the exposure they face from shareholder litigation.