What would have happened if ...

[guartz]

A public company like Philip Morris voluntarily stopped advertising tobacco, citing possible harms to health and put warning labels on their products before being forced to do so by legislators back in the 60s?

Specifically legal repercussions (if any) from shareholders/investors? Or anything else? Is such business seppuku even possible for a CEO to accomplish?



I'm not doing college essay or anything, this is purely for masturbatory purposes.

[BorkBorkBork]

Corporations are bound by law to try to make money for the investors so there would probably be an injunction against it. Look up Henry Ford getting sued by fords investors back in the day.

[BaneTheBrawler]

Probably the same thing that would have happened if unicorns and dragons signed a peace treaty to better fight off the yetifolk.

[guartz]

Surely there must be some type of exception for public safety? Health hazards?

edit:

Thanks for the contribution Bane, glad to have you here.

[Churchill]

He can't help the diarrhea.

[aurik]

The shareholders may have had cause for a breach-of-contract type lawsuit against the executive group if they found they had deliberately chosen sub-optimal strategies (after all, they are essentially hired to maximize earnings per share). Probably wouldn't win that lawsuit, it's a hard case to make.

The thing that the market would definitely have done, though, is properly adjust the value of the stock downwards, which would cause the executives to get turfed due to poor stock performance, and then replaced with men of lesser morals. Hooray for capitalism.

[Icywave]

Hooray!

[Ishido]

I'm not sure aout Phillip Morris, but I know that British American Tobacco limits their marketing in a number of ways to limit the exposure it gets to young people and such.

Not to be aimed at, or particularly appeal to youth;
Not to feature a celebrity nor link tobacco with sporting, professional, social or sexual success;
Not to appear in printed publications unless at least 75 per cent of readers are verified as adults;
To carry a health warning as well as the health warnings on product packs;
No giant billboard advertising and no billboards at all within 100 metres of a school;
No web, television, cinema or radio advertising unless the audience can be restricted to verified adults;
No direct or indirect product placement;
No event sponsorship unless the participants and audience are adults;
No direct consumer contact unless with verified adult consumers;
No unsolicited free samples.

This is far from stopping advertising, but as a company its not really feasible to stop all advertising.

[guartz]

The shareholders may have had cause for a breach-of-contract type lawsuit against the executive group if they found they had deliberately chosen sub-optimal strategies (after all, they are essentially hired to maximize earnings per share). Probably wouldn't win that lawsuit, it's a hard case to make.

The thing that the market would definitely have done, though, is properly adjust the value of the stock downwards, which would cause the executives to get turfed due to poor stock performance, and then replaced with men of lesser morals. Hooray for capitalism.

So there is no protection for the CEO to make that determination? He'll either get sued or fired? What about in more modern times?


p.s Thanks for the reply Ishido, but BAT doesn't apply since their wiki says they held a formula one adverts 'til 2005 so the policy can't be that old and I was more or less looking for preemptive actions taken by corporations, not after the fact everyone in the world knew smoking kills.

[Pirian]

http://business-law.lawyers.com/smal...porations.html

Pretty much all you need to know about why he wouldn't be able to do something like that

[Ghost_Wheel22]

CEO would use buffer systems like finger pointing, consultant meat shielding, and financial obfuscation to survive. CEOs are hardly top of the corporate food chain.

[guartz]

http://business-law.lawyers.com/smal...porations.html

Pretty much all you need to know about why he wouldn't be able to do something like that

So why didn't the execs point to the Fiduciary responsibilities when the lawsuits and inquiries came rolling in? I mean, it looks like a solid legal excuse to lie.

[Pirian]

So why didn't the execs point to the Fiduciary responsibilities when the lawsuits and inquiries came rolling in? I mean, it looks like a solid legal excuse to lie.

I guess you're not allowed to blatantly lie? There has to be some legitimate reason you're saying what you're saying, even if you fain ignorance later

[BaneTheBrawler]

What I was getting at is that it wouldn't happen. Especially if the research showing that their products are harmful hadn't happened yet... which they'd be likely to suppress, rather than encourage.

[Kerberoz]

[Dammerung]

What is the name of that game? I keep seeing screenshots of it and it looks hilarious.

Recettear: An Item Shop's Tale
http://store.steampowered.com/app/70400/

[guartz]

hmph.

I can't believe it. In the industry I work in, if there is a problem, I can report it without fear of any negative consequence to my employment. I can't believe that protection doesn't extend to our CEO. But it sure starting to look that way. That's a fucking shitty system, that if there is a problem your choices are hide it and hope nobody notices or reveal it and get sued/fired.

[Pirian]

hmph.

I can't believe it. In the industry I work in, if there is a problem, I can report it without fear of any negative consequence to my employment. I can't believe that protection doesn't extend to our CEO. But it sure starting to look that way. That's a fucking shitty system, that if there is a problem your choices are hide it and hope nobody notices or reveal it and get sued/fired.

There are a few things you can do as CEO. As CEO you answer to your Board of Directors, and that is normally where you would go if such an issue arose. The problem wouldn't be with the Phillip Morris CEO doing what you said in the OP; the problem would be in if the CEO took these action upon himself without first going to the Board. The CEO has to realize that he is the one that is going to take the brunt of the blame if it is a major issue and he doesn't speak out or do something about it, but most of the time the CEO will take the blame, resign with a hefty severance package, and be picked up by a company from somebody on the Board of the company they just left.

It's not normally good business to lie (or in some cases, withhold the truth), but there is great incentive to do so if the predicted damages of the news is less than the predicted damage of coming out. This is what happened with the Toyota break issue. Top management was fully aware that these problems existed in a certain percentage of the cars they produced, but they predicted that they would be able to keep the issue quiet with settlement payments instead of doing an all-out public recall. They were wrong.

[Kellanved]

A public company like Philip Morris voluntarily stopped advertising tobacco, citing possible harms to health and put warning labels on their products before being forced to do so by legislators back in the 60s?

Specifically legal repercussions (if any) from shareholders/investors? Or anything else? Is such business seppuku even possible for a CEO to accomplish?


I'm not doing college essay or anything, this is purely for masturbatory purposes.

The issue is an old one. Given the nature and structure of corporations, what should their role in society be? an engine strictly to make their owners profit? or do they have additional responsibilities?

Purely as a matter of law, you're referring to a derivative suit. An action in equity brought by shareholders on behalf of the corporation against corporate officers/directors/controlling shareholders ("actors").

Putting aside the standing requirements necessary to sue. These are suits for breach of fiduciary duties., and they are not easy to win. The business judgment rule is a powerful presumption that protects these actors.

Officers, directors, and controlling shareholders owe enforceable duties to the corporation, and through the corporation to the shareholders.

The duties owed are:
(1) Duty of care - involves (a) making informed decisions (b) proper oversight
(2) Duty of loyalty - involves (a) maintain independence (b) avoiding conflict of interest (c) act in good faith - no intentional misconduct or knowing violation of the law or intentional dereliction of a known duty.

The business judgment rule is a rebuttable presumption that in making business decisions, the actors acted on an informed basis, in good faith and in honest belief that the action taken was in the best interest of the corporation. They are given "wide latitude in action and the law will not hold directors liable for honest errors or for mistake of judgment."

Putting aside the respective applicable standards of review. To rebut the presumption, a plaintiff must show that (1) a decision was not informed, or (2) the actor was interested or (3) the actor was otherwise not independent or (4) the decision did not have a rational business purpose

Unless a plaintiff is able to rebut the presumption, the substantive merit of the action will not even be evaluated and the suit will be dismissed. Rebutting the presumption merely shifts the burden of proof to the actors it doesn't conclude the suit.

To elaborate on Dodge v. Ford Motor Co. While it does stand for the proposition that a corporation is organized and carried on primarily for the profit of the stockholders, more completely stated, the case held that the discretion to engage in activity that is not in and of itself profit maximizing is limited by the requirement that such activities be incidental to the primary purpose of the corporations.

So, a corporation can engage in other activities that's not directly to gain profit (and they do) so long as it's ultimately related to its business purposes.

If in the business judgment of a CEO/board they determine that it will best promote the primary interest of the corporation (making money) in the long run to disclose more information about their product than they are legally required to, they will not be held liable for that decision even if it turn out to be "wrong" (does not make money) in the end.

Further and leaving out the details, many State corporation laws typically have provisions allowing the shareholders of a corporation to exculpate these actors for breach of certain fiduciary duties in the articles of incorporation. (The legal instrument that creates the corporation)

Thus, even if BJR is rebutted, and the actors fail to carry their burden of proof, they're likely insulated from liability under the very article creating the corporation in the first place.

As some posters have suggested, the intent of law is not to prevent corporations from acting responsibly.. if they want to.