The Fiduciary Responsibilities of Boards of Directors in Terribly Run Cities

Commentary

The boards of directors of public and private companies are charged with a duty of fiduciary responsibility under the laws governing them in the United States. This is a role not to be taken lightly. Often, a decision comes before a board that will adversely impact the personal finances of a board member if the decision comes down in one direction. If that direction is to the benefit of the shareholders, the fiduciary responsibility of the board members are clear. They vote in the best interest of shareholders, even though it will impact them in a negative manner, or they resign. Upon resignation, the board chair will appoint someone to serve in that place who will act in the best interest of shareholders, or the board seat will go unfilled until the next shareholder election.

Fiduciary responsibilities are not narrow. They are broadly defined and the execution of them is adjudicated by the Chancery Court in Delaware, which is why so many corporations become “Delaware corporations,” even though they might be headquartered in points beyond. Traditionally, these responsibilities were focused on the welfare of the shareholders, and the economic opportunity of the company. The waters of efficiency have been muddied by the ongoing march of the “woke” to redo what a fiduciary responsibility actually is. The woke are using armies of academics and attorneys with their viewpoint to reinterpret what “the best interest of shareholders” to mean more than just the return on equity shareholders receive for assuming the risk of investing in the company.

They are invoking issues and terms like diversity, equity, inclusion (DEI) and climate change into the fiduciary responsibility of a board. I believe it is incumbent upon boards of directors in states where civil strife is high to include things like the safety of their employees, access to education, and access to personal financial happiness into a decision about whether to stay or leave their current headquarter city. It is incumbent on boards to start to closely examine where their businesses are headquartered in the United States.

It is unsafe for employees to try and go to an office in cities like San Francisco, Seattle, Portland, Chicago, and New York City. Last week, a founder who had relocated to Miami was stabbed in cold blood on the streets of San Francisco. Then in Chicago the wife of the CEO and board chair of the Chicago Mercantile Exchange got carjacked in the city. There are plenty of other examples of violence in cities across America where innocents are attacked by uninhibited vagrants who are given cover by mayors, city attorneys, and judges that will not enforce the law.

In situations like those, isn’t it a fiduciary responsibility for a board to at least consider moving the company to safer climes?

During COVID-19, distributed workforces had to be tolerated. Now that we are through the pandemic, many CEOs are requiring that employees come back to the office. JP Morgan CEO Jamie Dimon, for example, was a leader in this movement. He wants employees at corporate HQ. If we look to some academic research, employees were less productive working from home than they were when they came into the office. Many employees like working from home, but the linked study found that:

• hours worked increased by about 18 percent,
• average output declined slightly,
• and employee productivity declined 8–19 percent

A big determining factor for the decline is that even with virtual technological communications, employees incurred higher communication costs. They also received far less mentorship, and uninterrupted work hours shrank considerably. Instead of interacting with employees across the firm, they only interacted with employees in their silo or that worked on their specific project. The random chance that a water-cooler conversation that could benefit the company decreased.

When digesting the recent results of the Chicago mayoral election, it is clear that the new mayor and his supporters are hostile to capitalistic enterprises. They view local corporations as community property, and a piggy bank. They do not view those companies as engines of economics that benefit the citizens from engaging in business activities which benefit shareholders. Already, the mayor is proposing higher user fees, city income taxes, higher real estate property transfer taxes, higher property taxes, corporate head taxes, and commuter taxes for employees that do not live in the city. The city is already incredibly unsafe, but it is reasonable to believe that since the Fraternal Order of Police worked against the election of the mayor, police will pay a big penalty and violence in the city will escalate. It is hard for employees to build wealth, and impossible for them to educate their children inside the city limits using the public education system.

Chicago mayor-elect Brandon Johnson also proposed taxing financial transactions at the city’s exchanges. The far-left wing Illinois governor ended that dream, but without a constitutional amendment or law on the books prohibiting such a tax, the threat remains. This tax is an idea that has been proposed by the hard left-wing for years in several states and in the U.S. Congress. Why shouldn’t the boards of the Chicago exchanges accept the threat at face value and make contingency plans if the tide turns in Springfield?

Extending that idea further, why shouldn’t the boards of directors of major companies in other cities that tolerate violence against their citizens while increasing the level of taxation and user fees to companies look to move their companies to safer and more tax friendly climates? Is it not the fiduciary responsibility of those boards to move? Or, should they force their employees to face the violence in their current city, knowing that the academic research shows that remote work compromises the economic return of their shareholders?

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.